Belarus is a graphic example of the problems created when an industrial "colony" becomes independent. The Belorussian SSR had imported the bulk of its raw materials, components, and energy from the Soviet Union and exported most of what it produced (much of it for the military-industrial complex) back to the Soviet Union. The country's economy, which had been integrated into that of the Soviet Union, found itself deprived of most of the essential components it needed to function independently when the Soviet system collapsed.
Independent Belarus's economy, like that of the Belorussian SSR, still relies on inefficient, state-supported, industrial facilities, which are increasingly hampered by their need for fuels whose prices are gradually reaching world levels. The economic recession in Belarus intensified in 1994, leading to Belarus's worst economic year to that point. In 1994 the net material product had dropped by 21 percent from 1993 (down by more than one-third from its 1989 level), which was worse than in the two previous years; this decline was felt across the board. Agriculture now accounted for 36 percent of NMP, industry for 44 percent, transportation and communications for 3 percent, construction for 12 percent, and the remaining sectors for 5 percent.
Showing posts with label THE ECONOMY. Show all posts
Showing posts with label THE ECONOMY. Show all posts
Saturday, January 12, 2008
Government Policy
Although the government's stated goals during the first years of independence included promoting a market economy, normalizing monetary circulation, and lowering the country's dependence on monopoly suppliers, these goals were not met. Inflation and depreciation in the exchange rate stemmed from the government's compensation for decreased living standards and lower industrial output through subsidies (rather than changes in the country's economic structure and adoption of market reforms).
The government's economic timidity was prompted not only by the wish to maintain the status quo but also by a fear of the social consequences. Years earlier, calls for political action did not stir the populace, but the populace reacted dramatically to sudden price increases. In April 1991, demonstrations occurred in Minsk, Orsha, and other cities, frightening the government into wage concessions, a slowdown of reforms, and promises not to neglect the "social protection net" so as to avoid a repeat of such economically motivated unrest.
As of mid-1995, the government continued to look for easy solutions to its economic problems. It neglected privatization and price liberalization, instead continuing to increase minimum wages to offset minor price increases and to prop up outdated factories that piled up unwanted inventories.
The government's economic timidity was prompted not only by the wish to maintain the status quo but also by a fear of the social consequences. Years earlier, calls for political action did not stir the populace, but the populace reacted dramatically to sudden price increases. In April 1991, demonstrations occurred in Minsk, Orsha, and other cities, frightening the government into wage concessions, a slowdown of reforms, and promises not to neglect the "social protection net" so as to avoid a repeat of such economically motivated unrest.
As of mid-1995, the government continued to look for easy solutions to its economic problems. It neglected privatization and price liberalization, instead continuing to increase minimum wages to offset minor price increases and to prop up outdated factories that piled up unwanted inventories.
Privatization
A conservative parliament and a lack of political will have slowed privatization in Belarus in comparison with other former Soviet republics. Although the Law on Privatization of State Property was approved in January 1993, the Supreme Soviet did not approve the 1993 State Program of Privatization and the Law on Privatization Checks (or vouchers) until that summer. By the end of the year, less than 2 percent of all republic assets slated for privatization had actually been transferred to the private sector. To speed the pace of privatization, the State Committee on Privatization was converted into a ministry with an expanded staff in March 1994.
The State Program of Privatization calls for two-thirds of state enterprises to be privatized during 1993-2000. Exemptions include defense-related industries, monopolies (such as utilities), and specialized enterprises working with gems and precious metals. Enterprises of strategic importance can be privatized only with the approval of the Cabinet of Ministers, and agricultural monopolies can be privatized only with the approval of the Anti-Monopoly Committee.
According to the privatization law, 50 percent of each entity slated for privatization will be distributed to the populace via vouchers, and 50 percent will be sold for cash; the prices of the entities will be adjusted for inflation. (There are separate vouchers for housing and property.) Every citizen was eligible to apply for privatization vouchers and open a voucher account at the Savings Bank (Sbyerbank) as of April 1, 1994. The entitlement is twenty property vouchers per citizen plus one voucher for each year worked, with additional allocations for orphans, the disabled, and war veterans. All vouchers are scheduled to be distributed by January 1, 1996.
In 1995 the practice was quite different from the theory. Privatization of large firms, delayed by the government under various pretexts, had not even started. (Much resistance to privatization also came from factory managers and politicians, particularly at the local level.) At best, some 10 percent of state enterprises had been privatized. Privatization plans for 1995 call for another 500 state-owned enterprises (4 percent of the total) to be privatized.
The State Program of Privatization calls for two-thirds of state enterprises to be privatized during 1993-2000. Exemptions include defense-related industries, monopolies (such as utilities), and specialized enterprises working with gems and precious metals. Enterprises of strategic importance can be privatized only with the approval of the Cabinet of Ministers, and agricultural monopolies can be privatized only with the approval of the Anti-Monopoly Committee.
According to the privatization law, 50 percent of each entity slated for privatization will be distributed to the populace via vouchers, and 50 percent will be sold for cash; the prices of the entities will be adjusted for inflation. (There are separate vouchers for housing and property.) Every citizen was eligible to apply for privatization vouchers and open a voucher account at the Savings Bank (Sbyerbank) as of April 1, 1994. The entitlement is twenty property vouchers per citizen plus one voucher for each year worked, with additional allocations for orphans, the disabled, and war veterans. All vouchers are scheduled to be distributed by January 1, 1996.
