People
usually succeed if they undertake goal-directed actions based on facts of
reality. They call them facts if they are tested by experience and proved by
life. Major political and economic decisions made by policy makers on the
highest level of state power must be based on scientific facts and theories.
Some people think otherwise. For them their wishes are horses. They tend to
make decisions riding on them and ignoring direct and unintended consequences.
They are whim worshippers as they blink at facts of reality. They do not
believe what they see. Pictures of their fevered imagination, caprices and
feelings are tools to learn reality. If you keep in mind that most of key
decision makers in Belarus including Mr. A. Lukashenko (his term of office
expired on July 20, 1999) were brought up in socialist educational institutions
and they derive the meaning of concepts of “fairness”, “rule of law”, “private
property”, “human rights” and “norms of social behavior” from Marxist and other
collectivist theories you find it easy to understand why Belarus is still an
European outcast. Belarussian authoritarian rulers ignore the international
information context and facts of reality as they contradict their norms of justice, equality
and brotherhood.
Is
the dialogue possible?
Advisory
and Monitoring Groups of OSCE has been working in Belarus since the beginning of the
year. Its mission is to monitor the development of the situation in the
country, to advise on various cases of legal protection, human rights violation
and development of legal acts. It is also an intermediary in the negotiation
between the government and the opposition. The Group is actively involved in
making the parties sit at the table and start the dialogue. However the
evaluation of the situation by the AMG is superficial in many aspects. It
concluded that the president is ready to switch from open aggression and ignoring
of the opposition to readiness to discuss measures and procedures
- to carry out free and fair
parliamentary and presidential election,
- to ensure access of the opposition to
state-controlled mass media,
- to work out election
legislative documents that will enable carrying out the election that will be
accepted by OSCE,
-
to build confidence between
the parties and to free political prisoners.
Head
of the AMG in Minsk Mr. Wiek stated that both the president and the opposition
were to blame for the standstill and both parties ignored each other. He also
said that open covering by the mass media (both independent and state owned) of
the negotiation process and activities of the international mission in Minsk would reduce its
effectiveness and make its contents vapid.
The
government has failed to meet its commitments. The scale of human rights
violation has increased. Human rights organizations register numerous cases
both in Minsk
and in other parts of the country. In a small town – Krichev three high school
kinds (16 years old) are members of the youth organization. Director of the
school and their class teacher publicly said that they would get only poor
marks and very bad references from school and they would not be able to enter
any university if they did not cancel their membership in the organization. To
intimidate a socially active woman of 50 the police and KGB in Vileika (a small
town of about 60'000 people) took her daughter aged 22 to the sobering
institution (at the gates of the factory where she worked) and kept her there
till 2 a.m.
When her parents walked for 7 kilometers to take her it turned out that the
police had made a mistake. Of course the girl was sober and the police
mentioned that she should thank her mother for this incident. It is interesting
to see how you are followed by the intelligence guys in leather jackets. In the
city of Oshmyany
to prevent a young activist from taking part in election campaign the police
arrested his mother allegedly for selling smuggled cigarettes in the market
place. As it turned out earlier she sold cherries from her own orchard.
Hundreds of people are fired, intimidated, refused promotion because they dare
take part in social life or even attend seminars and conferences arranged by
NGOs. Ex-prime minister Mr. Chigir is in prison. Two deputies of the only
legitimate parliament in the country Mr. Klimov and Mr. Kudinov are in prison.
Three important figures of the Belarussian economic and public life have
disappeared (deputy chairman of the Supreme Council Mr. Gonchar among them).
Mysterious death in spring of another leader of the Belarussian opposition Mr.
Karpenko added to the atmosphere of fear in the country.
The
opposition still doe not have access to state owed mass media. Moreover last
week another independent paper “Naviny” was closed by the authorities. 6 major
independent newspapers are being audited by tax inspection for a month already.
At the same time Mr. Wiek considers every critical publication as a threat to
the dialogue and recommends the opposition to put them in order as if it owns
them.
