Pavel Marozau: What can you say about the current state of affairs of Belarusian economy and is there a potential for improvement of current economic model in Belarus?
Yuri Shevtsov: I think that Belarusian economy is in normal condition. The only serious problem we have is the influence of global financial crisis. Our economy is an open one that is why we appeared to be vulnerable: there had been a contraction in foreign markets and we suffer from that as well. This problem, I think, is a quite solvable one. It is highly likely that we will experience a considerable economic growth already in the next year, because certain economic upturn will begin everywhere after the global crisis, and if there is no second wave of economic crisis this upturn will continue.
We are quite ready for this upturn. I don’t see any crucial problems in Belarusian economy. If talking about some smaller scale problems, I can name several problems of growth, I would call them this way. Problem of energy sector is probably the most important one out of all those. Today we have a huge deficit in our trade with Russia, just as all countries that depend on Russian oil and gas do. We need to somehow solve this problem. Most probably this problem will be solved (like in other East-European countries) with the help of energy saving innovations. More than that, it is likely that in the nearest future there will be more hydrocarbons from Caspian Sea region in European market than what we have now. The competition will grow between at least two different suppliers of hydrocarbons: Russia and Caspian region. Thus the problem will become even less serious.
PM: Why liberal reforms were not carried out by current Belarusian regime and why it is still not very eager to carry them out?
YS: I think that you are not quite in this aspect. The reforms were declared a rather long ago, in Lukashenka’s speech at the All-Belarusian National Assembly one month before the 2006 presidential elections. He called them not liberal reforms but rather measures of stimulating development of medium- and small-size business.
PM: So what is then the difference?
YS: Actually there is no big difference. At the time when they declared this program of stimulating development of medium- and small-size business, especially in small towns and villages, there was no global crisis. So they simply expressed their wish to develop these two sectors of economy that had been subdued to interests of large enterprises. With the advent of global crisis the situation has changed. Firstly, we started to experience problems with large enterprises, there appeared an opportunity and a necessity of borrowing money from abroad and of a faster reinforcing our position in foreign markets. That required a change in rhetoric. More than that, today when there is no conflict with the West anymore (or it has become less acute) the West wants us to make certain steps however symbolic they may be. The word “liberalization” fits the situation perfectly well although it describes the process that had started long before the global crisis and normalization of our relations with West.
PM: For how long will it be possible to preserve today’s Belarusian unchanged, calling it liberalization or a reform of small- and medium-size business? Namely, under this situation and in the long run?
YS: For a long, very long time, because the basis of our model is preserving large industrial facilities we had inherited from the Soviet Union. They are crucial for the very existence of most of our cities, they are crucial for exports. We can’t function without these large enterprises, so our economy will be defined by this sector for years to come.
However, we need big transformations in order to run this sector. So far this sector has functioned by depending on Russia, and administering these enterprises from the center was enough: our president and the government could redistribute revenues from the sector between different enterprises and by doing that keep everybody alive. With the help of these political efforts we could secure a good life for these enterprises, mainly at the expense of Russian economical space.
Today we need to enter new markets and this entering will require us to change the style of managing this sector. The former Soviet-style management system was very often ineffective. The new model, which is about to be introduced, which is being introduced, to be more precise, will create a new system of managing large industrial complexes. The rigid command and control system from Minsk will be changed for mere coordination of interests of large investors who will acquire shares of our enterprises and Belarusian state. Different forms of coordinating these interests will emerge, and we can’t know now which forms will be the most effective ones. We need some time to understand that. Meanwhile we will have to make decisions by trial-and-error.
PM: In any case it will take a long period of time given the scale of the problem and the number of large enterprises we have. Statistics show that because of the crisis affecting Russian market as well, our exports diminish which in turn hurts state revenues. How do we counteract that?
YS: Time will show us. I don’t think that we have a clear strategy, we base our decisions more on current situation. For instance, who could have thought that Chinese were going to give us another loan in addition to what they had given us before? Thanks to their loans we now have an opportunity to invest 6 billion dollars into our energy sector. It is not that surprising, but it is still something new. And now imagine what kind of change we will have to introduce into management of these energy sector enterprises where all this big Chinese money will have been most likely invested?
