Five Hundred-Dollar Government
Inna Romashevskaya

Summary

Last year, the Belarusian political and administrative authorities failed to take strategic decisions that would have enabled them to overcome the negative trends in the national economy and form a foundation for future sustainable development. The Belarusian government had what probably was the last chance to work out and implement efficient reforms, especially economic, based on its own scenario, and it let that chance slip away. While pursuing short-term political goals and lacking common views on the real place and prospects of the country in the regional economy in conditions when energy is imported at prices very close to market rates, the government settled for an imitation of reforms designed to please internal and external stakeholders. The Sidorsky government’s agenda therefore focused exclusively on four main objectives: (1) to have Russia resume energy supplies at preferential prices; (2) to demonstrate a successful performance of the social and economic development targets in the final year of the five-year development program; (3) to continue the “liberalization” campaign that allows the government to keep its control of economic processes; (4) to ensure the re-election of the incumbent president for another five-year term.

Tendencies:

1. Complete domination of short-term tactical objectives aiming at maintaining the status quo amid hopes that the country will reactivate the economic model based on external subsidies;
2. Imitation of long-term planning expressed in an indefinite postponement of strategic decision-making (“pegged” to some specific development scenario);
3. “Politicization” of the Belarusian state management system with a view to fulfilling Lukashenko’s “sacred” election pledges, which called for a mobilization of the entire state machine.

Energy supply terms, Customs Union and Common Economic Space

The year of the presidential election began and ended with an “oil war” – a head-on confrontation between the Russian and Belarusian governments over the terms of trade in oil and oil products – and demonstrated yet again, this time even more vividly, that the Belarusian state policy depends entirely on the oil transport and processing infrastructure located in its territory.

The situations observed at the start and the end of the year 2010 are almost direct reflections – the government entered both 2010 and 2011 being positive that the matter of preferential supplies of energy resources to the country had been resolved politically and only needed to be formalized as a bilateral interstate agreement in the former case and a contract for oil supplies in the latter. In both instances, this country’s hopes for a continuation of the subsidy-based existence of the Belarusian state failed.

In a bid to grab the ever-evading cheap oil, the Belarusian government in 2010 stepped up its efforts to work out and coordinate the documents that constitute the regulatory framework of the two interstate bodies – the Customs Union with Russia and Kazakhstan and the Common Economic Space (CES). The work on the 51 interstate treaties to form the Customs Union and 17 framework agreements of the future CES slowed down and accelerated depending on how realistic the coveted oil preferences promised in exchange for membership seemed to Belarus.

As early as January 4, Belarus was startled by the proposal of a Russian government delegation to apply export duties to crude oil deliveries to Belarus save for the supplies for domestic consumption (agreed at 6.3 million metric tons), and “a representative of the state administration”, quoted by BelTA state-controlled news service, threatened that Belarus might withdraw from the talks over the Customs Union1 . Those discrepancies had climaxed by June, when it became clear that the oil duty would not be abolished in the scope of the Customs Union, and the Union deal was almost frustrated. Hardly had the Belarusian government “digested” the consequences of accession to the Customs Union when it engaged in a hasty preparation of the CES deals (once Russia pledged that the oil duties would be lifted as soon as the package of framework CES deals was approved, and Belarus’ ratification alone sufficed).

The government therefore assumed very serious international obligations without conducting a thorough analysis of possible ramifications in a bid to enjoy concessional oil delivery terms as soon as possible (Belarus was never granted the expected volume of preferences, though). It was as early as February 2011 that the country’s new Prime Minister Mikhail Myasnikovich, who took over Sergey Sidorsky, slammed the export promotion program for the next five years, drafted by the Foreign Ministry and Economy Ministry, citing the absence of any specific Customs Union- and CES-related mechanisms to facilitate exports. “I have to reiterate that the government has taken a pause once the package of CES deals was signed, as it believes that from now on everything will move forward automatically… The program has not been fleshed out – there are no initiatives coming from ministries and those who coordinate this work.”2

For fairness’ sake, the same processes were going on in the Russian “court”. Representatives in the Russian Economic Development Ministry believe the political order for the soonest possible development of the CES deals resulted in a failure to factor in many unsettled issues, which will inevitable be brought into the spotlight when the member-states attempt to agree instruments to implement the agreements3 .

