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Belarus: Government Takes Gradual Approach To Economic Development Says EBRD

London, 16 April 1997 (RFE/RL) -- A report published by the European Bank for Reconstruction and Development says authorities in Belarus continue to pursue a gradual approach to economic development in marked contrast to some other former Soviet republics.

The report paints a mixed picture of Belarus's situation: inflation remains relatively high, unemployment continues to rise gradually, and price controls still apply to crucial consumer products. The privatization program has slowed or is being redrafted.

The report -- prepared on behalf of Belarus authorities by the EBRD's country promotion team and bank staff -- was released at the EBRD's sixth annual meeting in London this week.

The report says the government has set itself the goal of promoting foreign investment and creating a favorable climate for the functioning of foreign capital in the domestic economy.

But it says the attraction of Belarus to foreign investors depends on it taking further steps in macroeconomic stabilization and privatization.

It says authorities are continuing discussions with the International Monetary Fund which wants concrete steps on privatization and the freeing up of the foreign exchange system before further agreements can be reached. The IMF is recommending reform of the financial sector and structural policies conducive to attracting investment.

However, the report says the IMF has had some success, including the liberalization of a wide range of prices, and the introduction of prices closer to market levels in heating, telephones and public transport.

The government's economic plan set GDP growth targets of one percent in 1996, five percent in 1997 and four-to-six percent in 1998-2000. In 1996, GDP is officially estimated to have grown by 2.6 percent. Meanwhile, monthly inflation rates have come down from about 40 percent. At the end of 1996, the rate stood at 25 percent. The central bank has forecast a rate of 31 percent for l997.

The government's plan envisages a month-on-month inflation rate of two percent in 1997 and 0.5 to 1.5 percent in 1998-2000.

The number of unemployed continues to rise gradually. As of August, 1996, the number out of work was equivalent to 3.8 percent of the eligible workforce, compared with 2.5 percent a year earlier.

However, as many workers are on short-term jobs or unpaid leave, the true figure is higher. The five-year economic plan predicts that unemployment will rise to five percent by the end of 1997.

The EBRD report notes that since early 1995 Belarus has maintained an overvalued exchange rate in order to reduce inflation and suppress the price of key imports such as gas. Energy imports, mainly from Russia, account for approximately 50 percent of total imports.

The balance of payments has remained under pressure, with the trade deficit last year reaching $1.6 billion (equal to over 12 percent of GDP), more than three times the figure for 1995.

Trade turnover with other CIS countries is much greater than with non-CIS countries. Russia accounts for the bulk of this trade.

The private sector accounts for only about 15 percent of GDP (although the non-state sector, which is a broader concept, was officially estimated to account for about 40 percent of employment in 1994).

As of early 1995, private companies accounted for 19.3 percent of all companies. A total of 48 percent of all companies were collectives, 19 percent were state enterprises, 4.6 percent were cooperatives, and two percent were joint ventures. Fully private and cooperative enterprises accounted for only 6.6 percent of the total employment.

The privatization program for 1997, which envisages privatization of 36 large enterprises during the first quarter of 1997, is being redrafted. Privatization of large state-owned enterprises has not yet taken place.

In 1996, the privatization process at the local level slowed, with 88 small enterprises being sold or transformed during the first seven months of the year. Some 415 small enterprises were privatized in 1995.

By the end of 1995, about 36 percent of the total stock of government and public-owned housing had been privatized. Farmland has not been privatized on a significant scale.

Many producer prices were liberalized in 1992, and the process of price liberalization was mostly completed in 1995. But price controls still apply to consumer products such as meat, dairy products and bread. Administered prices are set for transport, energy and communications, and such controls are expected to remain in place during 1997.

Total foreign investment in 1996 was estimated at $123.9 million, down from $157.3 million in 1995. In spite of rather limited incentives, foreign investors are beginning to explore opportunities in Belarus. German investors are attracted by its strategic location on the main road and rail links between Russia and Europe.