Научно-исследовательский центр Мизеса

The population of Belarus became by 4,900 people smaller in 2005. Gross domestic product can be now divided into a small number of inhabitants. The country's GDP doubled in dollar terms between 2002 and 2005; inflation went down from 34.8 to 8 percent; people's bank savings increased to $2.5 billion; foreign reserves rose to $1.2 billion. The average nominal wage in 2005 was $205, up from $150 in 2004, and pension allowance - $98, up from $63 in 2004. Russia gave Belarus another $3-4 billion in energy-related subsidies and made it even more addicted to the oil and gas drug. Being confident in its genius planning skills, the Belarusian government did not even think about adapting the economy to the conditions of genuine competition. The year of 2005 has been another year of missed opportunities.
Even a cursory glance at Belarusian statistics can find a whole number of contradictions between different economic trends. The growth of GDP, industrial and agricultural production, export and import were lower in 2005 than in 2004, although fixed capital investment increased. Obviously, its quality leaves much to be desired.
Substantial resources earned by exporters of petroleum products, metals and fertilizers are spent on current consumption. Wages rose by 21.6 percent in the first eleven months of 2005, and real per capita incomes - by 16.1 percent. These figures are much higher in 2004, 15.9 and 12.7 percent, respectively.
By pursuing its Keynesian policy of stimulating demand, the government is destroying one valuable quality of the Belarusians, and namely, the tendency to save. People spent 27.9 trillion rubels on purchasing goods and services, 4.2 trillion on paying taxes and just 1.3 trillion on savings (bank deposits, securities and buy-sell balance of foreign exchange) from January through November 2005.
With a stable rubel/dollar exchange rate in comparison with the respective period a year before, consumption rose by 28 percent and taxed collected - by 44.8 percent. At the same time, the amount of savings fell sharply in nominal terms, by 76.4 percent. One can see what the former US Federal Reserve head Alan Greenspan once called irrational exuberance. He certainly referred to the United States at that time. But now the same applies to Belarus, as the country's households have started to spend their increasing incomes extensively, forgetting about the need to keep revenues and expenditures balanced in both short term (12-18 months) and long term.
Earnings of Belarusian companies rose by 23.5 percent to 107.8 trillion rubels in January to November last year. At the same time, production costs increased even higher, by 25.2 percent. Earnings can be large, but what is important is to have a sufficient share of value added and profit in them. It is important, because they allow companies to develop independently. What we see in Belarus is stagnation of profitability (13.4 percent in 2004 and 2005) together with an even lower level of sales profitability (8.5 percent).
Nearly two thirds of Belarusian companies experience a serious shortage of resources for modernization and development. They actually failed to make use of a favorable external market situation in 2004-2005 but remained afloat only thanks to administratively regulated domestic demand, administratively limited competition with foreign companies and inclusion in production and sales chains of rich Belarusian plants.
The ideology of Belarusian economic policy in 2005 fits with the standard Keynesian paradigm perfectly: stimulation of demand, anti-saving, channeling investment into selected projects, full employment and soft monetary policy. The cabinet and the National Bank were at the head of all those processes. What the country's authorities were doing was about tactical distribution rather than about strategic planning. Instead of listening to market signals, they tried to make them quieter.
Earnings of fuel and oil processing industry rose by 140 percent in comparison with 2003 and of ferrous metallurgy - nearly doubled. These resources together with loans of state banks, deposits of individuals and public budget's $13 billion were the main fuel of the Belarusian economy in 2005. The country was trying to operate the existing capacities instead of creating new ones. It rose thanks to the old structure of production instead of developing new high-tech sectors and enterprises.
Last year Belarus again benefited strongly from a favorable situation in external markets. This is why one should not be surprised that GDP growth was high but should wonder why the country did not establish a stabilization fund, of at least several billion dollars. These resources would be needed for pension reform.
A different economic policy would have already taken Belarus through painful restructuring of most key enterprises and creation of an efficient system to re-train the unemployed. The country could have started healthcare reforms and provide free access to the Internet all over the country. But the Belarusian authorities preferred to rest on their oars.
Even official statistics are failing to hide the growth of several negative trends in the economy. They cannot be stopped with the help of administrative resources. Business cycle is broken. Belarus is going down, slowly but surely. The Belarusian authorities learned to manage consumption in 2002 through 2005. Now let us see whether they will be able to get recession and stagnation under control. Their Soviet-style and even Keynesian-style planning skills will be surely not enough.

Main Belarusian economy indicators in 2002-2005

Source: Belarusian Ministry of Statistics, 2003 - 2006