Научно-исследовательский центр Мизеса

Statistical data for three quarters already allow economists to make a preliminary assessment of the Belarusian economy's performance in 2005. It is now on the peak of its activity within the chosen model of development. To keep this model running, no special skills are needed. A switchover to a qualitatively new level can prove to be much more problematic.
Domestic demand has become the main source of growth. Construction services, production of building materials, furniture, government orders for agricultural equipment, buses and wood, and production of electricity and heat - this can be a basis for positive GDP dynamics for years, especially if the country is not trying to bring itself closer to international standards.
Belarus follows lead of the Western policy of cheap money (although forgetting at the same time to keep inflation within 0 to 3 percent a year). Unlike in 1995, when the National Bank was also tough in keeping in check exchange rates, the relative stabilization of 2005 does not cause large-scale demands from the real sector to depreciate the national currency. However, it is obvious that there is a pressure of petrodollars on the rubel's rate of exchange of hard currencies.
Low prices for housing utilities and wage growth ahead of productivity growth has sent a significant number of Belarusians into the condition of consumer boom. It turns out that things are even better than in the Soviet Union. Unlike in the Soviet era, people can now travel abroad freely, earn some money on shady transactions in the grey economy, watch satellite television and listen to whatever music. The beautifully illuminated capital city by night, mass festivals, ambitious construction projects and a few achievements in tennis, athletics and biathlon fill many people with the confidence that Belarus is not worse than others. Those who chose democracy and market economy.
Wages and salaries have been growing in the past month in strict accordance with government plans. The average pay reached 447,000 rubels, or $208, in the first eight months of 2005. In August, it was already 497,000 rubels, or $231. The average pension allowance rose to 210,700 rubels in September. Housing construction was on the rise: as many as 2.9 million square meters were built. People's deposits with banks amounted to 4.9 trillion rubels as of September 1, a 26.2 percent increase in comparison with the beginning of the year.
Belarus has a number of commodities with potentially good prospects for the future. If the country had a stock market, their producers' shares could be used for making profits or savings. For example, if Belarusian citizens could use their privatization vouchers to buy shares of two Belarusian oil refineries, they would make huge profits. In comparison with the third quarter of 2003, the output of car gasoline in physical terms rose by 72 percent, of diesel fuel - by 28.9 percent and of fuel oil - by 27.2 percent.
Producers of mineral fertilizers are also picking up output speed. Potash fertilizer companies increased the volume of physical production by 20.4 percent. With prices for this kind of fertilizers growing by 67.4 percent (Q3 2005 compared to Q3 of 2003), Salihorsk, the place where the fertilizers are made, became one of major donors in the Belarusian economy.
Makers of ferrous metal and steel products also bring a lot of revenues to public budget and handsome wages to their workers. Their output rose by 37.7 percent in the past three years and prices for ferrous metals increased by 39 percent. So, the Belarusian Metallurgical Plant also generates a good income for the budget. Wood and products made of wood are another similar commodity group. However, this sector has worked below its real capabilities in 2003 through 2005. With prices for raw wood growing by 29.1 percent, its output increased by only 15.6 percent in physical terms. The sector surely needs investments for development.
The Minsk Tractor Works has done very well: its production grew up by 59.6 percent (Q3 2005 compared to Q3 of 2003), with export prices being more or less at the same level. This enterprise is a typical example of government business. An injection of investment, tax concessions, government orders and cheap energy resources are important components of success. Nevertheless, the company has good chances for successful operation even if it starts to work in market conditions. And its chances can get even fatter, if it succeeds in establishing a joint project with a major international company.
At the same time, the three quarters of 2005 show that the production of certain commodities is going to decline if it goes on in the same conditions. The production of motorcycles and bicycles is absolutely hopeless. Motorcycle production fell by 78.7 percent and bicycle output - by 39.8 percent, if Q3 of 2005 compared to Q3 of 2003. Machine building is also in a crisis, with a production decrease of 32 percent.
The experiment to make Belarusian washing machines has been obviously unsuccessful. Their output shrank by almost 50 percent over the past three years. This again proves the fact that it is very difficult to open a new production in the Belarusian planned economy. Even keeping old production is difficult.
Watches are another commodity doomed to decline. Their production has decreased by 48.7 percent in the past three years and keeps falling. Footwear makers and some light industry companies are plunging into a crisis. Their loss of Russian markets is particular painful after changes in VAT collection rules and in conditions of strong competition with Chinese producers. The dynamics of commodity production in different sectors call for serious structural transformations. It is quite obvious that the authorities are afraid of reforms, but while trying to raise economic efficiency, they may not only load successful companies with unprofitable ones but may also decide to privatize several state enterprises.
Now Belarus has preconditions for realizing the principle one country, two systems. The first sign is the decision to set up a High Technology Park with unprecedented benefits and concessions. The second one, paradoxically as it may seem, is giving the president the right to grant tax and fine exemptions.The growth of reformatory sentiments will strongly depend on oil prices, conditions of trade with Russia and number of investment mistakes. The number of problematic commodity groups will only grow.
It is also easy to forecast that gas prices will be rising too. At the same time, a difference between prices for raw oil and petroleum products will be shrinking. This means one can expect from Lukashenka that he will be more actively resisting the inertia of the nomenklatura and director corps, as well as of his own planned economy. Still, one can only guess which direction the process will take. If he decides to tighten the screws of the planned economy, he can break the threads. As a different option, he can authorize the privatization of individual companies or sectors. The first three quarters of 2005 do not give additional arguments in favor of one of these options.

Dynamics of selected Belarusian economy indicators

Source: Belarus' Ministry of Statistics and Analysis