The same situation is with Venezuela, for instance. Our projects there haven’t been terminated, everything is being developed according to a certain schedule. In two or three years (if nothing goes wrong) we will have a considerable economic presence in Venezuela and vice versa, we will have interactions with different institutions in Latin America. Our enterprises will become more important, more visible. And it is very hard to say what social and political consequences that will bring. I think that it we can’t describe or even characterize our future model at the moment. We can only repeat one thing that has been said officially: the issue of IPO and privatization will be considered individually for every enterprise – that is the only thing we can be sure about now.
PM: Let us come back to the subject of liberal reforms. Many experts say that there are many advantages of carrying them out; however, there is a downside as well. How can you comment on that?
YS: On liberal reforms?
PM: Yes, of Belarusian industrial sector and so on.
YS: The main problem is that all our system of economical and political administration before 2006 had been built on the following principle: there is no money outside the center. Most of the funds were redistributed from the center. As they like to say, “Lukashenka distributed everything”. Today small and medium business is rapidly developing. Before the crisis people in Belarusian province were accumulating wealth and everything associated with it. In other word, there is money outside the center. More than that, foreign investors came to Belarus, this meant money and assets that can play on anyone’s side. A large amount of money has appeared that is not controlled by the center.
It is unusual and it doesn’t mean that all this money will necessarily work against the center. However, this factor does lead to an increase of influence associated with these funds. Not a long time ago when people had practically no money, any clash with the government ended in favor of you know who. Now when people have money, a clash with the government can end in a bit different way. So now, in order to prevent a critical conflict between the state and various interest groups, we absolutely need to conduct a political reform. We need to give interest groups an opportunity to realize their interests in the framework of civilized discussions that involves democratic mechanisms. We need to increase the influence of parliament in our country’s political life and to give local and regional representative bodies more power.
Such political reform is ripening, we are preparing for it at full speed but it hasn’t been carried out yet. If we stall on this political reform, then we’ll get a complex of constantly reappearing problems in regions and between regions, and a corruption boom as interest group will protect themselves not with open democratic mechanisms but with various corruption schemes. It already happens here and there but it can’t destroy the whole state mechanism yet. However, if people do not get more opportunities for coming to an agreement with the government and other interest groups on their interests, then we will face all that boom of corruption and clan rivalry the USSR had faced in the end of 80s, with all the negative consequences. That is, I think, is the biggest problem for us connected with the liberalization: to quickly adjust the political system to the new economical situation.
PM: What will be the fate of large industrial complexes of state-owned agricultural sector if liberalization will be further carried out?
YS: They will be ok. These complexes function better than many other sectors. Only a fraction of agricultural exports goes through free economic zones, i.e. nearly all the ties with foreign buyers have already been established. We have some issues with the functioning of this market mechanism though, mainly the threat of hostile takeovers by Russian companies. However, I can see no problems our agriculture has with adaptation to the market conditions. Our former kolkhozes are not kolkhozes anymore but normal, market-adopted highly-specialized enterprises.
PM: What about our industrial giants that had been built in Soviet Union for Soviet Union, such as MTZ [Minsk Tractor Plant], MAZ [Minsk Automobile Plant], Belaz [Belarusian Automobile Plant], Integral, and so on?
YS: We are talking about the industry now?
PM: Yes.
YS: In this sector the state is likely to preserve its control. However, since we need to enter new markets, these large industrial facilities are going through structural reconstruction, they begin to function in a bit different way. Let's take, for instance, Minsk Tractor Plant. It has build many assembly shops around the world and it is creating its own technical support network. That will increase the importance of good managerial and marketing teams, as well as the importance of big partners in the markets Minsk Tractor Plant has entered. All these interests need to be taken into account. I think that big industrial enterprises will go public, however, via individual schemes. There will be no common model.
There is one tendency we can be almost certain about: the production itself, the conveyor belt will be moved closer to the target markets, as it is done everywhere in the world. This process has already started in Belarus. The assembly will be carried out in the markets for our products and innovations production facilities will stay in Belarus. Some part of current production facilities will stay in Belarus so that professional collectives that had been built for decades will continue their work. I think that we should expect appearance of new financial structures in Belarus that will facilitate the functioning of these industrial enterprises via market mechanisms. So we are trying to transform (albeit spontaneously) our large industrial enterprises into transnational corporations with headquarters in Belarus.