In 1995 the practice was quite different from the theory. Privatization of large firms, delayed by the government under various pretexts, had not even started. (Much resistance to privatization also came from factory managers and politicians, particularly at the local level.) At best, some 10 percent of state enterprises had been privatized. Privatization plans for 1995 call for another 500 state-owned enterprises (4 percent of the total) to be privatized.
Agriculture
In 1993 agriculture and forestry accounted for almost onequarter of the gross domestic product and almost 6 percent of the total agricultural output of the former Soviet Union (Belarus has 4 percent of the former Soviet labor force). Agriculture employed 20 percent of the labor force.
During the Soviet era, agriculture in Belarus consisted mainly of state and collective farms, with a sprinkling of small plots for private household use. In the early 1990s, the government based its agricultural policies on that legacy. Instead of disrupting the production of food for both domestic consumption and export, the authorities decided to maintain the large-scale farming for which they believed the existing equipment and capital stock were best suited. In 1994 the Ministry of Agriculture planned to transform collective and state farms into joint-stock companies that would be agriculturally efficient and would keep providing most of the social services in rural areas.
In March 1993, Belarus added the Law on the Right to Land Ownership to its Land Lease Law (March 1990). The law on land ownership limited purchases to small parcels for housing and orchards, stated that farming would depend on leased land, and allowed private farmers to lease only up to fifty hectares on long-term leases. This law meant that Belarus would not develop a private farming sector and that farming would stay in the hands of the government, which owned the collective and state farms.
In 1993 private agriculture accounted for 37 percent of all agricultural output, reflecting the increase in the number of private farms from eighty-four in 1990 to 2,730 in 1993. However, the average size of private farms remained small: twenty-one hectares in 1993, compared with 3,114 hectares on average for collective farms and 3,052 hectares for state farms. In addition, private plots on large farms in rural areas and garden plots in urban areas continue to provide a significant amount of food, just as they did in the Soviet era.
Belarus can be divided into three agricultural regions: north (flax, fodder, grasses, and cattle), central (potatoes and pigs), and south (pastureland, hemp, and cattle). Belarus's cool climate and dense soil are well suited to fodder crops, which support herds of cattle and pigs, and temperate-zone crops (wheat, barley, oats, buckwheat, potatoes, flax, and sugar beets). Belarus's soils are generally fertile, especially in the river valleys, except in the southern marshy regions.
Despite the progress made by the agricultural sector in 1993, it suffered a set-back in 1994. A drought during the summer contributed to a decline of 19 percent in the Belarusian crop. Wheat production declined 35 percent from the previous year, while sugar beet production declined 31 percent and potato production declined 29 percent. Animal products declined 11 percent; the number of cows decreased 2 percent, but the number of sheep declined 30 percent.
The greatest changes in agriculture in the first half of the 1990s were a decline in the amount of land under cultivation and a significant shift from livestock to crop production because of the fact that crops had become a great deal more profitable than before. The sales price for crops generally increased more than production costs, while inputs for livestock (such as imported fodder) have increased in price beyond livestock sales prices. Many private farms faced difficulties, caused partly by inflation, which wreaked havoc on preset contract prices, delayed payments, and budget subsidies.
In early 1993, Belarus's government replaced the system of "recommended" agricultural producer prices with "support" prices, which were intended as minimum guaranteed prices and could be adjusted in accord with price increases in agricultural inputs. Meat prices were deregulated in the summer of 1993, and direct budgetary subsidies were no longer provided to the agriculture sector at all.
Basic foods were watched closely, however, and sometimes "reprotected ." For example, prices were reset on rationed sugar in February 1994 in response to a sharp increase in its market price. Another problem was lower food prices in Belarus than in neighboring countries; the government maintained subsidies on food to keep prices low for the people of Belarus. Nonetheless, these subsidies strained the budget while encouraging increased informal exports of food, or "food tourism," from neighboring countries.
Because the agricultural sector is in critical condition, partly the consequence of a drought in the summer of 1994 that reduced agricultural output by nearly 25 percent, the government gave it a special place in the 1995 budget. President Lukashyenka gave collective and state farms credits totaling 520 million rubles to facilitate sowing and to purchase fertilizer. In addition, by implementing sizable price increases for dairy products, pork products, and beef, the government hoped to increase production of these commodities.
Forests cover nearly one-third of Belarus and are the source of raw materials for production of matches, pressboard, plywood, furniture, timbers for coal mines, paper, paperboard, and sections of prefabricated houses. However, during the Soviet era, Belarus's forests were poorly managed and were logged faster than they were replanted. In 1991 the country produced 5.8 million cubic meters of timber.
An ongoing problem facing agriculture is soil depletion, because of a severe fertilizer shortage, and a serious lack of equipment. For many farmers, the answer to the latter, as well as to the cost and shortage of fuel, is a return to horse-drawn ploughs.
The main enduring problem affecting the agricultural and forestry sector is the Chornobyl' disaster of 1986. Belarus absorbed the bulk of the radioactive fallout from the explosion because of weather conditions on the day of the disaster. Longterm radiation affects 18 percent of Belarus's most productive farmland and 20 percent of its forests. Despite the Chornobyl' accident, in 1993 Belarus was still a net exporter of meat, milk, eggs, flour, and potatoes to other former Soviet republics, although its exports were routinely tested for radioactive contamination.
