Acid smell of the USSR is in the air. The pattern of neo-planned economy and authoritarian rule has been quite popular in Belarus during the last 4 years. President Lukashenko set the goal for the end of the first millennium – to reach 1990 level of industrial production, the best year for Belarus within the Soviet Union. It does not matter whether there will be demand for the products of dilapidated plants and factories and whether anybody will be willing to pay cash for them. Evidently the goal is not economic but pure political and ideological. Power-hungry malefactors both in Russia and Belarus declared Slavic national revival as their ultimate goal. It is done on a solid anti-western base for the unification and aggressive policy of the new formation. Slavic leaders keep on talking about the third way as a social economic model to build. They take many elements of the European model of Welfare-warfare State.  

Describing the state of the American and Western culture Charles Lewis of the Center for Public Integrity said, "We live in this bland yuppified era when people just care about fresh-squeezed orange juice and watching the stock numbers in paper". At many social gatherings intellectuals say that they miss the Cold War, a big, bad enemy to rally against. Ex-communists and "new-born" nationalists in Belarus and Russia do not have this problem. "Market" economy and "capitalism" as it were brought appalling poverty, apprehension for safety and total instability at work and in the family for most part of ordinary people. They are nostalgic about "the stable past" when salaries were paid in time and everybody seemed to be equal in poverty. Slavic ideologists make the best use of envy and hatred to resurrect the new old enemy – the West. They do not have problems Americans and Europeans have. Very few know than neither Russia nor Belarus has seen free market economy.

President Lukashenko formed an obedient team of "ghost busters" who do their best to get rid of the spirit of market economy and get back once destroyed ghost of socialism. Belarussian government ignores economic basics like law of supply and demand, theory of capital and price formation. President finds objective reality an unnecessary burden he could control by decree. Today presidency is a despotic power tyrannising both producers and consumers.   President Administration has become a practical implementation of Oscar Lange's Central Planning Body and his theory of market socialism. The country is run like one big company owned by bureaucrats with no incentives to pursue competitive economic and social policy. Motive of profit is widely substituted by motive of compulsion. State's overwhelming and constantly expanding monopoly means  

absence of legal guarantees to property rights both for domestic and foreign entities

establishing control over all major capital flows

discrimination of private business by establishing administrative financial restrictions

discrimination of independent mass media.Private sector has no access television and radio

monopoly on social security services, education, medicine.

Reformers in neighbouring countries would love to have Lukashenko’s unrestricted freedom of action in carrying out economic reforms. But President clings firmly to the precepts of command economy. In 1995-1998 Belarus pursued the economic policy of cheap credit for selected industries and enterprises. Agriculture, housing, heavy industry lobbied debt cancellation, postponement of tax payments, access to foreign exchange at an extremely favourable rate and loans from the National Bank and commercial banks at 10-15% annual rate. This rate is more than four times lower than inflation rate. Belarussian rouble needs immediate at least 200% devaluation to correspond to market exchange rate. It has been devalued by about 100% in 1998. Large premium of the black market (recently it is about 350%) at currency exchange operations creates lukewarm conditions for grey economy and corruption to thrive. Printing money has become the most reliable source for covering budget deficit and for business subsidies. Yield on government treasury bonds (GKO) is over 20% lower than the inflation rate which according to official statistics was 63,8% in 1997. In 1998 average monthly inflation is 3,4%. It is over 70% higher than the rate planned by President Lukashenko for this year. There are no financial instruments in the country, which can at least save capital from inflation.  

Belarussian government ignores the fact that it is the policy of cheap money, lack of financial discipline and openness, foreign competitors discrimination and excessive government spending that lead to Great Depression in 1929 in America, crises in Mexico in 1982, in New Zealand in 1984, South Korea in 1997, Russia in 1998.  

