Belarus: Economy

As part of the former Soviet Union, Belarus had a relatively well-developed industrial base; it retained this industrial base following the breakup of the U.S.S.R. The country also has a broad agricultural base and a high education level. Among the former republics of the Soviet Union, it had one of the highest standards of living. But Belarusians now face the difficult challenge of moving from a state-run economy with a high priority on military production and heavy industry to a civilian, free-market system.

After an initial burst of capitalist reform from 1991-94, including privatization of state enterprises, creation of institutions of private property, and development of entrepreneurship, Belarus has greatly slowed under Lukashenka, and in many cases, reversed its pace of privatization and other market reforms while emphasizing the need for a "socially oriented market economy." About 80% of all industry remains in state hands, and foreign investment has been hindered by a climate hostile to business. The banks, which had been privatized after independence, were renationalized under Lukashenka. The government has also re-nationalized companies using the "Golden Share" mechanism, which allows government control in all companies with foreign investment, as well as through other administrative means.

Economic output, which declined for several years, revived in the late 1990s and early 2000s, but the economy has been dependent on heavy discounts in oil and natural gas prices from Russia. Belarus has historically re-exported the oil and oil products at world market prices, using the windfall profits to subsidize state enterprises.

In late 2006, Russia began a process of rolling back its subsidies on oil and gas to Belarus. In December 2006, after a short-lived dispute, Belarus and Russia agreed on a schedule of graduated price increases toward European market prices for the gas Belarus would receive. Russian gas giant Gazprom would also take a 50% stake in Belarus’ pipeline firm Beltransgaz. Under this deal, Gazprom raised prices for Belarus gas deliveries in 2010 to an average of $171 per 1,000 cubic meters, a significant rise from the subsidized previous price of $46, but still less than half the price paid by EU member states. The price for Russian gas will continue to increase incrementally until 2011, when it is to equal the price paid by EU members. However, Belarusian officials stated in late 2008 and early 2009 Belarus’ interest in postponing the rise to EU prices until 2014-2015. Occasional disputes arise between Belarus and Russia over unpaid gas arrears, most recently in May-June 2010.

Coincident with discussions over gas, Belarus and Russia had another short-lived dispute over oil. In December 2006, Russia decided to levy a duty on oil to Belarus in order to recoup profits from Belarus’ processing of previously duty-free Russian-sourced crude oil. In January 2007, Belarus and Russia agreed on a smaller duty than Russia had originally imposed. In January 2010, another dispute arose as Belarus and Russia failed to agree on renewing the January 2007 agreement. A new accord was subsequently reached whereby Russia would export oil duty free for Belarus’ internal consumption, but oil to be processed for re-export would be subject to full export duties.

Peat, the country's most valuable mineral resource, is used for fuel, for fertilizer, and in the chemical industry. Belarus also has deposits of clay, sand, chalk, dolomite, phosphorite, and rock and potassium salt. Forests cover about a third of the land, and lumbering is an important occupation. Potatoes, flax, hemp, sugar beets, rye, oats, and wheat are the chief agricultural products. Dairy and beef cattle, pigs, and chickens are raised. Belarus has only small reserves of petroleum and natural gas, and it imports most of its oil and gas from Russia. The main branches of industry produce tractors and trucks, earthmovers for use in construction and mining, metal-cutting machine tools, agricultural equipment, motorcycles, chemicals, fertilizer, textiles, and consumer goods. The chief trading partners are Russia, Germany, Ukraine, and Poland.

The massive April 26, 1986 nuclear accident at the Chernobyl power plant, across the border in Ukraine, had a devastating effect on Belarus. As a result of the radiation released, agriculture in a large part of the country was destroyed and many villages were abandoned. Resettlement and medical costs were substantial and long-term. Many living in Chernobyl afflicted zones have infrequent access to medical treatment due to remoteness, inadequate equipment, and substantial costs. Although the Belarusian authorities claim otherwise, many radiation monitoring stations, especially in rural areas, are either ill-equipped, poorly staffed, and/or no longer in operation. Resettlement of those in affected areas remains incomplete.

Due to the economic and political climate, little new foreign investment has occurred in recent years. However, the government publicly claims to support foreign investment and has made various regulatory changes designed to attract investment. Belarus was ranked number 58 in the World Bank’s “Doing Business 2010” report and was among the top 10 “reformers” for 2008-2009.

Beginning in late 2008, Belarus increasingly felt the effects of the global financial crisis, as exports decreased to other severely impacted economies, notably Russia. Negative growth in 2009 reversed robust growth of approximately 10% in 2008 and 8.6% in 2007. In late 2008, the government secured a $2 billion loan from Russia and agreed to a $2.5 billion stand-by arrangement with the International Monetary Fund (IMF), which was raised to $3.63 billion in June 2009. With the conclusion of this program in April 2010, the IMF and Belarus are exploring the possibilities for a follow-on IMF program. However, Belarusian officials have said on several occasions that they would seek commercial credit abroad rather than a new IMF loan package.

Belarus continues to be heavily dependent on Russia, with the potential for greater economic dependency in a long-proposed EU-style union between the two states. Prospects for an eventual union state remain weak, largely due to the apparent lack of interest on the part of the leadership of both countries. However, in November 2009, President Lukashenka, Russian Premier Vladimir Putin, and Kazakhstan’s President Nursultan Nazarbayev signed agreements bringing their three countries into a customs union effective July 2010. The customs union aims to harmonize external trade tariffs among the three countries.

The World Bank announced a new 4-year country assistance strategy for Belarus in December 2007, which focuses on global environment and energy challenges, enhances the competitiveness of the Belarusian economy to assure rising incomes, and protects the welfare of the most vulnerable. As part of the strategy, the World Bank is financing improvements to schools, hospitals, and homes for orphans, the elderly, and the disabled throughout Belarus, with particular emphasis on improving the energy efficiency of those facilities. In 2004, Belarus rejected a World Bank loan to help fight AIDS and tuberculosis. IMF cooperation is currently limited to policy and technical consultations.

Environmental Issues
Belarus has established ministries of energy, forestry, land reclamation, and water resources, as well as state committees to deal with ecology and safety procedures in the nuclear power industry. The most serious environmental issue in Belarus results from the 1986 accident at the Chernobyl nuclear power plant. About 70% of the nuclear fallout from the plant landed on Belarusian territory and about 20% of the land remains contaminated. Government restrictions on residence and use of contaminated land are not strictly enforced, and the government even announced plans in 2004 to increase agricultural production in the contaminated regions. The government receives U.S. assistance in its efforts to deal with the consequences of the radiation. Belarus also faces growing air, land, and water pollution levels from potash mining in the south of the country.
 

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