During the Soviet era, agriculture in Belarus consisted mainly of state and collective farms, with a sprinkling of small plots for private household use. In the early 1990s, the government based its agricultural policies on that legacy. Instead of disrupting the production of food for both domestic consumption and export, the authorities decided to maintain the large-scale farming for which they believed the existing equipment and capital stock were best suited. In 1994 the Ministry of Agriculture planned to transform collective and state farms into joint-stock companies that would be agriculturally efficient and would keep providing most of the social services in rural areas.
In March 1993, Belarus added the Law on the Right to Land Ownership to its Land Lease Law (March 1990). The law on land ownership limited purchases to small parcels for housing and orchards, stated that farming would depend on leased land, and allowed private farmers to lease only up to fifty hectares on long-term leases. This law meant that Belarus would not develop a private farming sector and that farming would stay in the hands of the government, which owned the collective and state farms.
In 1993 private agriculture accounted for 37 percent of all agricultural output, reflecting the increase in the number of private farms from eighty-four in 1990 to 2,730 in 1993. However, the average size of private farms remained small: twenty-one hectares in 1993, compared with 3,114 hectares on average for collective farms and 3,052 hectares for state farms. In addition, private plots on large farms in rural areas and garden plots in urban areas continue to provide a significant amount of food, just as they did in the Soviet era.
Belarus can be divided into three agricultural regions: north (flax, fodder, grasses, and cattle), central (potatoes and pigs), and south (pastureland, hemp, and cattle). Belarus's cool climate and dense soil are well suited to fodder crops, which support herds of cattle and pigs, and temperate-zone crops (wheat, barley, oats, buckwheat, potatoes, flax, and sugar beets). Belarus's soils are generally fertile, especially in the river valleys, except in the southern marshy regions.
Despite the progress made by the agricultural sector in 1993, it suffered a set-back in 1994. A drought during the summer contributed to a decline of 19 percent in the Belarusian crop. Wheat production declined 35 percent from the previous year, while sugar beet production declined 31 percent and potato production declined 29 percent. Animal products declined 11 percent; the number of cows decreased 2 percent, but the number of sheep declined 30 percent.
The greatest changes in agriculture in the first half of the 1990s were a decline in the amount of land under cultivation and a significant shift from livestock to crop production because of the fact that crops had become a great deal more profitable than before. The sales price for crops generally increased more than production costs, while inputs for livestock (such as imported fodder) have increased in price beyond livestock sales prices. Many private farms faced difficulties, caused partly by inflation, which wreaked havoc on preset contract prices, delayed payments, and budget subsidies.
In early 1993, Belarus's government replaced the system of "recommended" agricultural producer prices with "support" prices, which were intended as minimum guaranteed prices and could be adjusted in accord with price increases in agricultural inputs. Meat prices were deregulated in the summer of 1993, and direct budgetary subsidies were no longer provided to the agriculture sector at all.
Basic foods were watched closely, however, and sometimes "reprotected ." For example, prices were reset on rationed sugar in February 1994 in response to a sharp increase in its market price. Another problem was lower food prices in Belarus than in neighboring countries; the government maintained subsidies on food to keep prices low for the people of Belarus. Nonetheless, these subsidies strained the budget while encouraging increased informal exports of food, or "food tourism," from neighboring countries.
Because the agricultural sector is in critical condition, partly the consequence of a drought in the summer of 1994 that reduced agricultural output by nearly 25 percent, the government gave it a special place in the 1995 budget. President Lukashyenka gave collective and state farms credits totaling 520 million rubles to facilitate sowing and to purchase fertilizer. In addition, by implementing sizable price increases for dairy products, pork products, and beef, the government hoped to increase production of these commodities.
Forests cover nearly one-third of Belarus and are the source of raw materials for production of matches, pressboard, plywood, furniture, timbers for coal mines, paper, paperboard, and sections of prefabricated houses. However, during the Soviet era, Belarus's forests were poorly managed and were logged faster than they were replanted. In 1991 the country produced 5.8 million cubic meters of timber.
An ongoing problem facing agriculture is soil depletion, because of a severe fertilizer shortage, and a serious lack of equipment. For many farmers, the answer to the latter, as well as to the cost and shortage of fuel, is a return to horse-drawn ploughs.
The main enduring problem affecting the agricultural and forestry sector is the Chornobyl' disaster of 1986. Belarus absorbed the bulk of the radioactive fallout from the explosion because of weather conditions on the day of the disaster. Longterm radiation affects 18 percent of Belarus's most productive farmland and 20 percent of its forests. Despite the Chornobyl' accident, in 1993 Belarus was still a net exporter of meat, milk, eggs, flour, and potatoes to other former Soviet republics, although its exports were routinely tested for radioactive contamination.
Industry
In 1985, in the early days of perestroika, Belarus specialized mainly in machine building and instrument building (especially tractors, large trucks, machine tools, and automation equipment) and in agricultural production. Because of the vast devastation caused by World War II, the republic's industrial base was of postwar vintage, enabling it to maintain higher labor productivity than many other former republics of the Soviet Union, which were burdened with older, prewar equipment.
In 1992 industry in Belarus accounted for approximately 38 percent of GDP, down from 51 percent in 1991. This figure reflects a decline in the availability of imported inputs (especially crude oil and deliveries from Russia), a drop in investments, and decreased demand from Belarus's traditional export markets among the former Soviet republics. Belarus's economy has also been affected by decreased demand for military equipment, traditionally an important sector. Attempts to convert military production to civil production were largely unsuccessful as of 1995.
