Elena Rakova
2009 was a landmark year for Belarus in many ways. A common citizen (a reading and hearing one, at least) has habituated herself to such words as reforms, liberalization, privatization, IMF, international cooperation, Eastern Partnership, and so on.
The authorities acknowledged certain problems in the economy (although not because of the shortcomings of current model, but because of the dreaded global crisis) and attended to developing an anti-crisis plan.
As we remember, Belarusian anti-crisis plan consists of four blocks:
1. The plan of high-priority actions on liberalizing the economic environment
2. Support of key enterprises crucial for GDP formation and exports
3. Stimulation of domestic demand via various state programs (housing construction in the first place)
4. Joint action plan of Russian and Belarusian governments on minimizing the consequences of global economic crisis.
It appears that we can analyze the economic outcome of the year by looking at how those goals were realized.
Measures taken to improve the business climate in the country are definitely one of the positive outcomes of 2009. They included simplification of opening a business, decrease in the number of revisions carried out by the government, tax law reform, and price liberalization. Yes, many of these changes were not quite profound, but we can't deny the overall positive vector of changes in economic environment.
Moreover, Belarus has deservedly moved 30 places up the Doing Business rating conducted by the World Bank. Of course, it is too early for us to enter the to 30: we need to seriously reform our tax system (which is not that easy); however, the overall upward trend is quite justified. Sooner or later other rating agencies and organization will do the same, as many ratings (as 2009 has shown that) are biased, tendentious, and sometimes even very far from reality. It is sometimes worthy to come to a country, witness its level of development, and talk to different people before giving it a rating lower than Burkina Faso or Afghanistan have.
Another outcome of 2009 was the governmental effort to support enterprises crucial for GDP formation and exports. Support of everything and everyone, keeping excessive personnel, distortion of reports, and inability to sell manufactured products became an important direction of state economic policy. Absence of private owners at the largest enterprises didn't foster development of an effective anti-crisis strategy that would have included jobs and expenses cutting. Instead they chose preserve the artificial stability in the country. In spite of sharp decrease in demand the enterprises continued their production at the expense of gold and foreign currency reserves (which, in their turn, had been accumulated thanks to heavy borrowing). Another aspect of it was preservation of the old agricultural policy, which resulted in accumulation of debt and price increase for Belarusian consumers. We have all reasons to believe that this policy will be continued in this year, which means that the country will face a number of unsolved problems and challenges in 2011-2012 complicated by the need to pay back loans taken from IMF and Russia.
It is also worth mentioning such aspect of macroeconomic policy in the country as stimulation of domestic demand via various state programs (housing construction in the first place). All countries – from the U.S. to China – take certain measures to stimulate domestic consumption as an anti-crisis action. However, not all measures are the same. The United States can afford to turn their money printing press, and the general structure of American economy is overall private. China, Russia, and Germany use their own resources. However, the role of domestic demand in their economies is quite different from ours. Domestic demand in Belarus simply can't consume everything produced within the country, and it is impossible (and quite dangerous) to turn an export-oriented economy into a housing-construction economy.
Financing state programs via largest state banks have already led to sharp worsening of their economic situation and confronted them with a need of recapitalization. As a market-oriented measure both the National Bank and the IMF proposed to create a development financial agency and transfer all the debt to it. This agency would finance all state programs in future. More than that, the National Bank proposed the owner of two banks – the government – to support their liquidity with recapitalization. However, the strategy of issuing loans to major banks was chosen. In the end of 2009 a decree number 668 was issued that ordered the National Bank to extend a line of credit for two biggest Belarusian banks: Belarusbank – BYR 2202 trillion and Belagroprombank – 1927 trillion (the total amount being BYR 4029 trillion or USD 1.4 billion). The lines of credit have been extended for five years with interest rate being equal to the base rate, which contradicts the principles of market economy as well. As a result, if banks will start to use the resources of the lines of credit (and we have no doubt about that), such non-market financing will actually be an emission. Such way of financing largest state banks can put more pressure on Belarusian currency market with all ensuing consequences.
The joint plan of Russian and Belarusian governments to minimize the consequences of global economic crisis produces an ambiguous impression. Insufficient funding, lack of coordination in macroeconomic policy being conducted, property disputes, competition against each other in certain markets make any effective joint measures very difficult, if not impossible. As a result, Belarusian export to Russia fell by more than 40% (especially in machinery and instrument manufacturing) and there is little hope it will restore in 2010. The beginning of the year (the oil and electricity disputes) can hamper relations of two countries in 2010 as well. That means that we can consider the economic and political outcome of the year to be the need to diversify the markets, change the structure of exports, increasing competitiveness of Belarusian products (including the Russian market), developing a complex strategy of reforming the economy that would allow to decrease the significance of Russian market for Belarusian exports and economy as a whole.
Another important outcome of 2009 is the political opening of Belarus and expansion of international cooperation. All of this will benefit Belarusian economy in 2010. We can distinguish here the new strategy of the European Bank of Reconstruction and Development that includes partial cooperation with state enterprises, and programs of the World Bank and the European Commission aimed at supporting structural reforms, and possible extension of cooperation with IMF and other structures. We can treat differently the new policy of the EU towards Belarus and the fact that Lukashenka started meeting with European leaders, but this policy will work for the economy of the country.
Among the failures and disappointments of 2009 were a nearly complete absence of privatization (privatization of BPS bank was the only such event), as well absence of will to carry out privatization in 2010. The privatization agency was not created, only small inconsiderable businesses became part of the privatization program. Privatization is an important element of structural reforms and putting it off will simply make the reforms more complicated.
The devaluation carried out in the beginning of 2009 was controversial as well. Political compromise with IMF had a negative economic influence. One-time devaluation should have been bigger or there shouldn't have been any devaluation at all.
To conclude, 2009 was both a good and a bad year. It had been very promising and in some aspects surpassed these promises. However, there were a lot of disappointments: the authorities didn't acknowledge the fallacies of their policies and continued to insist on their forecasts, indicators and programs. We have lost a year once again and wasted the borrowed resources. The fact that our country started to use international technical help is a positive moment. The fact that these resources are not being used effectively is a negative moment.
However, the main positive outcome of global economic crisis became re-formatting of global economic processes and policies. That means that Belarus will have to change more. In this aspect 2010 will be just as intriguing as 2009. The government will no longer be able to pretend that nothing is happening. We will need to either stop factories or look for external sources of financing (because it will not be possible to sell our goods in past quantities). 2009 already became the year when our policy-makers started public debates on future of the country. They will continue in 2010 along with certain concrete measures. It is reasonable to expect in 2010 that the policy of liberalization will continue. There will also be several big privatization deals. However, 2010 will hardly be dramatically different from 2009; new strategic decisions and actions will be done later.
