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Belarus. Lost in Europe

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GEOMETR.IT  bruegel.org  21.03.2016

Highlights

  • Since the collapse of the Soviet Union in 1991, Belarus has maintained a largely non-market economic system. This did not prevent rapid growth of its economy over a sustained period up to 2011. However, the period of economic growth in Belarus seems to be over. The factors that underpinned Belarus’s growth, mainly the beneficial external environment, have gradually disappeared. As a result, the country is confronted by the need to start the far-reaching programme of market-oriented economic reforms and macroeconomic stabilisation which it tried to avoid for so long. Reform will not be easy, economically and politically

. • The potential hardship facing Belarus could be at least partly cushioned by external assistance, in the first instance from the International Monetary Fund and the World Bank. However, the IMF has relatively fresh memories of the failure of its 2009-10 Stand-By Arrangement (SBA) with Belarus, which provided substantial balance-ofpayments support, but which was derailed by its too-narrow focus on monetary and fiscal quantitative performance criteria, and by insufficient reform commitment on the Belarusian side.

EUROPE’S LAST NON-MARKET ECONOMY

According to the European Bank for Reconstruction and Development’s (EBRD) transition indicators1 Belarus is among the least advanced of the BELARUS AT A CROSSROADS Marek Dabrowski former USSR’s successor states in building a market economy.

It is worth remembering that Belarus is a net importer of energy resources (mainly from Russia) and excessive energy imports contribute to trade and current account deficits.

a1

RAPID GROWTH

Despite the slow pace of market reforms (or even their reversal in the second half of the 1990s), the Belarusian economy recorded quite impressive growth for the decade and a half between 1997 and 2011 (Figure 7.)

a2

This allowed some politicians and economists in the country to claim the advantage of the ‘Belarusian economic model’ over themarket-oriented transition strategies pursued by Belarus’s neighbours. To understand how the last enclave of the nonmarket economy in Europe not only managed to survive but also was able to grow rapidly, one must take into consideration several specific factors.

  • First, when the Soviet Union collapsed in 1991, Belarus was the second most developed country, after Russia, of the newly-formed Commonwealth of Independent States (CIS), in terms of GDP per capita at purchasing power parity (PPP).
  • Second, also since the Soviet era, Russian oil and natural gas exports to Europe have transited through Belarus. Unlike Ukraine, Belarus has managed to extract substantial economic rent from this activity. This was made possible by various integration projects with Russia since the mid1990s. Most of these, except the most recent – the 2010 customs union and the 2015 Eurasian Economic Union (EaEU) – were short lived.
  • Third, unlike most other post-communist countries, Belarus has retained political and administrative capacity to continue operating a sort of command economic system. This was a result of the reluctance of the then prime minister Myechislav Kebich and his government in 1991- 94 to start even partial market reforms.

 Belarus’s non-market system was then reinforced by the authoritarian political regime built by Alexander Lukashenko since he became president in 1994.

  • Fourth, the largely command character of the Belarusian economy manifested itself, among other ways, in a very high investment rate, significantly exceeding the average in the CIS and central and eastern European countries (Figure 8).

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Obviously, such a high investment rate had to contribute to rapid growth but the nonmarket character of the investment process led to its low and steadily decreasing effectiveness (Kruk and Bornukova, 2014).

Finally, as we know from economic history, growth rates in non-market systems are not always fully comparable to those in market economies.

This is not only because of potential over-reporting bias caused by the system of mandatory output targets. Even more important is the incomparability of GDP deflators when prices do not reflect the relative scarcity of goods because of extensive price controls, multiple exchange rates, trade barriers and physical shortages of good and services (see for example Bratkowski, 1993).

Even in the periods of less severe price regulation and a single exchange rate, the choice of goods and services in the Belarusian market has remained more limited than in neighbouring countries.

Author: Marek Dabrowski([email protected])is a Non-Resident Scholar at Bruegel, Professor at the Higher School of Economics,Moscow, and Fellowat the Centre for Social and Economic Research,Warsaw.The author would like to thank Zsolt Darvas, Guntram Wolff, Ales Alachnovic, Mark Allen and Sierz Naurodski for their valuable comments. Opinions expressed are the author’s alone

http://bruegel.org/2016/01/belarus-at-a-crossroads/

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