By 1993 Belarus also produced petrochemicals, plastics, synthetic fibers, fertilizer, processed food, glass, and textiles. Even though Belarus continued its production of electronic instruments and computers, a specialty from the communist era, their quality mainly restricted them for export to former Soviet republics.
In 1994 gross industrial output declined by 19 percent. At the beginning of 1995, every industrial sector had decreased output, including fuel and energy extracting (down by 27 percent); chemical and oil refining (18 percent); ferrous metallurgy (13 percent); machine building and metal working (17 percent); truck production (31 percent); tractor production (48 percent); light industry (33 percent); wood, paper, and pulp production (14 percent); construction materials (32 percent); and consumer goods (16 percent).
In 1992 industry in Belarus accounted for approximately 38 percent of GDP, down from 51 percent in 1991. This figure reflects a decline in the availability of imported inputs (especially crude oil and deliveries from Russia), a drop in investments, and decreased demand from Belarus's traditional export markets among the former Soviet republics. Belarus's economy has also been affected by decreased demand for military equipment, traditionally an important sector. Attempts to convert military production to civil production were largely unsuccessful as of 1995.
By 1993 Belarus also produced petrochemicals, plastics, synthetic fibers, fertilizer, processed food, glass, and textiles. Even though Belarus continued its production of electronic instruments and computers, a specialty from the communist era, their quality mainly restricted them for export to former Soviet republics.
In 1994 gross industrial output declined by 19 percent. At the beginning of 1995, every industrial sector had decreased output, including fuel and energy extracting (down by 27 percent); chemical and oil refining (18 percent); ferrous metallurgy (13 percent); machine building and metal working (17 percent); truck production (31 percent); tractor production (48 percent); light industry (33 percent); wood, paper, and pulp production (14 percent); construction materials (32 percent); and consumer goods (16 percent).
Mining
Although not rich in minerals, Belarus has been found to have small deposits of iron ore, nonferrous metal ores, dolomite, potash (for fertilizer production), rock salt, phosphorites, refractory clay, molding sand, sand for glass production, and various building materials. Belarus also has deposits of industrial diamonds, titanium, copper ore, lead, mercury, bauxite, nickel, vanadium, and amber, but little progress has been made in exploiting them.
Energy
Belarus's transition from communism to democracy proved to be more difficult than expected, economically as well as politically. What had once been a boon to industry in the Belorussian SSR--large volumes of inexpensive oil, natural gas, and electricity from the Russian Republic--quickly became a considerable problem for independent Belarus. Under the communist regime, industry had had no incentive to use fuels efficiently, modernize equipment, reduce pollution, maintain factories adequately, recycle, or allot energy resources efficiently. However, once Russian fuel prices began to approach world levels, Belarusian industry had to adjust in order to survive. Logic would seem to call for enterprises improving their industrial efficiency, but the oil refineries at Navapolatsk (capacity 22 million tons a year) and Mazyr (capacity 18 million tons a year), as well as many enterprises, cut their output instead. The 30 percent drop in energy consumption between 1990 and 1993 was the result of a drop in demand for industrial goods produced in Belarus, partly because of the chaotic state of the Soviet economy in the last years of the Soviet Union's existence, and partly because the Soviet Union no longer needed so many goods for its military.
By mid-1993 Belarus's debt to Russia for oil and natural gas had reached US$450 million. After several warnings, Russia temporarily cut off Belarus's supply in August and threatened to do so again on at least two other occasions. In an attempt to head off a crisis, government authorities resorted to allocating energy to priority sectors in 1994.
Russia's suspension of fuel shipments to Belarus yet again in September 1994 over unpaid fuel bills was the impetus for Belarus to sign an agreement giving the Russian state gas company ownership of its Belarusian counterpart, Beltransgaz, in exchange for the resumption of gas deliveries, but the agreement was not ratified by the Supreme Soviet of Belarus. Beltransgaz made additional offers of means of repayment, and Russia countered with conditions of its own and hinted that failure to meet these conditions would result in Russia's rerouting pipelines to Western Europe through either Lithuania or Latvia--a blow to Belarus.
Because delivery of natural gas in 1995 at lower-than-world prices was made contingent upon Belarus's timely payment of its bills, Belarus felt the need to diversify its sources of fuels. The government's long-term energy program, in place in early 1995, aimed to diversify its sources of fuels from such countries as Poland, Australia, Turkmenistan, and Norway.
In 1993 Belarus imported some 90 percent of its fuel from Russia via the Druzhba (Friendship) oil pipeline and the Northern Lights natural gas pipeline, both of which pass through the country en route to Central Europe. Refineries at Polatsk and Mazyr processed some of the crude oil for fuel, and the Polatsk refinery also provided raw material for fertilizer, plastics, and artificial fibers. In 1992 Belarus had 1,470 kilometers of pipeline carrying crude oil, 1,100 kilometers of pipeline carrying refined products, and 1,980 kilometers of pipeline carrying natural gas.
In January 1995, Russia and Belarus signed an agreement under which Russia was to deliver some 66 percent of Belarus's yearly required crude oil at prices that did not exceed domestic Russian prices (which were set to rise significantly over the course of the year). In exchange, Belarus would export products to Russia, although finding enough products that Russia wants could be a problem.
