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Belarus: World Bank Official Holds Little Hope For Reform

Washington, 10 November 1998 (RFE/RL) -- The World Bank's Vice President for European and Central Asia, Johannes Linn, would love nothing better than to reopen lending programs with Belarus.

If only the government of President Aleksandr Lukashenko would liberalize exchange rates, muses Linn, it could lift other controls and that would end the food shortages, the slumped markets, the stopped production and the increasingly long queues to get just about anything in Belarus.

But, in an interview with RFE/RL's economics correspondent in Washington Monday, Linn acknowledged that there is little hope:

Linn says chances are less than 50-50 that the government will move toward reforms. Rather, while there has been one small opening, most signs are pointing in the opposite direction -- continued and intensified controls.

The Belarusian ruble is set under rigid government control to trade at 58,600 to the dollar, but on the black or gray market, it is valued at a fraction of the, around 300,000 to the dollar.

Linn says this insupportable price of the Belarussian ruble, combined with controls that allow only a favored few in Belarus to have access to foreign currencies, disrupts all trading.

The controls mean that goods in Belarus are priced lower than the prices they can fetch in Russia, for example, says Linn, so commodities of every sort drift away. Adding price controls only makes the situation worse, he says, because traders will push their goods to where they get better prices, whether in Russia or on the black market.

Or as is already happening, they simply take goods off the market altogether and hoarding takes place.

Instead of tackling the problem, says Linn, Minsk has imposed more and more controls, especially on private businesses:

Linn says the government has taken a number of steps to further limit the say enterprises have on their prices and their trade, both internal and external. The may even be some reversal of privatization as they move toward more controls rather than less.

Linn just returned from Minsk where he met with senior ministers, at the government's request, to see if there was any way to reopening bank lending to Belarus. Linn says that he told them that so long as Belarus insists on tightly controlled foreign currency markets, for one thing, the World Bank won't be making any loans.

Still, he said he was encouraged when the government asked the bank for evidence that liberalizing foreign exchange would not cause increased hardships for citizens. Linn says he gladly agreed.

The bank continues to spend around $2 million a year providing technical assistance to Belarus, mostly to private sector entrepreneurs, and to conduct general seminars in towns and villages on the values of a market based economy because it wants to be ready if and when Minsk decides to move away from central control.

Most disconcerting, admits Linn, are the growing pressures being brought on Belarus' small but once-dynamic private sector:

Linn says lack of access to foreign exchange is a huge problem for private businesses. Secondly, many have suffered shut downs because of the collapse of the Russian economy or just general reduced demand.

Linn says the government is now hinting that it might even consider reversing some privatizations:

Linn says that in a couple of cases, the government has threatened to reopen the privatization process, by raising the possibility that assets were improperly valued.

More troubling, says the World Bank Vice President, is a new decree that would seriously disrupt all private business by changing the definition of a limited liability company, the standard form of most private business in Belarus:

Linn says the decree says that owners of limited liability companies actually do have liabilities beyond their companies, and this would throw open a very wide net of liability for the owners that would put them at tremendous risk. There are also hints of posting political commissars or their equivalent in enterprises again. All of this would be a significant retrogression.

Linn says private entrepreneurs he met with in Belarus asked whether the World Bank or its private sector affiliate the International Finance Corporation (IFC) could open up lines of credit for struggling private businesses. But he says he had to answer no for private sector loans as well because the strong government controls would make any such money a complete waste.

Making everything worse is the effect of the Russian financial crisis, says Linn, in both the private and public sectors. He noted that Ford, the America automotive company, has temporarily closed its plant in Belarus because the market for cars in Russia has collapsed.

The Russian crisis has also underlined the error of another Belarusian policy, says Linn, and that is the government's putting directed credit into old Soviet-style industries which have poor efficiency and output. These plants, which were directed to serve the Russian markets in the last one or two years, were responsible for the 10 percent growth levels of which the government was so proud.

Now, however, says Linn, the collapse of the Russian markets has shown how wrong this policy has been. "From our perspective, it was a wrong strategy for the long-term anyway," says Linn, "so we're hoping the government can move away from that front also."

The bank's sister institution, the International Monetary Fund (IMF) currently has a team in Belarus reviewing the situation, also at the government's request. But despite Linn's optimistic hope that something could change at any time, there is little belief that the IMF will come to any different conclusions than Linn -- that Belarus will have to make a conscious decision to completely reverse course before any new international lending will be considered.