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Belarus: "Lukanomics" Ultimately Impacts Economic Decline

Brest, Belarus; 23 March 1998 (RFE/RL) -- Just one day before Belarus President Alyaksandr Lukashenka dismissed the entire leadership of the National Bank on Friday, the country's currency crisis could be seen in simple form. The only currency exchange office a visiting American journalist could find open in Brest offered only the official government-ordered rate, which is more than a third below international market exchange rates.

The market exchange rate for the Belarus ruble has fallen from around 35,000 to the U.S. dollar in late December to at least 65,000 per dollar in recent days, a reflection of an economy that is increasingly being shifted back toward central planning, its growth fueled by huge amounts of virtually interest-free credit to state-owned enterprises.

Lukashenka has been loudly proclaiming what many are dubbing "Lukanomics" -- his own brand of mixing large amounts of old fashioned central planning with just enough market input to make it seem to work.

Responding to the President's order to dramatically increase production towards the end of last year -- paid for largely with state credits to state-owned enterprises -- Belarus' industry pushed domestic GDP (gross domestic product) growth to 10 percent in 1997.

That was the envy of most of the nations in transition, including Russia which recorded an anemic growth of 0.4 percent, and Ukraine which experienced a continuing decline of three percent.

The First Deputy Mayor of Brest, Vasily Haiko, who is in charge of economic affairs for the city, says industry here increased production by 117 percent in 1997 and has already recorded growth of 114 percent since the first of January compared to the same period last year. What he doesn't say is that much of the production is outdated and is simply being used for barter with Russia.

Haiko's statistics for Brest show perhaps as much the depths to which the economy had sunk by 1995, as they do the effects of Lukashenka's increasing state interference in the country's economy.

Just last week, Lukashenka ordered all shops in the country -- private and state-owned -- to roll back prices to those in effect March 1st. Local authorities insist that there are no state controls on prices, but it is the state stores which have most difficulty keeping prices low.

In fact, Haiko insists that if state stores try to raise their prices too high, they'll lose business and then be auctioned off to private entrepreneurs.

The owner of a private food shop in Brest, Christina Land, says she has no trouble keeping her prices at or below those of the state shops because the management of her company consists of herself, her son and daughter-in-law, while the state shops have a large management bureaucracy and inefficient operations.

Ironically, in a country with economic policies increasingly centrally directed, there is a vibrant and thriving private business community in Brest, one that even the city administration admits has brought millions of dollars into the community.

Hundreds of private companies from manufacturing concerns to popular restaurants are flourishing in an official atmosphere that almost all entrepreneurs describe as "challenging and difficult."

Local private manufacturers, such as the Rubikon potato chip factory, have learned to take advantage of the country's unstable currency by directing 90 percent of their production into exports.

Rubikon's chairman, Alexander Paleiko, says that since they buy potatoes from local farmers and only import the frying oil (from the European Union), they are able to be profitable. Rubikon sells it's "Leo" brand potato chips primarily in Russia and Central European countries.

He says that even with the country's currency crisis, he's planning to expand operations because of strong demand.

The effects of Belarus' rapid currency value decline has not noticeably impacted local residents. Shops -- both private and state-owned -- are well-stocked, and employees of state-owned firms have been receiving their wages regularly, averaging around 67 dollars per month in Brest. Employees of private firms say they're paid better and often receive bonuses and other rewards for producing better quality goods and providing better service to customers.

By another presidential decree, shops are required to carry at least 75 percent of goods produced in Belarus, and with the country virtually drained of foreign reserves, there is little incentive to try to import more.

The private Santa-Impex fish processing company in Brest gets a special exemption on percentage of imports because it must import all of its fish, primarily from Sweden, Canada and Russia. It also exports a good 90 percent of the fish it processes, bringing in stable Russian rubles and less-volatile currencies from other former communist nations.

World Bank officials resident in Belarus say where the impact of the situation is more obvious is at the border with Poland. In the beginning of reform, trucks jammed the border crossing at Brest, ferrying ton upon ton of western goods to Belarus, Russia, Ukraine and the other CIS countries. They returned loaded with exports to Poland, Hungary and the Czech Republic.

Now the border is quiet, with few trucks passing through hauling cargoes. Bank officials say that with all the new government regulation, it can take a fully-loaded vehicle four days to clear customs into Belarus. The shippers have found other routes.

The Brest International Airport is even more deserted. Despite a population of 300,000 and the presence of a number of major manufacturing enterprises, regular airlines no longer fly in and out of Brest. The airport's large white modern terminal building looks like a lonely ghost standing forlornly in the middle of several thousand hectares of farmland. The runways and taxiways are empty except for a handful of World War Two-vintage planes parked at a far side of the grounds.

Only occasional charter flights now arrive in Brest, where a small compliment of customs, passport control and security officers wait with anticipation for the few passengers who do arrive.

No one in Brest is going hungry from the currency crisis and no one has lost a job yet, but private business people say the situation is a prime example of what they have to deal with every day -- government policies that can change as quickly as a shift in the wind. Says a locally based World Bank official: The "constantly changing business, tax and economic environment leaves business people afraid they'll be charged for something they didn't even know was illegal."

One man who claimed he had once been involved in black-market currency trading, said those who still are involved go home each evening and "give thanks for Lukashenka's economic policies." The World Bank and the International Monetary Fund (IMF) suspended their programs last year because of the turn back to central planning.

Lukashenka says he is proving their prophecies of doom wrong, but experts from the two institutions say it will only be a matter of time until the outpouring of uneconomic credit to state enterprises will put the government in a dangerous situation.

As well, they say, Russia is gladly accepting equipment, machines, and other products from Belarus because they are so inexpensive. But before too long, international experts add, Russia will no longer be satisfied with machines that are behind western standards. And with the proposed union between the two making little progress, Belarus could be facing far more serious problems than it is even today.