Economic entities are losing trust in Belarussian rouble as a unit of exchange and store of value. At the beginning of the year there were 10 various rates of exchange. During 1997 depositors lost about 330 mln. USD for the benefit of the government and state enterprises that were major debtors. The government failed to meet its obligation according to the memorandum signed with the World Bank and an Agreement with Central Bank of Russia. In April Lukashenko fired Chairman of the National Bank and appointed his crony Mr. Prokopovich who has neither economic nor banking background. The new Chairman declared smooth transition into one exchange rate and fierce battle with inflation. Belarus could forget what inflation is as most prices are administratively set like in the centrally planned economy. The success of Belarussian recent monetary policy is vivid. The authorities launched a campaign against black market operators of the hard currency market. Many people were sent into prison for changing money on the street. Still gray economy amounts to 85% of annual official GDP.

Fiscal policy is very loose. Budget deficit is financed by credits of the National Bank and GKO emission (purchased mainly by the National Bank itself). There were over 105 emissions of T-bills. 65-70 % of all state papers is purchased by the National Bank. Ponzi Scheme is being successfully built. Tax system is very complicated and cumbersome. Overall tax burden is about 75-80% of gross revenue. There has not been a case of bankruptcy or restructuring of a state enterprise. Official budget deficit is 2,8% but if we add irredeemable loans to agriculture, industry and construction (about 700 mln. USD), deficit of social security funds the deficit will leap to 12-15% of the GDP. Belarus did not feel the world financial crisis as its degree of integration into the world economy is very small. Besides it has not been given many foreign loans. Thus it is not in the debt trap like Russia is. In fact IMF and the World Bank policy in Belarus is more consistent than in many other transitional economies. These financial institutions closed its representation office in Minsk, as they do not see any perspectives in the current economic policy of the Belarussian government.  

The state still produces 65% of the GDP and owns about 80% of all assets. Actual size of public expenditures is unknown to general public as expenses of President Fund are strictly classified information. Stimulation of GDP growth in the country reminds me of preparation of a cyclist to important competition. There is no time and natural resources of the body. The trainer forces the sportsman to take drugs and anabolic steroids. The sportsman manages to win the first stage of the tour but he has no chances to cross the finish line. His body loses too much water and vital strength. It is even more difficult to cheat international drug control. The sportsman needs much time to restore proper functions of the body. He can forget about victories and new competitions for the time being. If Belarussian government does not stop to pump “economic muscles” with financial drugs and anabolic steroids younger generations of Belarussians will never see debt-free future.  

Belarussian industry remains unrestructured, energy consuming. 80% of machinery and equipment is amortised. Officially registered unemployment (2.8%) does not illustrate real situation on the labour market. Independent experts estimate that unemployment is about 10-12%. It is an extremely big number taken into consideration that Belarus has not started serious institutional reforms.

Belarussian agriculture is even in worse shape. Share of agricultural output in GDP is still 20%. 18,9% per cent of labour is employed there (in EU this indicator is 5.7%). The main producers are still kolkhozes and collective farms. About 73% of all agricultural entities can not reach the level of simple reproduction without state subsidies. They amount to 600-700 mln. USD a year. Land is still excluded from the market. Recently President passed a Decree allowing foreign ownership of land. But de facto not a single company has managed to buy a piece of land yet. Obviously buying land will take months if not years.

  Trade balance deficit amounts to 1,4 bln. USD for 1997 and reached 950 mln. For 7 months of 1998. Trade with Russia amounts to almost 62% of overall trade. (Ukraine – 9% and Germany – 5,7%). General overheating of economy is bound to happen in the near future as the potential of low-tech Belarussian export has come to its limit. President Administration prepared a draft decree to monopolise foreign trade. Paying off energy debts to Russia alone (about 500 mln. USD as of October 1, 1998) is becoming a very serious problem. Though rigid monetary and fiscal policy of the new Russian government is under question Primakov urgently needs cash - not just a flow of expensive uncompetitive on other markets Belarussian goods. I believe that decision of the previous government to gradually reject barter as a form of interstate payment will accelerate overall economic crisis of the Belarussian economy. Now due to administrative price formation, archaic institutional relations between ministers on the one hand and industrial enterprises on the other and much overvalued Belarussian rouble the amount of annual Russian subsidies and transfers reaches 3 bln. USD (about 30% of its GDP). To describe the efficiency of the Customs Union between Russia and Belarus it is suffice to say Belarus has not transferred any customs duty to its partner for the goods for the Russian market that were cleared in Belarus (over 100 mln. USD). At the same time Primakov and many people in his government to say nothing about Duma are ardent supporters of the Union. The question is whether they can and will pay for irresponsible policies of their Belarussian colleagues. If the price of making a political Union goes up there will be more doubts among Russian political and economic elite.   Here are some examples of concrete economic measures that are typical of the centralized neo-planned Belarussian economy:

introduction of the "golden share", .i.e. the right of the state to make all crucial decision at enterprises of all forms of property no matter what its actual share of property is

gobs of trade restrictions. According to the presidential decree producers, wholesalers and retailers can not raise prices higher than 2% a month. While costs go up at much higher rate practically all subjects of real economy generate losses

step by step ban of import for Belarussian rouble, expansion of hard currencies circulation in Belarus

ex post factum change of legislation for private notaries. That decree practically liquidated the institute of private notaries. There are cases of criminal persecution of private notaries. The authorities want them to pay taxes for 4 years where those taxes had not existed;

ex post factum change of tax legislation for private entrepreneurs. It put 120000 persons and their families at the edge of bankruptcy and pushed much activities into gray economy. In the end of September President sent a telegram (this form of a legal act is not mentioned in the Constitution) to all executive bodies of power suspending registration of all legal entities. In spite of blatant illegality of this document all government officials obey it;

according to the opinion poll of private businessmen a record of auditing and tax inspection of one company a year was announced – 390 a year (each private company was audited by State Tax inspection or other state bodies 12 times a year on average). Tax inspection reported that 90% of all trading companies violated tax and other normative acts. No wonder. In order to comply with all laws an entrepreneurs must know more than 170 documents (over 2000 pages) that directly regulate their activities;

107 kinds of economic activities are licensed. Licenses are issued by 35 ministries,

a German investor who owns 51% of shares of machine building enterprise in Lida was not allowed to get in the office and his factory by the old administration,

"Motorola" announced that it refusal to continue its co-operation with Belarussian enterprises in the sphere of production of microchips,

foreign investor from Germany had to dismantle equipment to assemble cars "Shkoda". The Belarussian government failed to meet its obligation to him. Direct losses amount to over 2 mln. USD.

"Coca Cola" is close to suspending its operation in Belarus. It was allowed to buy just 100 USD a day at the currency exchange.

President monopolized export and import of flax, timber and lumber, metals etc. Previously issued licenses were cancelled. No reimbursement was made;

retail sale of major food products is rationed. Inter-regional trade of agricultural products (if not done through state companies) is banned as well as "unauthorized export" of food products to Russia.

  In spite of promises President has blocked privatisation. Recently the government made an attempt to pass a law, which drastically increased the tax burden on private entrepreneurs. The law was introduced ex post factum. It caused mass demonstrations of protest. President made one more promise to punish "bad bureaucrats". This law has direct impact on employment of 120000 people who annually pay about 35 mln. USD of taxes to the budget). In spite of wide-scale discrimination private sector (18-22%) produces 30-35% of GDP.

In the beginning of the year an average salary in Belarus was about 70 USD. After recent devaluation of the Belarussian rouble the real wage dropped to the level of 45-50 USD in industry, 30-35 USD in agriculture. This index is much lower than in Lithuania (230 USD) or Poland (390 USD). One can easily calculate the losses of the Republic because of addiction to patterns of centrally planned economy. The government does nothing to reform loss-generating social security system. Demographic situation in the Republic is getting from bad to worse. 1,57 workers provide a pension for 1 pensioner. The population is getting older. There are no plans to reform the state pay-as-you-go pension system.

Belarussian producers, taxpayers and consumers pay very much for education of president and his government. The country is losing the most valuable resource – time and trust. Sooner or later Belarus is bound to choose private market economy as a strategic social economic model if it wants to survive as an independent state. Belarus is a European outcast as it chose the policy of self-isolation. Pouring new wine into old bottles will never make a good export product. Now Belarussian opposition's moral duty is to consolidate and drive the jinni of totalitarianism back into the old bottle where it belongs before it starts expanding beyond state borders. It will be much more difficult a task if it is a revised edition of the Soviet Union.