Despite
his promise to Mr. Wiek A. Lukashenko publicly announced that powers of the
president and the parliament are beyond any discussion with anybody. He keeps
offending members of the opposition on almost every occasion. He blocked every
independent candidate who wanted to take part in the local elections that were
held in March. Opposition political parties refused to take part in this
election because the government made amendments in the election law that
excluded any chance for their representatives to be elected. Strangely this law
was considered as democratic by AMG in Minsk.
Local authorities were given all powers to carry out the election. All
previously agreed candidates became deputies of local bodies of power. In the
city of Molodechno
director of one state factory was told that he had been elected to the City
Council as he did not even know that he took part in it. He was surprised to
learn about his constituency. A. Lukashenko is doing his best to carry out
election to the parliament that he striped powers off. If the international
community agrees on his terms it will mean legitimization of the results of the
cout d’etat that happened in November 1996.
Money at whim
Republic of
Belarus is a neo-planned economy with high concentration of economic
decision-making at the very top of political power hierarchy. It has been
pursuing basic production and distribution patterns of both socialist theorists
and Keynesians. In 1998 Belarus
passed the climax of economic growth, investment and credit expansion within
the Keynesean model of business cycle. The policy of cheap money, soft monetary
policy, administrative definition of “points of growth” and subsequent
financial stimulation of enterprises, discrimination against form of property,
size and origin, trade status alongside with giving various perks for state
“leaders” (tax breaks, debt cancellation, subsidies, state guarantees for
foreign loans, restriction of competition by licensing markets entry etc.) lead
to temporary economic expansion.
Lukashenko is a
typical representative of the soviet kolkhoz system. Economic knowledge of one
provincial agricultural academy that he graduated from and work in the army and
a collective farm did not add much to understanding of economic processes. He
was taught to juggle with words. In this sphere he copies very many Western
politicians. Remember Clinton’s
“It depends on what the meaning of the word “is” is”. He managed to fulfill
three major tasks during his term of office. 1) He put all major resource and
capital flows under his control. 2) He got rid of big private companies and
stifled the private sector by regulations or by means of tax and control
bodies. 3) He ensured external financing of his socialist experiment.
Within
1996 – 1998 president and the government managed to apply fundamental keynesean
advice to the cash-strapped, market infrastructure free post-socialist economy.
The resources for such growth were the following:
- Russian direct and indirect
subsidies in the form of (a) energy resources debt cancellation, b) stimulation
of barter trade that enabled Belarussian state enterprise to sell illiquid low
quality goods in exchange for gas, oil and electric energy, c) making the best
use of unbalanced Belarussian – Russian customs Union to export to Russia high
tariff goods (over 300 positions still have different tariffs and duties), -
“legalized smuggling” d) using free economic zones in Belarus as budget “black
holes” to avoid paying duties in Russia;
- monopolization of key
resource and raw material exporting industries: timber, flax, chemicals,
fertilizers and creating numerous administrative and economic incentives for
them;
- redistribution of capital in
favor of industries and enterprises with growth potential (agriculture,
construction, machine building). As Belarus
used to be a kind of assembly line for the whole Soviet
Union many plants and factories do not work at their full
capacity. The government set production target indices at the 1991 level.
Commercial banks, Belarussian rouble holders, rouble depositors, enterprises
(working capital) off-government most favored entities list were net payers as
the whole Belarussian financial system has been working in the mode of negative
interest rate for the third year.
In
oligopolistic environment when the state as the owner hold control over 95% of
capital flows fluctuations of cycles of production and consumption are more
distinct. Government driven merge of production cycles of investment and
consumer takes place. At rapid increase of government demand and almost
unrestricted capital supply for the chosen entities growth of aggregate indices
really took place. However macroeconomic tendencies in the first half of 1999
show that the period of economic expansion is coming to a close. Belarus is
entering a new phase of its business cycle - recession and stagflation. The
depth of the dive will depend on demand for Belarussian goods in Russia and its ability and willingness to pump
cheap energy resources into Belarus.
