SLOW CIS REFORMERS BEGIN TO HURT.

While Kazakhstan, Russia and Ukraine appear to have cobbled together economic systems in which the private sector is finally generating growth, two of the three members of the CIS that have been most loath to use markets have had a poor year. Belarus, Turkmenistan and Uzbekistan remain reluctant to reform. Of these countries, Belarus and Uzbekistan are struggling: Both are posting slower growth and attempting to reduce high rates of inflation. Turkmenistan has avoided the same fate only because of higher exports of natural gas, because Ukraine and other customers are finally paying their bills.

Official statistics still show that both economies are growing. In the first half, GDP in Belarus was up 3 percent, but this compares to growth of 5.8 percent in 2000 (CIS Statistical Bulletin, #18, September 2001.) The reason for the slowdown in Belarus has been tougher Russian policies on payments for exports to the country. Over the course of the transition, Belarus has survived by trading Soviet-designed machinery for Russian raw materials, which it then processes for sale in West European markets. This strategy worked well in 2000 when Belarus ran a US$1,548 million trade deficit with the CIS, all of which was with Russia, while running a US$441 million trade surplus with non-CIS countries. These proceeds were used to service Belarus’ US$1.2 billion foreign debt. This year, exports to the CIS (including Russia) are up 7 percent, while imports are down 10 percent as Russian energy producers are taking a tougher line with their Belarusan customers. The decline in the CIS trade deficit is squeezing Belarusan aggregate demand.

The Uzbek economy is rocky as well. The IMF resident representative left the country in the first half of the year and has not been replaced because of delays by the Uzbek government in making the som more convertible. The government finally unified the exchange rate this fall. Although growth in GDP has been in the 4 percent range for the past four years, growth in aggregate demand sank to an estimated 2.3 percent last year as the current account deficit had to shrink because of financing constraints. Although Uzbekistan has made strides on privatization, especially of small businesses, remaining government price controls have slowed economic growth, kept inflation well over 20 percent per year, and are storing up additional adjustment costs for the future.

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