Some experts believe the governments of the CES member-states will have the most heated debate when discussing the mechanisms to implement the deals on the unification of the legal framework for subsidizing the manufacturing sector and agribusiness in the Common Economic Space for the period to 2017.

Efforts to meet chief targets of the 2006-2010 social and economic development plan

The election year naturally emphasized the importance of meeting the parameters of the five-year social and economic development program adopted at the Third All-Belarusian Assembly back in 2006. Throughout the year, there were quite bitter clashes between the Presidential Administration and the Council of Ministers over drafting and further implementation of the so-called “forecast for social and economic, monetary and fiscal development” adopted for each year of the five-year period based on the indicators of the development program.

The overview of the government’s work in last year’s Yearbook4 aptly calls this practice “rudimentary” amid global economic processes, however, for political reasons, it became even more significant in 2010. Anyway, the complexity of the government’s endeavor may be attributed not only to the fact that it is mandatory in Belarus to meet targets. The situation was further complicated by the politicization of the very process of setting targets – the president was supposed to report to delegates of the Fourth All-Belarusian People’s Assembly on the performance of the previous five-year plan, adopted by the previous Assembly, and the year 2010 had to compensate for the underperformance of the previous year, hit by the global recession, and push the aggregate result of the five-year period (2006-2010) to the desired level. On the other hand, the government did not have any room for maneuver when selecting economic instruments to meet the targets.

Back in late 2009, Lukashenko slammed the forecast for 2010 prepared by the government and ordered National Bank of Belarus Governor Pyotr Prokopovich and Deputy Head of the Presidential Administration Leonid Anfimov to revise it. It was at that early stage that the first discrepancies between the Presidential Administration and the Council of Ministers became apparent – the chief state agencies differed as to which instruments should be used to tackle the foreign trade deficit as the country’s top priority – either (a) privatization of state property (which was part of Belarus’ deal with the IMF) and streamlining of financing of state programs (again, via the IMF-recommended National Development Agency, which is supposed to be set up as part of the deal with the Fund), or (b) import substitution, intensification of exports and attraction of foreign direct investments.

At issue were some of the key parameters, primarily the GDP growth target. Since the economy expanded only 0.4% in 2009, affected by the global downturn, and amid the reviving markets of the main trade partners, which inspired some optimism, the government suggested a 2% to 3% GDP growth target for 2011. However, under the Presidential Administration’s political pressure, the government had to offer two scenarios in early 2010: the baseline scenario envisaged a 2%-3% GDP growth in 2010, whereas the target scenario, a sort of the macroeconomic expansion ceiling for the year, included an 11%-12% growth forecast. The latter, optimistic scenario expectedly turned into the mandatory set of targets, and the 7.6% economic growth reported at the end of the year was severely criticized by the Presidential Administration.

The authorities were supposed to keep in mind their commitments to the IMF (under the recent economic program supported by a Stand-By Arrangement) while debating the endeavor to meet the macroeconomic targets. As hopes of replenishing state budget revenues with receipts from oil product export faded and pressure of the Presidential Administration (which led the crusade for the “sacred” USD 500 monthly wage) got stronger, the IMF started expressing additional concerns in its reviews on Belarus. However, once the IMF-backed program was completed and the authorities officially confirmed that there were no more plans to borrow from the IMF, the opinions of the Fund’s review missions and reminders about the commitments were arousing less interest in the government.

The government was thus caught in a dilemma of having to meet politicized (hence too high) economic targets while possessing a very narrow range of instruments limited by the same political rhetoric. The general economic performance was therefore quite poor in 2010, as only five macroeconomic targets were met out of 19. Two of them – the increase in industrial production by 11.3% and growth in import by 20.9% indicate a lack of progress in resolving most crucial economic problems (or rather an aggravation of the problems). Three major five-year indicators were not met – the growth in GDP, farm output, and, worst of all, the reduction in foreign trade deficit.

Anyway, as the country got closer to December 19, the presidential election day (announced in September), the key target of attaining a USD 500 average monthly wage was brought to the foreground. In a situation when increases in wages stemmed neither from hikes in companies’ profits nor from an increase in labor productivity, the artificial push of the average wage towards the politically-motivated target became the final straw that broke the back of the Belarusian economy. The fact that the members of the Council of Ministers and the National Bank of Belarus, being fully aware of the consequences of that populist move, not only failed to criticize it, but mobilized the entire state machine to reach the coveted goal using purely administrative instruments, demonstrates the complete “politicization” of the state management system in Belarus.

