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Belarus in Focus 2011

29 Oct

Artur Kacprzak, (Poland)

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Belarus: Economic System Afterlife – Belarusian Case

The regime of the current president Alexander Lukashenko cannot conceal the truth about country’s financial state any longer. An abrupt currency devaluation by 56 percent and a 30 percent rise of fuel price, accompanied by an increasing price of pork (10 percent) and cigarettes (30 to 60 percent), are hard to cover up. And there is no end in sight to this violent swing of prices.

According to Kamil Klysinski, an analyst at the Centre for Eastern Studies in Warsaw, Belarus is facing a major governance failure associated with an inherent flaw of the actual political system functioning. Three factors have led to this crisis, first being the late-2000s global recession engulfing also this post-Soviet country, and hitting hard its economy driven by income from exporting industrial (chemical, metallurgical, mechanical) and agricultural products. Next, but no less significant, is a gradual change in Russian policy – Belarus’ economic submergence has been prevented by its eastern neighbor for years after the Soviet Union’s breakdown. Preferential rates of Russian fuels allowed the government to make money on re-exporting them, and exporting petroleum products. Considerable profits from these actions were paying for the expanded social policy. The third factor includes the country’s economic system, based on a model of a planned economy. In Belarus, a decision making regarding the local production and distribution management belongs to state prerogatives almost exclusively – the privately owned business accounts of 30 percent of GDP only. A complex relation between the last two factors is the key to understanding the Belarusian case.

Twenty years ago, the Soviet Union collapse proved inefficiency of a command and control economy – a pathological form of an economic system – irrefutably, and any government charmed with it would fail. For two decades, Lukashenko, with consummate skill, has been ensuring the existence of an unhealthy system successfully. His accomplishments were owed to Russian substantial help. Constantly throwing the West a wink, the incumbent president was demanding prices of fuels allowing the Belarusian government to make money on reexport. In opposition to other countries in the post-Soviet region, profits from selling petroleum products saved Belarus from a strenuous search for a new economic course.

Today, in the experts’ rough estimate, Belarus needs 1 billion dollars per month to maintain financial stability of its archaic economic system, hence applying for a loan from the very beginning of the global recession – only a provision of money reduces the threat of country’s bankruptcy. Lukashenko counts on aid from two directions: the western International Monetary Fund (IMF), meaning the United States and the European Union, and the eastern Eurasian Economic Community (EurAsEC), led by Russia.

Last non-democratic elections in Belarus caused the USA and the EU to lose patience with the regime, and condition any further monetary help on releasing political prisoners and implementing radical reforms. The president’s non-compliance with country’s democratization – the former stipulation seems to be not negotiable – breaks off any negotiation with IMF and halts a potential loan able to salvage a dire financial situation.

In Moscow, Lukashenko is maintaining poor record either. Unlike the western countries Moscow requires only denationalizing reforms, but under the pretence of privatization hides intentions of taking over Belarusian state-run companies by Russian business (i.e. the Beltransgaz, a natural gas infrastructure and transportation company, and the MAZ, an automotive manufacturer association). A pressing need of funds forced the so far adamant president to yield to the eastern neighbor’s demands of selling the gas company, and through this action EurAsEC, controlled mainly by Russia, approved the loan of 3 billion dollars. But recall the fact that analysts have estimated monthly needs amount to 1 billion dollars, whereas the loan will be allocated over three years! Therefore, the provided sum does not absolve the government from devising other means, and it is indeed the reason behind high prices.

What distinguishes Belarus from others in crisis? After all, Ireland, Greece or Portugal have run into debt as well. The substantial difference lies in their form of governments – all listed western countries are democracies. In this case the crucial point is a requirement of initiating public finance reforms. Such amelioration would not undermine a democratic system, but would for sure destabilize an authoritarian government of Aleksander Lukashenko: a sole guarantor and administrator of the political system of the Republic of Bearus, based on a command and control economy model. Reforms recommended by IMF would create the price raise, destructing presidential image based on low prices and a regular payment of wages.

The great unknown is the further reaction of the Belarusian society. Minsk is sending out more and more signals indicating people are tired of Lukashenko’s financial policy, a drivers’ protest in the center of the capital – an unusual action for in general an indifferent and reluctant to demonstrate Belarusians – being a notable example. How long the citizens would tolerate the presidential rapidly decreasing ability in securing economic stability of the country? The coming months will provide answers to this and other questions. 

This article was written for the Future Challanges.


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