Although Belarus imports most of its fuels, it has small deposits of oil and natural gas close to the Polish border, as well as oil shale, coal, and lignite. Belarus's production of 13 percent (2 million tons) of its crude oil production and 2 percent (2.4 million tons) of its natural gas consumption was stable in 1994.
Belarus also has a large supply of peat (more than one-third of the total for the former Soviet Union), which is used to power industry, heat homes, and fuel boilers at electric power plants. In 1993 thirty-seven factories produced about 2 million tons of peat briquettes.
In 1994 Belarus's twenty-two thermal power plants had a production capacity of 7,033 megawatts and produced 31,400 million kilowatt-hours of electricity. Additional small power plants had a total capacity of 188 megawatts. There were also nine small hydroelectric power plants with a total installed capacity of some six megawatts. All but three plants produced heat as well as electricity.
The country's power grid is connected to the grids of Lithuania, Russia, Ukraine, and Poland. Most electricity imports come from Lithuania (the Ignalina Nuclear Power Plant) and Russia (the Smolensk Nuclear Power Plant), but even here, Belarus has had problems in paying for its imports. In May 1995, Lithuania resumed electricity exports after more than two years; Belarus agreed to make payment in Russian natural gas.
During the Soviet era, nuclear energy was promoted as an inexpensive source of electricity, but after the Chornobyl' accident, many people in Belarus were opposed to nuclear power. A nuclear power plant was under construction near Minsk in the early 1990s, and the country had no nuclear generating capacity at that time.
By mid-1993 Belarus's debt to Russia for oil and natural gas had reached US$450 million. After several warnings, Russia temporarily cut off Belarus's supply in August and threatened to do so again on at least two other occasions. In an attempt to head off a crisis, government authorities resorted to allocating energy to priority sectors in 1994.
Russia's suspension of fuel shipments to Belarus yet again in September 1994 over unpaid fuel bills was the impetus for Belarus to sign an agreement giving the Russian state gas company ownership of its Belarusian counterpart, Beltransgaz, in exchange for the resumption of gas deliveries, but the agreement was not ratified by the Supreme Soviet of Belarus. Beltransgaz made additional offers of means of repayment, and Russia countered with conditions of its own and hinted that failure to meet these conditions would result in Russia's rerouting pipelines to Western Europe through either Lithuania or Latvia--a blow to Belarus.
Because delivery of natural gas in 1995 at lower-than-world prices was made contingent upon Belarus's timely payment of its bills, Belarus felt the need to diversify its sources of fuels. The government's long-term energy program, in place in early 1995, aimed to diversify its sources of fuels from such countries as Poland, Australia, Turkmenistan, and Norway.
In 1993 Belarus imported some 90 percent of its fuel from Russia via the Druzhba (Friendship) oil pipeline and the Northern Lights natural gas pipeline, both of which pass through the country en route to Central Europe. Refineries at Polatsk and Mazyr processed some of the crude oil for fuel, and the Polatsk refinery also provided raw material for fertilizer, plastics, and artificial fibers. In 1992 Belarus had 1,470 kilometers of pipeline carrying crude oil, 1,100 kilometers of pipeline carrying refined products, and 1,980 kilometers of pipeline carrying natural gas.
In January 1995, Russia and Belarus signed an agreement under which Russia was to deliver some 66 percent of Belarus's yearly required crude oil at prices that did not exceed domestic Russian prices (which were set to rise significantly over the course of the year). In exchange, Belarus would export products to Russia, although finding enough products that Russia wants could be a problem.
Although Belarus imports most of its fuels, it has small deposits of oil and natural gas close to the Polish border, as well as oil shale, coal, and lignite. Belarus's production of 13 percent (2 million tons) of its crude oil production and 2 percent (2.4 million tons) of its natural gas consumption was stable in 1994.
Belarus also has a large supply of peat (more than one-third of the total for the former Soviet Union), which is used to power industry, heat homes, and fuel boilers at electric power plants. In 1993 thirty-seven factories produced about 2 million tons of peat briquettes.
In 1994 Belarus's twenty-two thermal power plants had a production capacity of 7,033 megawatts and produced 31,400 million kilowatt-hours of electricity. Additional small power plants had a total capacity of 188 megawatts. There were also nine small hydroelectric power plants with a total installed capacity of some six megawatts. All but three plants produced heat as well as electricity.
The country's power grid is connected to the grids of Lithuania, Russia, Ukraine, and Poland. Most electricity imports come from Lithuania (the Ignalina Nuclear Power Plant) and Russia (the Smolensk Nuclear Power Plant), but even here, Belarus has had problems in paying for its imports. In May 1995, Lithuania resumed electricity exports after more than two years; Belarus agreed to make payment in Russian natural gas.
During the Soviet era, nuclear energy was promoted as an inexpensive source of electricity, but after the Chornobyl' accident, many people in Belarus were opposed to nuclear power. A nuclear power plant was under construction near Minsk in the early 1990s, and the country had no nuclear generating capacity at that time.
Labor Force
The private sector attracted a growing portion of the labor force in 1994, but cooperatives and the state sector continued to account for the bulk of official employment in Belarus. The labor force numbered 4.8 million persons in 1994, or 48 percent of the total population.
