Changes are ahead for Belarus. But exactly what will change depends on whom you consider. Changes are awaited despite the fetish of stability that dominates the social and economic behavior of the Belarusians. The condition of the business cycle in 2006 and insistent Russian declarations about European prices for gas and world prices for oil exported to Belarus suggest that the Belarusian authorities would have to go much farther than simply changing name plates on office doors of officials responsible for economic policy. They are likely to make attempts to withdraw from the tough paradigm of national socialism.

1. Inertial scenario

The temptation not to change anything in social and economic policies is still great. The government is still in the grip of distorted statistics and methodologically flawed indicators. The selected quality criteria of development (there are 16 key indicators of Belarus' socioeconomic development) fail to give a complete picture. Nevertheless, beautiful lines of statistical figures impress people who do not see real life behind them.
To make a decision to start reforms against such a background, one has to be a strong politician with intuition for change. In fact, one can see problems even with the help of official Belarusian statistical indicators. Imbalances in monetary and fiscal policies, risks to lose a significant portion of foreign exchange proceeds and competitiveness, a growing gap between resources of the country's financial system and investment capabilities and a conflict of motivation between the nomenklatura and private business are obvious in Belarus.
However, it is not obvious which button should be pressed to solve one problem and not to destroy the whole system. Therefore, the probability of this inertial scenario is rather high. If it is really chosen, Alyaksandr Lukashenka will keep issuing edicts and decrees, reshuffling his old personnel, and giving benefits to some and punishments to others. The main conditions for this scenario are stable prices for energy resources, constant demand for petroleum products, fertilizers, metals and chemical products, and continued popular confidence in saving with Belarusian banks.

2. Adaptive scenario

Under the pressure of the USA, Germany and the EU, as well as guided by the need for follow WTO requirements and with no progress of the so-called Belarusian-Russian Union State, Russian President Vladimir Putin can start to want to make things right with Belarus in the field of economy.
A price of $100 per 1,000 cubic meters of gas and the loss of the difference in prices for Russia crude oil and refined oil exported by Belarus will be a shock for Belarus to cost the country 10-13 percent of GDP.
Belarus and Russia are starting difficult talks, psychological campaign, confrontation of different lobbying groups and argument between opponents and proponents of old relations. A war of nerves and demonstration of power start. It is difficult to predict what exactly the two sides will do. But it is not likely that Lukashenka would agree to the Russian conditions for the sale of Beltranshaz.
The Belarusian leader would try to win time, delay the negotiation process and engage his supporter in Moscow as lobbyists. In the worst case Minsk can agree to sell 49 percent of Beltranshaz. However, the "golden share" rule and an attached list of investment requirements would not guarantee Gazprom the solid right of ownership of its assets in Belarus.
The situation concerning oil is even more complicated, because a revision of supply channels and conditions would affect the interests of both oligarchs and influential nomenklatura.
Demand for projects in the field of energy security would get much stronger under the adaptive scenario. Talks on building a nuclear plant would get more active. The government would have to raise prices for gas and electricity for domestic consumers. Gasoline and diesel would also increase. A list of enterprises that get energy resource at subsidized prices would have to be shortened. Strict conditions would be introduced with respect to gas and electricity consumption to economize energy: any excessive consumption would have to be paid much more.
The "energy shock" would lead to a dangerous cascade effect. Industrial companies would lose working assets, raise prices and increase debts to suppliers and banks. Investment resources would be directed to current consumption. Funds would not be enough to pay workers and taxes. Companies would face sales problems; inventories would build up; modernization projects would be frozen.
Banks would immediately feel the problems of the real sector. The National Bank would have to face a dilemma: to increase the speed of the money-printing press or insist on restructuring the real sector. "Inflationists" are likely to prevail and huge money supply would affect the market. Rubel deposits would lose their attractiveness. The Belarusian rubel would weaken.
The manual control of the economy under the conditions of an "energy attack" would lead to higher unemployment. Relations between the center and the regions would escalate. Average citizens, when confronted with growing prices, would no longer be so much in favor of the notorious "stability." The want of change can force people to take to the street.

3. Preventive scenario

Lukashenka has already made a number of statements that are unusual for him: partnership of business and government, private ownership development, simpler rules of business registration and tax reform. However, they sound more like mere declarations now, because even if one of them is implemented, the government will have to destroy the integrity of its neo-planned economy.
Decision-makers understand that the recent political campaign has not brought new allies and partners to the Belarusian government. Russian pressure also has its effects on Belarus. Taxation base shrinks. Public budget has to fulfill more tasks. Who can become the support of the regime in such a situation? National business has to be given help. The government has to take a number of preventive steps to preclude the turning of business to the opposition or the creation of a pro-Kremlin lobby in Belarus.
The Belarusian authorities have already started to flirt with the business community. In particular, they unexpectedly approved an idea of several business associations about creating the so-called Platform of National Business. Talks are underway concerning regulatory provisions. Small business is also promised help. However, the government does not have a clear program of support.
One can hardly expect consistent liberalization, systemic de-bureaucratization and renouncing of discriminatory practices with respect to businesses. Lukashenka is likely to try to tailor national business according to his standard, or to be more exact, according to the standard of nomenklatura and state company directors. Bureaucracy, who has been waiting for years to get its part of national property, would hungrily get down to business development. They would start with small and medium businesses. Bankrupt state companies could be sold for nothing to the nomenklatura. Bureaucrats would also fight for land plots, especially in Minsk and regional centers.
Reforms would have chaotic and contradictory nature. The implementation of this scenario would be able to release steam out of the system and reduce tension in the environment of grumbling managers of state companies and organizations. However, it cannot save Belarus from paying for many years of its socialist experiment and avoiding social and financial problems in the process of neutralizing structural distortions.
There is not a single good scenario for Belarus today. Whatever the government does, it will act in a reactive way, reacting to individual problems and trying to bridge the most obvious gaps. A proactive scenario, that is, systemic market reforms within the paradigm of liberalization, privatization and new institutional development, seems unlikely in the current situation. And it is a pity, because it would be the best choice to consolidate the economy and the society on a fundamentally new platform.

Belarusian development scenarios in 2006-2010

Source: Speculative estimates of the Mises Research Center, 2006