Trade with Russia
plummeted by almost 40% for 8 months. Among the most popular instruments of
capital redistribution in Belarus
are
- licensing of most kinds of
economic activities (over 110 licenses), subsidies and cheap credit,
-
selective liberalization of
obligatory sale of hard currency revenues and access to purchase of hard
currency at very favorable rate (the official rate was 2-4 times lower than the
market rate in the period of 1998 - 1999);
-
quota distribution in the
most profitable spheres of business (export and import of natural and energy
resources)
-
legal definition of a
special production, sales and payment mode (amortization policy, rouble or hard
currency payments, down payment or commission, rent at state or commercial prices,
setting or repeal of price ceilings for various goods.
They
say that money is an indicator of economic health. On Septemebr 15, 1995 50’000
rouble banknote was introduced. On September 7, 1999 Belarussians saw a new 5
mln. Rouble banknote. Now it is worth less than 10 USD at the market exchange
rate. It is a very good evidence of “effectiveness” of the monetary policy. It
is estimated that companies and depositors lost about 500 mln. USD on the
rapidly weakening rouble.
Whims instead of food
Food stamps and
rationing is a fact of life. Subsidised products sell like hot cakes. The only
way to break even is to export and arrange payments outside the country. Belarus is the
country of the cheapest vodka. An average household pays just 1- 2 USD for utilities.
Only 15% of the cost of the ticket in public transport is covered by the
passenger. Recently cheap vodka disappeared from shops. It could be
a most powerful weapon against the authorities. Then people may wake up and
fear and totalitarian hangover will be much weaker. Sober people can not
tolerate such state of affairs in politics and economy long. The crop was very
poor this year and Belarus
will have to spend much hard currency on grain and fodder. The government has
already announced that hot water will be warm in winter and everybody will be
punished for excessive electricity and gas consumption. Environmentalists can
be pleased as there are fewer cars on the streets due to fuel shortage. The
positive externality of this is lack of traffic jams. What a sad view it is -
half empty wide streets even in rush hour. I hope this is the beginning of the
final stage of agony of the regime.
Motivation
of main decision makers
Capital
owners as well as entrepreneurs seek to make profit by definition. If there are
impediments in this process they tend to transfer the capital into more
predictable and favorable economic environment. Impossibility of economic
calculation in Belarus
(information economic field is highly distorted by price policy of the
government) and lack of personal financial responsibility for investment
production and trade decisions does not create incentives for profit
maximization by operation cost reduction, technological, management and
marketing innovations. That is why only highly volatile speculative short-term
investments are attracted to Belarus.
Gazprom is a major investor and creditor as securing transit of gas to the West
is one of top priorities of this company. However R. Vyakhirev said at the end
of July 1999 that “by pursuing such economic policy the Belarussian government
will destroy the country and we are not going to sponsor it”. Even state
enterprises learnt that it is not worth showing high profits due to
confiscatory tax system (up to 80% of revenues is taxed away, for 1 rouble of
take home salary the company pays 1,20 rouble in various taxes). The state
pushes economic entities to total consumption as it is ideologically beneficial
to raise demand and to ensure GDP growth. There is no concept of saving in the
country. Hard currency and to a lesser degree real estate, liquid goods are the
most popular saving instruments.
As
all economic entities of 7 top layers of decision making structure manage state
(nobody’s) property they have a strong incentive
- to redistribute state
capital to the personal benefit;
- to minimize the risk of
being punished (criminally or financially) for personal profiteering;
- to ignore getting maximum
value at using state (taxpayers) capital, that is why even full amortization of
tangible assets is of no concern (davalcheskoye
syryo schemes that are quite widespread is an evidence for it);
- to reduce freedom of entry
to profit making spheres of goods and services production;
--to discriminate against
those entities who are less effective in building a network of lobbyists at
every layer.
It
is achieved by arranging a network of key players that penetrate top layers of
decision making structure, by active work among nomenklatura, “red directors”,
Shklov power group, Russian importers of energy and raw materials that the
Belarussian government depends upon and of course among Security Council and
KGB top figures that control information flows.
Impact of Globalization processes on Belarus
Impact of
external factors is very weakly translated into almost all layers of
Belarussian economic decision making structure. External foreign debt is about
1 bln. USD that amounts to 8% of the GDP. Shares of Belarus in the world trade turnover
is just 0,04%. Agreements with IMF were either ignored or taken as broad
guidelines that did not shape key aspects of monetary and fiscal policy.