A principal reason for Belarus's low official unemployment rate in 1994 (2.2 percent by the end of that year) was underemployment, which had been true during the Soviet era as well (thus keeping down the Soviet unemployment rate). Rather than lay off employees, enterprises often shortened work hours, reduced wages, and even forced employees to take leave without pay instead. Agreements signed by enterprises, labor unions, and the government in 1993 and 1994 called for avoiding declines in output and employment; in return for keeping the same level of employment, labor unions mainly refrained from industrial disruptions. At a time when the cost of living was rising dramatically, the social benefits provided by enterprises also acted as a disincentive for voluntary separations: a low-paying job that provided access to clinics, day care, and inexpensive housing was better than cash unemployment benefits alone.
A principal reason for Belarus's low official unemployment rate in 1994 (2.2 percent by the end of that year) was underemployment, which had been true during the Soviet era as well (thus keeping down the Soviet unemployment rate). Rather than lay off employees, enterprises often shortened work hours, reduced wages, and even forced employees to take leave without pay instead. Agreements signed by enterprises, labor unions, and the government in 1993 and 1994 called for avoiding declines in output and employment; in return for keeping the same level of employment, labor unions mainly refrained from industrial disruptions. At a time when the cost of living was rising dramatically, the social benefits provided by enterprises also acted as a disincentive for voluntary separations: a low-paying job that provided access to clinics, day care, and inexpensive housing was better than cash unemployment benefits alone.
Banking and Finance
Under the communist regime, the currency of the Soviet Union was the ruble, and the banking system was owned and managed by the central government. Gosbank (Gosudarstvennyy bank--the State Bank) was the central bank of the country and its only commercial bank as well. It handled all significant banking transactions, including the issuance and control of currency and credit, management of the gold reserve, and oversight of all transactions among economic enterprises. Gosbank had main offices in each of the republics, and, because the banking system was highly centralized, it played an important role in managing the economy.
After independence, Belarus restructured its banks into a two-tier system consisting of the National Bank of Belarus and thirty-six commercial banks (including four specialized banks: Byelagroprombank, Byelpromstroybank, Byelvnyehsekonombank, and Sbyerbank) with a total of 525 branches in 1994. Of these banks, Sbyerbank is wholly state owned, another bank is owned by an individual, and the rest are organized as either limited liability companies or joint-stock companies.
Belarus's securities market was created at the end of 1992 and is licensed and controlled by the state inspectorate for securities and the stock exchange. The over-the-counter market dominates the securities market, with Russian corporate shares and bonds the most actively traded items. The country has three commodity and stock exchanges.
The Belarusian ruble was introduced in May 1992 in response to a shortage of Russian rubles with which to pay fuel and other debts to Russia. The zaychyk (hare), as the Belarusian ruble is known colloquially, was officially tied to the Russian ruble, but Russia would not accept the new unsecured currency in payment, forcing Belarus to dip into its hard-currency reserves. In September 1993, Belarus and five other CIS countries agreed to create a joint monetary system based on the Russian ruble.
Although Belarus and Russia continued to work at creating a monetary and economic union by signing an April 1994 treaty, only a customs union was actually realized. Moscow postponed implementation of the union itself, although it would have given Moscow significant control over the Belarusian economy, for fear of jeopardizing its own fragile economic reforms. Belarus's completely unreformed economy and accompanying high rate of inflation would have forced Russia to print large amounts of money to keep the Belarusian economy going, thereby fueling inflation in Russia.
In early 1995, Belarus's monetary policy was so loose that the National Bank of Belarus came under fire from the International Monetary Fund when it lowered the country's key financing rate despite the country's high level of inflation. Belarus was in danger of jeopardizing other IMF loans by its actions. Despite the logic of the IMF's reasoning, President Lukashyenka's view of these difficulties is that they were the result of the IMF's dislike of Belarus's close relationship with Russia.
In November 1994, the Supreme Soviet declared that the country's sole legal tender would be the Belarusian ruble as of January 1, 1995, when the Russian ruble could no longer be circulated. Although the zaychyk was convertible, the National Bank of Belarus used multiple exchange rates that depended on the nature of the transaction, thus setting limits on the convertibility of the zaychyk.
The government's lax monetary policy failed to support financial discipline, which caused the average monthly inflation rate in 1993 to increase to 45 percent in the last quarter. Even though monthly inflation was down to 10 percent by March 1994, it rose again in 1994 and frightened off investments from abroad, including Russia. The consumer price index rose by 1,070 percent in 1992, by 1,290 percent in 1993, and by 2,221 percent in 1994. In 1995 inflation seemed to abate somewhat, with the monthly inflation rate of "only" 22 percent through April.
After independence, Belarus restructured its banks into a two-tier system consisting of the National Bank of Belarus and thirty-six commercial banks (including four specialized banks: Byelagroprombank, Byelpromstroybank, Byelvnyehsekonombank, and Sbyerbank) with a total of 525 branches in 1994. Of these banks, Sbyerbank is wholly state owned, another bank is owned by an individual, and the rest are organized as either limited liability companies or joint-stock companies.
Belarus's securities market was created at the end of 1992 and is licensed and controlled by the state inspectorate for securities and the stock exchange. The over-the-counter market dominates the securities market, with Russian corporate shares and bonds the most actively traded items. The country has three commodity and stock exchanges.
The Belarusian ruble was introduced in May 1992 in response to a shortage of Russian rubles with which to pay fuel and other debts to Russia. The zaychyk (hare), as the Belarusian ruble is known colloquially, was officially tied to the Russian ruble, but Russia would not accept the new unsecured currency in payment, forcing Belarus to dip into its hard-currency reserves. In September 1993, Belarus and five other CIS countries agreed to create a joint monetary system based on the Russian ruble.
