Publication: Monitor Volume: 6 Issue: 207

Belarus reported at the end of October that after a second round of elections boycotted by opposition forces, its new parliament would be ready to start work in one month’s time (Reuters, October 30). The boycott was a partial success, given that another round of balloting would be required to fill thirteen vacancies in the 110-member lower house where the turnout was too low to produce a valid winner. Coupled with the intense criticism from the West of both the conduct of the election and the obstruction of economic and political reform in Belarus, the embarrassment was enough to prompt President Alyaksandr Lukashenka to publicly offer to share more of his powers with the new parliament (Reuters, October 29). Given the looming economic downturn facing the country, the offer may actually have been aimed at preparing a strategy for going into a presidential election next year in an increasingly difficult economic environment. Lukashenka may actually be looking for a place to lay the blame for hard times during his upcoming campaign for reelection while offering his own candidacy as the source of strong leadership required to get the economy going again.

With practically no foreign currency reserves and repeated rejections from the IMF for balance of payment support due to lack of any progress on economic reform, Belarusan economic policymakers did alter course somewhat in 2000. This is ushering in a period of sharp economic contraction. After an horrendous period of inflation in 1999, Belarus has substantially reduced inflation rates by restraining soft credits to financially troubled state-owned enterprises. Monthly rates of inflation have fallen from 14 percent at the turn of the year to 3.6 percent in August 2000. However, even the reported rate of growth in GDP and industry (which most Western observers maintain are substantially overstated) has slowed markedly. GDP was only up 2 percent and industrial output 1.5 percent through July.

The National Bank of Belarus has also taken a step toward rationalizing the economy by unifying the official and market-determined exchange rates. By reducing money creation and unifying the exchange rate, Belarusan economic policymakers are hoping that the International Monetary Fund will extend balance-of-payments support and structural adjustment credits. Despite these hopes, we do not see an IMF program in the offing because these policymakers insist that they will maintain only a very modest pace of reform rather than have a program of reform dictated from outside. Consequently, we project Belarusan GDP will rise a slim 1.1 percent this year and then enter a period of recession in 2001 during which money-losing activities will wind down. As we have seen elsewhere in the former Soviet republics, such an initial period of restructuring is particularly difficult for the older people and rural population, segments of the electorate that have been Lukashenka’s strongest supporters. We project that GDP will fall by 4.2 percent in 2001 and a further 1.2 percent in 2002 before stabilizing in 2003.