Belarusan prime minister Syarhey Linh’s October 31 address to the National Assembly was marked by criticism of Russian and international financial institutions and domestic monopolies, as well as some candid appraisals of rising inflation and Belarus’s growing trade deficit. (Belorusskaya delovaya gazeta, November 3)
According to Linh, consumer prices in Belarus last month were rising at an annual rate of 158 percent, and industrial prices were increasing at a 180 percent clip. If correct, these figures would make Belarus one of the CIS’s high-inflation countries (along with Turkmenistan and Tajikistan). Linh argued that inflation in Belarus is of a cost-push — rather than demand-pull — nature. This is apparent, he argued, in the fact that monopolistic firms in the engineering, petrochemical, and railroad industries had pushed prices up by 207, 200, and 187 percent, respectively. Such "unjustified" price increases would be suppressed by price controls and other " disciplinary methods."
Linh also blamed "speculation" by "Moscow financial groups" for driving down the value of the Belarusan ruble on the Moscow inter-bank foreign-exchange market, a trend that, in the government’s view, is responsible for the rising cost of imported energy. Increasing energy prices are, in turn, seen as a major cause of Belarus’s growing trade deficit, which, according to the Ministry for Foreign Economic Relations, stood at $1.158 billion (11.5 percent of GDP) at the end of September. This represents a 13.3 increase over the same period in 1996. (Belarusan agencies, November 10)
There is plenty of evidence to suggest that demand pressures will continue to push prices up in 1998, however. In order to ensure the continuation of the rapid economic growth reported this year, Linh announced that the government will increase the budget deficit by 25 percent (from 12.8 to 16.0 billion Belarusan rubles) in 1998. Two-thirds of this increased spending, which is to fund investment projects in "priority sectors," is to be financed by domestic borrowing, with the remainder coming from national bank credits. This will likely mean that the deficit will be financed almost exclusively by the inflationary issuance of a new currency.
Such measures are necessitated, Linh argued, by the unwillingness of international financial institutions to finance Belarus’s fiscal and trade deficits, which forces the country to resort to inflationary deficit finance. Linh is correct in this respect: the resumption of IMF and World Bank support for Belarus’s economic policies is conditioned on government efforts to hold the budget deficit to 2.7 percent of GDP, as well as on accelerating the pace of privatization and on liberalizing the foreign-exchange market. Prospects for change in these areas do not seem particularly rosy, however. Although discussions of Belarusan economic policy between World Bank and Belarusan officials did take place in early November, the head of the World Bank’s office in Belarus, David Philips, has said that the results of these talks were not especially impressive. (Belarusan agencies, November 10)
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