The rot spreads

Faced with such a critical moment, some leaders would reverse course and embark on program of widespread reform. But while the government has over the past two years taken some important steps in the direction of macroeconomic reform – most notable the adoption of a single exchange rate and the easing of inflation – few believe that Lukashenka will agree to anything that will jeopardize his control over Belarus and its economy.
For one thing, Lukashenka has continued to make expensive promises to both enterprises and individuals, for example recently pledging that average salaries would be raised by a quarter before the election, to $100 a month. He also shows no apparent interest in any reforms outside of the bare minimum needed to keep potential voters or foreign lenders on the hook until their support is no longer needed.
“The tough monetary policy is not because of long-term strategy but because of short-term problems – the need to keep prices stable before the election,” says Pelipas of Institute for Privatization and Management. “When the ‘problem’ is solved, policy will be loosened.”
It is also questionable whether the authorities can maintain a unified exchange rate and continue to maintain sufficient reserves or meet their foreign exchange liabilities, which include official and commercial debts totaling $2.3 billion.
“The external situation will deteriorate,” says Axel Gerloff, an economist at Dresdner Bank. “The question is how fast that will happen.”
Meanwhile, any positive results in the areas of fiscal and monetary policy are of questionable value without corresponding structural reforms, which remain officially anathema. “You may have a unified exchange rate, but if you don’t create the right incentives for the private sector to grow and function, you will have a rotten situation,” says Dagenhart of IFC.
And by all accounts the situation is rotten.
While officially the economy grew by more than 3% in the first half of 2001, most independent economist believe that figure bears little relation to reality. A marginal increase in industrial output largely went into increased inventories, while the long binge of government-financed housing construction started to decline in the first half. Meanwhile, despite a continuing of the ruinous practice of intermediary-led barter, arrears to Russian firms grew $300 million in the first half, according to Zlotnikov, the IFC economist. A similar growth in inter-enterprise arrears took place within Belarus .
Across the landscape of state-owned firms, profitability has collapsed. Officially, 40% of enterprises are loss making, while unofficial estimates put the figure as high as 75%. And with 80% of plant and equipment fully amortized, many firms are running on fumes.
“All the indicators suggest that all the resources have been exhausted,” Zlotnikov says. “The turnover capital of the enterprises has been consumed. They can’t continue production. It is a crisis.”
Physical evidence of the crisis is growing daily, as unsold inventories grow and unutilized assets accumulate on the perimeter of rundown enterprises.
The human cost is growing as well.
In Smorgon, a town 200 kilometers from Minsk , some local plants have been put on a cash basis by their suppliers, or have been forced to take loans to pay their workers. Others, like the mini-tractor plant, have not paid their salaries in several months. Functionally unemployed workers at some firms are known to put in one day a month, to avoid being forced to report for public-works jobs that pay as little as $7 a month, while aged pensioners are ordered to weed the fields of the local koholzes.
“After the elections, we think the situation will be disastrous,” says a local lawyer who runs a human rights and social service NGO.
 But by almost any measure, the situation is already disastrous. To accompany his annual list of terrible laws, Romanchuk keeps an index of common products and how long an average wage earner in Belarus , Poland and the United States would have to work to earn them. The first entry says it all: In 1990, it took the average Belarusian 31 minutes to earn enough money to buy a liter of Coca-Cola, while it took the average Pole almost two hours. In 2000, the average Belarusian was grinding away for more than an hour and a half for the same liter of Coke, while his neighbor to the west need just 10 minutes.