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Belarus: A Country Alone And Sinking

Washington, 27 February 1997 (RFE/RL) - International financial sources say the prospect for a real union between Russia and Belarus has been "dead" ever since Moscow realized it would cost Russia "a fortune" to subsidize the bankrupt Belarus economy.

Pointing to the thousands of millions of dollars the reunification of Germany is costing the former West Germany, the sources say that in a union where one country is far behind the other, the one that is way ahead implicitly subsidizes the other.

The cost to Russia in this case, they say, would be "very large amounts" unimaginable to anyone in Moscow.

"I can't see Russia putting out these huge sums of money unless Belarus really reforms," said one source.

The sources, closely familiar with the situation in Belarus, spoke to our economics correspondent on the condition of not being identified.

The sad state of the Belarus economy was underscored last week when a team of officials and experts from the International Monetary Fund (IMF) completed a ten-day review of the situation. The team left a report with Prime Minister Sergei Ling which said in effect that the country is on the threshold of a massive financial crisis.

The IMF refuses to even confirm the report, but Belarus newspapers published a portion of a cover letter which said the fund could only help if the country took immediate and decisive concrete steps to implement reforms. Financial sources say that the IMF team saw no real willingness to change, however.

On the surface, said one source, some officials in Belarus told the IMF team they are "ready to do the right thing," and one or two actions have been done properly in recent months. But the source asked rhetorically: "If you find one tree in the desert, does that mean you've found an oasis? That's a difficult judgement."

What the IMF wants to see, say the sources, is "concrete and substantial action in the right direction." It is no longer a question of just exchange rates or inflation or even budgets, say the sources, but a much more fundamental willingness to begin market-based reforms.

The country is in "very serious financial difficulties," say the sources, with external reserves now basically drained and arrears building rapidly. They say Belarus followed "unfortunate" policies in 1996, with excessive state intervention in every aspect of its economy. Financial experts describe Belarus as "one of the most regulated economies" in all of the former Soviet Union.

The IMF opened a stand-by loan of around $275 million for Belarus back in the autumn of 1995, but only disbursed one tranche before shutting the program down as the country moved sharply back from transition. The loan expired virtually unused last September as IMF officials said Belarus had not only stopped reforming, but was moving back towards a command economy.

International financial sources say the IMF team in Minsk last week found that the country's situation is so bad it has actually been forced to do a few things right.

"Since December, things have NOT gone backwards, and maybe that by itself is a good sign," said one source. "At least the policies they are now pursuing are not worse than they were three or four months ago."

But the sources say the financial situation itself has only gotten worse in the last six months and the few proper actions were forced on authorities by the sheer practicality of survival.

"One right decision does not make a change in policies," observed one source.

The IMF has told Belarus that it is ready to help, but only when Minsk demonstrates a "clear willingness" to act, not just make promises, to begin market reforms.

"They need to open up, deregulate the economy," said one source. "They've got to deregulate everything -- the criteria for opening up businesses, for operating businesses, the criteria for trade, for running banks, everything. People need to be able to do these things without running into all kinds of ad hoc and arbitrary obstructions from above."

The country also needs to begin real privatization, not the phony program that was suspended over a year and a half ago, say the sources. That was "corporatization," which means merely changing the shell of company ownership, but leaving it basically untouched. "They need to really privatize," they say.

A basic problem in Belarus, say the sources, is that President Alyaksandr Lukashenka and his regime have been telling the people that market reforms have failed everywhere else in the former Soviet Union and across all of East and Central Europe. The sources call it "quite an extraordinary air of total unreality" found among government leaders who genuinely believe the reforms are failing everywhere else.

One source compared the situation to an old joke about the one soldier in a platoon who thought everyone else was out of step. "That's what you're battling against," observed one source. In addition, the source adds, Lukashenka believes that the near unanimous advice from the IMF, the World Bank, the European Bank for Reconstruction and Development and even the Russians is politically inspired to "get" him because he's so independent. IMF sources call the idea "hogwash" but say Lukashenka continues to level the accusation repeatedly to visiting officials.

Financial sources say the saddest thing is that Belarus has good prospects if it would only turn itself around. "There is absolutely no reason it cannot do reasonably well," says one source. Its only major drawback is a lack of energy, but other than that, its location, its skilled work force, the education of the population, and its inheritance of some of the better industries of the former Soviet union means there is no fundamental reason this country of 10 million people should not do well.

But for now, they say, the situation only gets worse. And the longer it goes, the harder will be the eventual recovery, the sources say.