International organizations - IMF, EBRD, WB, EU, WTO - are external factors
that have little influence on behavior of all major economic subjects in the
country. Belarussian Russia-oriented foreign trade determines its high dependence
on energy and raw material resources as well as on markets for barter goods
flows. In the 90-ies the West sent to Belarussian political and economic elite
quite contradictory signals on effectiveness of the welfare state model. Double
standards of the West in economic policy, modern version of the policy
"beggar your neighbor" made first Prime Minister Kebich and then
President Lukashenko come out with unification with Russia rhetoric. Merchantilistic
policies of major welfare states in the West were one of the important factors
that influenced Belarussian leadership. There is a considerable gap between
reality and the free trade models praised by many Western policy makers. Seeing
no perspectives in expanding cooperation with the West
Lukashenko turned to the East.
The main forces driving global integration are
technology, the growing faith in markets, and the growing connection between
poorer and richer nations. Spurred both by technology and the successive
reduction in various kinds of barriers, trade flows worldwide have increased
several percent a year faster than global output. But trade flows between Belarus and the
West has been decreasing. Pursuing economic policies based on distrust to
market forces, to benefits of international division of labor and free trade
Lukashenko can not possible match globalization processes with further state
centralization of economic decision making. It is believed that if and when
technology, communications, politics, and cultural convergence reduce the
national border effects international considerations could come to loom far
larger in national economic policy making than they do today. Belarus being a
technologically backward country and excluded from major international capital
flows thinks about integration in terms of further unification with Russia on
vague unspecified terms.
Academic and economic intellectual elite in Belarus could
not make a clear point that open markets, free trade and economic integration
are obviously beneficial. Fundamentally, the case for free trade is the case
for the market system. The benefits come in the form of greater realization of
the efficiencies available from specialization, from allowing resources to flow
to their most productive use, from comparative advantage, and from the spur of
competition. They show up in the form of higher living standards resulting from
higher wages and higher returns to capital and quite likely in the form of
higher rates of growth. However Lukashenko views globalization as a process of
ensuring access to free Russian resources and keeping political independence
within the declared model of market socialism. At the same time he ignores
evident benefits that many Central European countries are getting because of
their strategic choice of free market economy. Rent seeking at the domestic
market at the expense of Russia
contradicts standards of the global market. Integration trilemma – greater
integration into the world market and international economic structures, proper
public economic management, and national sovereignty - is solved by president
Lukashenko in the following way: 1) let the world buy Belarussian goods and
services at world prices for hard currency, let Belarus purchase imported goods
for Belarussian roubles; unconditional loans for the government and state
enterprises, most favorable trading status while keeping high barriers of entry
for the domestic market. 2) No transparency of public finance, common standards
of financial information dissemination, auditing and accounting standards, requirements
to loan practices and debt services. 3) National sovereignty is a bargain
“good” that could be exchanged for more power in a new modified version of
another Soviet Union. The leadership of the
republic does not have a concept of how to reconcile the idea of having Russian
rouble as the Belarussian national currency and keeping the right to pursue
independent monetary policy; how to form a free trade union and keep different
tariffs and duties for many goods and services (in 1999 in spite of the
existing Customs Union import duties for over 300 goods are different).
Lukashenko is reluctant to give more power to any institution unless he is at
the head of it. That is why recent failure of another attempt to sign a Union
treaty with Russia
outraged Lukashenko. Real unification between Russian and Belarus is
unlikely. Henry Kaufman idea of a global financial regulator, Jeffrey Garten’s
suggestion of a global central bank, and George Soros’ global credit insurer
are off the agenda of Belarussian policy makers. Even Russian – Belarussian
equivalents of these structures are not given a through analysis and
consideration. Neither Belarussians nor Russians worked out sound effective
systems for managing public and private financial risks. In fact private financial
risks in the Belarussian subsidarkh model are insured by the state. One step
further to switching to Russian oligarch model when the state pays off for a
few privileged economic entities letting others down will definitely be the
step away from the international globalization and integration norms.