Although Belarus and Russia continued to work at creating a monetary and economic union by signing an April 1994 treaty, only a customs union was actually realized. Moscow postponed implementation of the union itself, although it would have given Moscow significant control over the Belarusian economy, for fear of jeopardizing its own fragile economic reforms. Belarus's completely unreformed economy and accompanying high rate of inflation would have forced Russia to print large amounts of money to keep the Belarusian economy going, thereby fueling inflation in Russia.
In early 1995, Belarus's monetary policy was so loose that the National Bank of Belarus came under fire from the International Monetary Fund when it lowered the country's key financing rate despite the country's high level of inflation. Belarus was in danger of jeopardizing other IMF loans by its actions. Despite the logic of the IMF's reasoning, President Lukashyenka's view of these difficulties is that they were the result of the IMF's dislike of Belarus's close relationship with Russia.
In November 1994, the Supreme Soviet declared that the country's sole legal tender would be the Belarusian ruble as of January 1, 1995, when the Russian ruble could no longer be circulated. Although the zaychyk was convertible, the National Bank of Belarus used multiple exchange rates that depended on the nature of the transaction, thus setting limits on the convertibility of the zaychyk.
The government's lax monetary policy failed to support financial discipline, which caused the average monthly inflation rate in 1993 to increase to 45 percent in the last quarter. Even though monthly inflation was down to 10 percent by March 1994, it rose again in 1994 and frightened off investments from abroad, including Russia. The consumer price index rose by 1,070 percent in 1992, by 1,290 percent in 1993, and by 2,221 percent in 1994. In 1995 inflation seemed to abate somewhat, with the monthly inflation rate of "only" 22 percent through April.
Foreign Economic Relations
By mid-1995 Belarus still relied primarily on Russia and other members of the CIS as its primary trade partners but had started looking to expand its economic ties beyond the CIS. It turned to the EU, with whom it signed an agreement with the goal of gradual economic integration of Belarus into the EU, as well as to markets in the east, where it was better able to compete. An example of the latter was Belarus's trade of farm machinery and chemical fibers for Iranian oil in March 1995.
Although the total volume of Belarus's foreign trade declined by nearly one-third in 1994, the balance of its trade (non-CIS countries versus CIS countries) improved. Belarus's lack of reform of its domestic economy, however, has slowed down efforts to improve and expand its foreign economic relations.
In January 1995, Belarus signed a number of agreements in hopes that they would improve its access to foreign markets: trade barriers were lowered between Russia and Belarus, and Kazakhstan joined the agreement to create a free-trade area (however, one month later, the accord was still not implemented). Belarus and the EU signed an agreement to create a free-trade zone between the EU and Belarus. Under its terms, all quantitative limits on imports from Belarus to the EU will be abolished.
Although the total volume of Belarus's foreign trade declined by nearly one-third in 1994, the balance of its trade (non-CIS countries versus CIS countries) improved. Belarus's lack of reform of its domestic economy, however, has slowed down efforts to improve and expand its foreign economic relations.
In January 1995, Belarus signed a number of agreements in hopes that they would improve its access to foreign markets: trade barriers were lowered between Russia and Belarus, and Kazakhstan joined the agreement to create a free-trade area (however, one month later, the accord was still not implemented). Belarus and the EU signed an agreement to create a free-trade zone between the EU and Belarus. Under its terms, all quantitative limits on imports from Belarus to the EU will be abolished.
Exports
Under communism, the Belorussian SSR had net industrial and agricultural export surpluses within the Soviet Union until 1990, thanks to the relatively high productivity of the Belarusian labor force. Belarus shipped trucks, tractors, tractor trailers, elevators, lathes, bearings, electric motors, computer equipment, synthetic yarns and fibers, tires, linoleum, flax, textiles, carpets, potatoes, meat, dairy products, eggs, flour, and various consumer goods to the other republics.
Apart from Belarus's energy situation, little had changed in the direction of independent Belarus's trade from its previous centralized planning system. In 1994 Belarus's major trading partners were still former Soviet republics (mainly Russia, Ukraine, Kazakhstan, Moldova, Lithuania, and Latvia), which accounted for 93 percent of its exports. Exports to these countries totaled approximately US$2.5 billion, a decrease of 36 percent by volume over the previous year. Exports included gasoline (198,000 tons), diesel fuel (147,000 tons), meat and meat products (53,000 tons), milk and milk products (256,000 tons), refrigerators, tractors, and trucks. Belarus had a trade deficit with CIS countries amounting to US$614 million in 1994.
Belarus's main non-CIS trading partners in 1994 were Germany (21 percent of non-CIS trade), Poland (9 percent), the United States (7 percent), Switzerland (4 percent), Austria (4 percent), Italy (3 percent), the Netherlands (3 percent), Hungary (3 percent), China (3 percent), Brazil (3 percent), Britain (2 percent), and Lithuania (2 percent). Exports to non-CIS countries consisted mainly of energy products and heavy machinery. Belarus had a trade surplus of US$434 million with non-CIS countries in 1994.
After independence and continuing into 1995, Belarus's trade deteriorated because import prices for energy and for raw materials began to rise to world market levels, and demand for the country's exports by its major trading partners (especially Ukraine and Russia) declined. Payment problems within the former Soviet Union made the situation worse, and limited access to foreign financing caused the domestic economy to decline by further decreasing the volume of trade.
