October 26 – November 1, 2015

President Lukashenka only talks about market economy without embarking on economic reforms

The situation has not changed
President Lukashenka only talks about market economy without embarking on economic reforms

Lukashenka is holding out for the existing economic model, which enables to maintain social stability at an acceptable level. The head of state is afraid of reducing the state’s role in the economy, seeing it as a threat to the stability of his rule. Nevertheless, some in the president’s inner circle, especially in the government, expect partial reforms of the most problematic economic sectors.

Last week, President Lukashenka held a meeting on topical issues of Belarus’ development.

Lukashenka sees no need in changing approaches to managing the economy; he counts on external funding to avoid major reforms and on administrative measures to retain control over economic processes. If crisis in the economy builds up, the president may resume usual micromanagement practices.

The president is attempting to mobilize state managers and bureaucrats. Despite the failure of a large-scale industrial modernization programme in 2012-2015, the President has once again requested woodworking industry to provide modernization performance reports by the next meeting. In the past, there were numerous meetings and working field trips to control the modernisation progress, however, in most cases, to no avail.

In addition, the president has replaced previously used term ‘modernization’ with a more popular now ‘structural reform’, which he uses in a peculiar way: “The strategy was that we needed structural reforms in our economy (and this [modernisation] was a structural reform), so that a share of manufactured products sold on domestic and foreign markets was made with our own raw materials in order to avoid dependence on raw materials from other countries, as is the case in other economic sectors”.

The president has proposed to strengthen control over pricing policy and step-up the state’s role in redistributing profits from the most profitable sectors to the loss-making enterprises, which partially help the authorities to solve the unemployment issue. It is worth noting that previously Lukashenka had promised to put a leash on prices, so as he had no funds to raise wages.

Despite high levels of hidden unemployment, the government keeps silence about this matter in an attempt to preserve the existing structure of the economy, in which public sector and large state owned enterprises predominate. In addition, amid rising unemployment and falling wages in Belarus, labour migration, especially to Russia, enables to relieve social tension.

Meanwhile, what the president says is at odds with the government’s plans for 2016, which envisage some market reforms in the economic policy. Nevertheless, President Lukashenka said he did not intend to make fundamental changes in the government, which should imply continuity of the economic policy for the next presidential term, “the future government for next five years and all governmental agencies have been formed before the presidential election”.

Analysts say that the likelihood and depth of economic reforms largely depends on Belarus’ ability to attract foreign loans. If Lukashenka were able to raise sufficient funds, the changes would be purely cosmetic and if not – they might be more substantial.

Overall, if Belarus obtains foreign loans, the Belarusian authorities will combine market rhetoric with micromanagement of the economy, especially if economic imbalances occur.

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Once a week, in coordination with a group of prominent Belarusian analysts, we provide analytical commentaries on the most topical and relevant issues, including the behind-the-scenes processes occurring in Belarus. These commentaries are available in Belarusian, Russian, and English.

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