The World Bank presented its international development report for 2006, Equity and Development, in the end of September. Many conclusions of this report are about Belarus.

 The World Bank and the International Finance Corporation have published one of the most profound business environment studies in the world, "Doing Business in 2006: Creating Jobs." The report gives ratings of business climate regulations and reform in 155 countries. Belarus ranks as low as 106th.

 On the face of it, the arithmetic of Belarusian agriculture is simple and clear, but a closer look at it can be rather perplexing. Government experts estimate that direct and indirect subsidies and subventions to the farming sector will amount to $1.5-1.7 billion in 2005. Net profit of the country's farms totaled 383.2 billion rubels, or nearly $180 million, for the first six months of this year. At the same time, overdue accounts payable amounted to 903.7 billion rubels as of July 1, which is more than twice larger than the profit. Tax and duty arrears alone account for 201.5 billion rubels. With such indicators in place, the Ministry of Agriculture and Foodstuffs reports nevertheless that the share of unprofitable farms is just 5.1 percent, or 104. Just one year ago the respective figure stood at 25.6 percent.

Belarusian business associations and lawmakers are actively discussing a new governmental bill "on the support of small- and medium-sized enterprises." The government offers a format of support that would be beneficial for itself rather than for businesses. It actually seeks to create a structural and regulatory cage for small and medium-sized business owners.

Reform package for Belarus: how to narrow competitiveness gap 

Part A. Factual information  

Corruption Perception Index 2003 score: 4.2, 53^rd place out of 133 countries Bribe Payer Index 2002 score: not surveyed

On October 2, 2002 the president passed the decree № 500 “On the state program to intensify fight with corruption for the period of 2002 – 2006”

On May 26, 2003 the law “On ratification of Convention on criminal responsibility for corruption” № 199-З was put into force.

On November 5, 2003 the Council of Ministers passed the Resolution № 1471 “On adoption of the plan of activities to counteract corruption in state bodies”.

Decree of the president №122 as of March 1, 2004 “On signing by the Republic of Belarus the Convention of the United Nations against corruption”.

Decree of the president № 75 as of February 13, 2004 “On adoption the state program of strengthening fight against corruption in 2004 – 2005”.

After breakup of the Soviet Union millions of people around the world cried with joy, “Communism is dead! Socialism is dead!”. At the same time many university professors and academicians, politicians and political scientists stated somehow less audibly, “Long live socialism! Long live social democracy!” They did not want to start an open struggle with the people who after more than 70 years of struggle finally broke free. They behaved like a well-known villain Ellsworth Toohee from Ayn Rand’s novel “The Fountainhead”. They were cunning enough not to stick their necks out. They were designing a new loop that the people will voluntarily put their neck into and give then – the masters of their souls the end of the rope to manage and pull when necessary.  

The authorities ran out of carrots and stick to sticks

Democratic forces in Belarus face quite a few major challenges. They must meet them if they want to make the Belarusian version of “Orange revolution” happen in the country. After staging the referendum and the campaign “Parliamentary elections” in October 2005 Belarusian authorities demonstrated their determination to increase pressure on the civil society and to intensify the persecution of political and civic leaders. They use law as a carrot and a stick. “Carrots” land in pockets of bureaucrats, big state companies and monopolies, force structures, judges, members of election bodies, state media and local nomenclature. Sticks are for political parties, NGOs, independent media, human rights organizations, independent educational and research institutions. People who ensure stability of the regime are paid $400 – 700 a month and provided with various social benefits. This kind of treatment blocks their incentives to consider alternative modes of behavior especially contacts with the opposition represented by any non-government institution (a political party, a think tank, an NGO or even an individual). Apart from that, local bodies of power working with their businesses distribute a big chunk of the general budget defalcating state funds and reaping the monopoly rent.

It is not problematic to build up relations between European Union and a country the government of which wants cooperation and integration on the platform of democracy, human rights and market economy. It is quite a challenge to work out mechanisms and programs, to find means and resources, to come up with institutions to deal with a country, the government of which mocks at democracy, ignores human rights and monopolizes most of economic activity. Standard European way that proved to be effective in dealing with like-minded governments is not adequate in coping with Belarus. The idea behind EU’s Neighborhood Policy is primarily to assist people, not governments. In case of a democratic country it is almost the same but as afr as Belarus is concerned it is definitely not so.  

1. Belarus: crisis of market socialism

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 order to grasp the essence of the Belarussian system of decision making it is necessary to determine its main characteristics and parameters: 1) who, in what branches and to what extent makes economic decisions, 2) how the institute of private property works on markets of all forms of capital (money, land, goods and services and labor), 3) motivation of main economic players (capital owners, entrepreneurs and consumers), 4) observation of the principle of equal opportunities and conditions for all economic subjects including the state. 5) effectiveness of legal judicial system in protecting property rights. Belarussian system of decision making is in many respects incompatible with the Western model that is driven and shaped by globalization process. Instead of enhancing growth it hampers it and increases transaction costs, reducing competitiveness of domestic producers.