Economic liberalization

In 2010, the Belarusian government was faced with a challenge of keeping up economic liberalization while holding on to traditional administrative economic levers without allowing privatization of major state-controlled property units.

High hopes for at least some progress in the country’s liberalization endeavor were pinned on the so-called Directive No. 4, which was first mentioned by Lukashenko in his April address to the National Assembly and the nation. Experts believe the new economy minister, Nikolay Snopkov, should take the credit for the active promotion of the Directive, which, despite its doubtful status5 , was supposed to confirm the strategic commitments of the authorities to the economic liberalization policy. The political weight of the Directive, which was developed with a high (by Belarusian standards) degree of engagement of the business community seemed so substantial that some media claimed as early as the summer of 2010 that Mr. Snopkov would likely take over Sergey Sidorsky as the next premier.

However, the draft Directive originally submitted to the Presidential Administration in early June was sent back to the government for revision a few times, which is why the signing of that cornerstone document was chronically postponed (the president finally signed it on December 31). During the second half of the year, the head of state continually criticized both the draft Directive and the hopes of the business community.

The government came under fierce criticism for the lack of a systemic strategy for economic reforms. Watching its most insignificant proposals on any substantial reform take months to have a “go” or “no go” from the Presidential Administration, the government opted for facelift transformations emphasizing “image-making” efforts. However, it relied primarily on its own resources despite the large number of international reputation agencies ready to step into Lord Bell’s shoes.

From this point of view, the government’s approach to the long-term target of getting into the World Bank’s top-30 countries by the overall ease of doing business is indicative. Inspired by the rapid progress in the rankings in the previous three years (to position 58 from 115; the WB methodology was later revised and Belarus went down to place 64), the president ordered his government back in 2009 to create a working group led by Deputy Prime Minister Andrey Kobyakov to bring Belarus into the promised top-30.

The action plan seemed solid enough, and Belarus hoped to improve its rating to at least rank 48 in 2010. The government believed the fast progress in the WB’s rankings would become a positive signal to foreign investors. However, the session of the Council of Ministers on June 13, 2010, where Mr. Kobyakov reported on the results of the action plan, raised concerns of both independent experts and representatives of the business community. The report presented by the vice-premier indicated that on the one hand, the 27 draft regulatory acts prepared by the working group mostly aimed at improving only the pinpointed indicators assessed by the World Bank. On the other hand, Kobyakov called for state officials to “reach out” to supervised businesses that could be involved in WB’s sample interviews conducted to evaluate businesses’ perception of the administrative burden6 .

Belarus moved down 4 notches to position 68 in the 2010 Doing Business rankings (one reason for this was yet another change in the methodology; furthermore, some documents that could have improved the rating were adopted in the second half of the year, that is, after the annual monitoring had been completed). However, independent experts noted that FDI inflows in Belarus remained the same in the previous years7 irrespective of the country’s Doing Business efforts.

It is also noteworthy that the Presidential Administration brought home to the government the idea that there were no systemic objective obstacles to FDI inflows, and the lack of any significant investment projects was attributed entirely to subjective qualities of state officials8 .

Conclusion

The year 2010 revealed the following marked tendencies that will determine the situation with the government of the state in 2011.

• The confrontation between the government and Presidential Administration became more pronounced. It cannot be ruled out that when faced with the need to put in place hasty structural reforms in 2011, the government will start paying less attention to political reasoning coming from the Presidential Administration, which will only be responsible for the ideological content of the reforms – a sort of “public relations” mission;
• The growing involvement in a situation, where to maintain the status quo – the scenario than has dominated for the past decade – is not the real choice of elites, where further postponement of reforms will not lead to conservation of the socioeconomic situation in the country, but on the contrary, will guarantee its rapid deterioration.

The political and administrative authorities therefore need to come to an understanding that as things now stand, any strategic decision – the choice of any development pattern – will inevitably affect the manageability of the state and living standards of the population in the medium run.

The window of opportunity for reforming the country from within was shut in late 2010. Any dramatic changes in the way the Belarusian state functions and develops now will be introduced under an unprecedented pressure of external forces and under scenarios that have nothing in common with the Belarusian social and economic development program for the coming five years.