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Belarus

Another Place in Another Time

 

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When the new Government took over in Belarus, its first targets were the IMF and World Bank, whom it soundly reprimanded for destroying countries with stupid policies. These organizations for their part did not think that Belarus was an economic example that should be followed by the rest of the world, and said so rather publicly. The First Deputy Foreign Minister of Belarus, Sergei Marynov, had stated recently that "The fund's enforced policies in a range of countries have deepened and even caused the crises." He called their methods, "old textbook recipes". Not exactly the kind of rhetoric that you would expect from a nation begging for alms. However, the Belarus banking system was in total chaos and things became so appalling after the Russian financial collapse in 1998 that the National Bank of Belarus, (the Central Bank) was put under federal jurisdiction and its board was summarily sacked.

However, when push came to shove, Belarus, which was at this point totally out of funds, crawled back to the IMF. An IMF official was asked whether they would be sending bundles of money to Belarus, to which he responded, "To qualify for this facility, even if they met the technical requirement, they would have to take some measures to show that they are serious about moving ahead with reforms. That means a reasonably sensible monetary and fiscal policy, bringing down inflation, not accommodating inflation from Russia."

This event followed the International Monetary Fund’s removal of its representative in Belarus. This unique, unilateral move was made to signify disapproval of almost everything Belarusian, a most singular event. Belarus will receive no substantial assistance from the IMF until they make some major economic adjustments. However, Belarus is unlikely to agree to those required adjustments.

When Belarusian's are asked why they country is in so much economic trouble, they almost universally pick on the "Bunny" as the cause of all of their ills. You see, the Belarusian ruble, which is called the Zaichik, is most faithfully interpreted as meaning little hare. Things had by this time gotten so bad in Belarus that the Government had decreed that it will no longer be taking its own money in exchange for exports. The International Monetary Fund is convinced that this only causes even more bunnies to circulate in the country, driving down the currency further and further. This is somewhat akin to the ability of rabbits to reproduce in a non-predatory environment.

One doesn't have to look any further than Lukashenko though, to see the essence of the problem. Literally all goods and services produced or imported into Belarus are first purchased by the Government and then resold by the state. They are purchased for bunnies, which are printed in whatever number is necessary to complete the transaction. Belarus has hardly created a system of economic checks and balances, and practices literally no fiscal responsibility. Many believe that the country is quickly approaching the time when the paper that the bunny is printing on will be worth more than the Belarus' underlying currency.

Anti-inflationary regulations were enacted to stem retail price escalation, however these laws are easily circumvented. Belarus has created a totally unworkable system in which all goods and services sell at state-established prices. However, most product manufacturers change the name of what they are selling each month, convinced that the same product under a different name would escape government price constraints. However, this makes it most difficult for consumers and shopkeepers because brand loyalty has ceased to exist. Advertising to create product allegiance is a waste of money, and those who do not own a handy printing press to change labels may have it even easier; they saunter to the local black market to unload their goods, usually finding willing buyers.

The average Belarusian takes home less than $100 a week and the average retiree receives only $25. When you consider that substandard housing takes $50 per month out of each paycheck, we must compliment the people on coping with this critical problem. Making matters much worse, at the level of $100, a government friendly ninety- percent income tax kicks in, making the incentive of earning money from that point almost zero.

Moreover, all oil, gas and power is purchased from Russia, but when the Communist breakup occurred, the Russians not only required that the Belarusian’s repay old bills which had been incurred due to substantially below market subsidies, but raised the price to levels competitive in the world market. Thus, Belarus, not having any money, had to send Russia what they had. This included refrigerators, tractors and other hard goods, amounting to over $300 million which had been earmarked for their population. Now, just meeting the monthly charges assessed by Mother Russia requires almost everything the country can produce. Belarus has entered into what could best be called a death spiral.

Amid Belarus' fancy economic footwork, infrastructure development is rising about as fast as a lead balloon and manufacturing equipment has not been upgraded for a decade or more. Thus, the quality of Belarus products is on a downward curve that may continue until the government falls, or in the alternative until everyone packs up and leaves the country. No new capacity is foreseen; thus there will be no production increases in the visible future. This has indeed become the land of the hopeless.

Exemplifying the Belarus system of voodoo economics is its vehicle production industry. Everything in Belarus that has wheels is a tractor. Ford, the only foreign manufacturer to set up shop, has long since pulled out because of bureaucracy and opaque government practices, after seeing $19 million go down the drain in short order. Although a few automobiles are produced in Belarusian factories, in this country, the tractor is indeed king. In its heyday, Belarus supplied the Soviet Union with tractors from its sprawling Minsk Tractor Works. The former satellites, no longer required to purchase the inferior products manufactured in Belarus, are buying Western. Belarus is left with only a couple of customers, of which Russia is the biggest. A few are sold into the world market and domestically. Moreover, although the plant, which is located in Minsk, previously turned out 100,000 tractors a year and had a labor force of 20,000, today produces 20,000 tractors and still has a labor force of 20,000.

Although most tractors in the country are not even used anymore on the farms because of the high relative cost of fuel, the production line spews these vehicles out continuously. Everyone who needs a tractor in Belarus can get one on easy credit, and repaying the debt is simplicity personified, just let the huge Belarusian inflation run its course and the tractor becomes virtually free to the buyer. If that is the case, then how can the Minsk Tractor Works come even close to breaking even? The answer is that it can’t, but the government has little choice but to leave it open, its about the only thing that is still functioning in this pathetic country that continues to go ever deeper into the hole.

"The trade deficit continues to widen, foreign investment is low, inflation is high and food shortages have increased. Multi-lateral lenders remain reluctant to offer loans to Belarus, requiring some form of political and/or economic change before doing so. The regulatory environment cannot provide protection for shareholders’ rights and bankruptcy laws are ineffective." *

In the days when the country was part of the Soviet Union, wages were high and the standard of living in Belarus was at the apex of the entire Soviet Triangle. However, when the Union broke up, Belarus was particularly poorly equipped to handle things on their own. Probably the most dramatic drop-off in the quality of life which occurred in that country was that of medical treatment. Belarus almost make North Korea’s meager assortment of medical supplies look more than adequate. There is a shortage of virtually everything, including anesthetics, vaccines and antibiotics. Whether a native of Belarus or a traveler to that country, you are taking your life in your hands if a sudden illness of any kind should occur. Worse yet, cash * is almost always a prerequisite for treatment by either local doctors or major hospitals and having a great medical insurance policy may be of little benefit.

The best illustration of what happened to Belarus after the breakup of the Soviet Union is what occurred in agricultural production. "By 1994 the gross agricultural product had decreased by one third. That year, one grain harvester combine and fifteen tractors were purchased in the whole republic, in comparison with the end of the 1980s when collective farms bought 10,000 new tractors annually. The lack of fertilizers cut yields." * Naturally, the Chernobyl disaster had a significant effect on the agricultural economy of Belarus. However, no matter how you slice it, the biggest single factor affecting Belarus and its inability to stay independent is the loss of its energy subsidy, which was conveniently furnished by the Russian Government and is now substantially in arrears.

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