Restrictions on export quantities, imposed by the new government to prevent low-cost Belarusian goods from being sold abroad in large quantities to the detriment of the Belarusian consumer, were relaxed in March 1994, and only certain goods continued to be restricted: oil and gas, electricity, fertilizers, timber and wood products, nonferrous metals, cereals, pharmaceuticals, textiles, and leather. Exports of precious metals and gems had to be licensed by the State Committee on Precious Metals and Precious Stones, and an export ban applied to certain medicinal herbs, animals, and some artworks and antiques. An agreement between Belarus and the EU set export quotas on textiles.
As part of Belarus's pursuit of economic and monetary integration with Russia, interstate trade regulations and taxation were harmonized with those of Russia, and most export and import fees on mutual trade with Russia were abolished by June 1, 1994. In May 1995, Belarus and Russia eliminated customs checkpoints along their joint border.
Apart from Belarus's energy situation, little had changed in the direction of independent Belarus's trade from its previous centralized planning system. In 1994 Belarus's major trading partners were still former Soviet republics (mainly Russia, Ukraine, Kazakhstan, Moldova, Lithuania, and Latvia), which accounted for 93 percent of its exports. Exports to these countries totaled approximately US$2.5 billion, a decrease of 36 percent by volume over the previous year. Exports included gasoline (198,000 tons), diesel fuel (147,000 tons), meat and meat products (53,000 tons), milk and milk products (256,000 tons), refrigerators, tractors, and trucks. Belarus had a trade deficit with CIS countries amounting to US$614 million in 1994.
Belarus's main non-CIS trading partners in 1994 were Germany (21 percent of non-CIS trade), Poland (9 percent), the United States (7 percent), Switzerland (4 percent), Austria (4 percent), Italy (3 percent), the Netherlands (3 percent), Hungary (3 percent), China (3 percent), Brazil (3 percent), Britain (2 percent), and Lithuania (2 percent). Exports to non-CIS countries consisted mainly of energy products and heavy machinery. Belarus had a trade surplus of US$434 million with non-CIS countries in 1994.
After independence and continuing into 1995, Belarus's trade deteriorated because import prices for energy and for raw materials began to rise to world market levels, and demand for the country's exports by its major trading partners (especially Ukraine and Russia) declined. Payment problems within the former Soviet Union made the situation worse, and limited access to foreign financing caused the domestic economy to decline by further decreasing the volume of trade.
Restrictions on export quantities, imposed by the new government to prevent low-cost Belarusian goods from being sold abroad in large quantities to the detriment of the Belarusian consumer, were relaxed in March 1994, and only certain goods continued to be restricted: oil and gas, electricity, fertilizers, timber and wood products, nonferrous metals, cereals, pharmaceuticals, textiles, and leather. Exports of precious metals and gems had to be licensed by the State Committee on Precious Metals and Precious Stones, and an export ban applied to certain medicinal herbs, animals, and some artworks and antiques. An agreement between Belarus and the EU set export quotas on textiles.
As part of Belarus's pursuit of economic and monetary integration with Russia, interstate trade regulations and taxation were harmonized with those of Russia, and most export and import fees on mutual trade with Russia were abolished by June 1, 1994. In May 1995, Belarus and Russia eliminated customs checkpoints along their joint border.
Imports
Both before and after independence, most of Belarus's imports came from Russia (64 percent in 1990) and Ukraine (19 percent in 1990). However, the foreign trade situation worsened for Belarus as the former Soviet Union continued to disintegrate economically. Imports from such countries as Germany, Poland, and the United States increased, so that by 1994 only 76 percent of Belarus's imports came from former Soviet republics. Belarus was now paying higher prices for goods it had previously imported cheaply from them. The greatest drain on its finances now consisted of imports of raw materials and oil, whose prices increased greatly in the early to mid-1990s.
In 1994 Belarus's imports from non-CIS countries decreased by nearly 13 percent from 1993 to US$534 million. Its imports from CIS countries were estimated at US$3.1 billion, a decrease of over 57 percent by volume from the previous year.
In the mid-1990s, Belarus imported oil, natural gas, coal, rolled ferrous metal, nonferrous metals, commercial lumber and sawed timber, chemical products, raw materials for the chemical industry, cement, cotton yarn, silk, machines and equipment, automobiles and buses, sewing machines and washing machines, paper, grain, forage, cooking oil, sugar, tea, fish and fish products, vegetables, and consumer goods. A few items were subject to restrictions for health and security reasons, including chemicals and industrial waste. An improved import tariff structure was introduced in October 1993, partly in line with World Bank recommendations.
In 1994 Belarus's imports from non-CIS countries decreased by nearly 13 percent from 1993 to US$534 million. Its imports from CIS countries were estimated at US$3.1 billion, a decrease of over 57 percent by volume from the previous year.
In the mid-1990s, Belarus imported oil, natural gas, coal, rolled ferrous metal, nonferrous metals, commercial lumber and sawed timber, chemical products, raw materials for the chemical industry, cement, cotton yarn, silk, machines and equipment, automobiles and buses, sewing machines and washing machines, paper, grain, forage, cooking oil, sugar, tea, fish and fish products, vegetables, and consumer goods. A few items were subject to restrictions for health and security reasons, including chemicals and industrial waste. An improved import tariff structure was introduced in October 1993, partly in line with World Bank recommendations.
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