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Belarus: EBRD Report Says Country Faces Recession

London, 25 November 1998 (RFE/RL) -- The European Bank for Reconstruction and Development (EBRD) says the current financial crisis in Russia is hitting Belarus particularly hard because of its exposure to Russian trade. The bank predicts the country will probably soon be in recession.

The annual Transition Report by the London-based EBRD, released Monday (Nov.23), says Belarus has sent 59 percent of its export goods to Russia in recent years, a higher percentage than any other CIS nation except Moldova. The report says that accordingly, Belarus will likely be harder hit than most other CIS countries by the Russian crisis triggered by the August ruble devaluation. It notes that other CIS countries have done more to diversify their exports.

Belarus will be strongly affected in two ways, according to the EBRD. To begin with, the Russian ruble's fall means that Belarus' exports earnings will decline while Russian domestic demand for imports has collapsed. Hence, the second effect Belarus can expect is a sharp contraction in import demand over the next 18 months. This, in turn, will have a so-called "knock-on" effect on living standards for its 10.2 million people. The EBRD report also says that the Russian crisis has exposed the underlying economic weaknesses of nations like Belarus and Ukraine. It says that they have inadequate bases for sustained growth and stability, and are among the most sluggish of the reforming CIS nations.

The EBRD report predicts that Russia's gross domestic product will likely decline by five percent this year, and by seven per cent next year. Given Belarus' dependence on Russia, the EBRD report expresses doubt whether Minsk can sustain its reported recent high-growth rates. Average growth forecasts by analysts from the EBRD, European Union, International Monetary Fund and elsewhere predict Belarus' economy will grow by 6.9 percent this year --higher than all other CIS countries except Georgia (9.8 percent) and Turkmenistan (6.9).

The EBRD report says Belarus' high growth rates have been fueled by state credit subsidies to industry and farming as well as by exports to and financial support from Russia. These sources of growth are, the bank says, "unsustainable."

The EBRD's forecast for 1999 is that Belarus will experience a fall of four percent in gross domestic product. The average estimate from the EBRD, EU, IMF and elsewhere is that Belarus will experience growth of 0.8 percent, still lower than any other CIS country except Russia (minus 1.3 percent) and Ukraine (minus 0.1 percent).

The inflation outlook for Belarus is also worrisome. The EBRD report says inflation is running at 66 percent this year, higher than in all other CIS countries. Next year, according to the bank, Belarus' inflation rate is set to rise to 75 percent, far higher than in all CIS and in all Central and East European countries.

The EBRD report says 1998 was a difficult year for Europe's transitional countries because progress toward building market economies has been slower and more erratic than in any year since the fall of the Berlin Wall. It says the countries of the region have pursued strikingly different paths of economic stabilization, structural reform and institutional development. Poland and Hungary have shown the most progress.

But Belarus is one of several countries which, according to the EBRD report, showed increased "back-tracking" from reform in 1998. Belarus, as well as Turkmenistan and Uzbekistan, are said to be "veering off the reform path, delaying basic reforms and reversing earlier achievements in pursuing their own strategy of economic development." The report adds, "Each year they lag further behind the other transition economies."

The report analyzes Belarus' currency crisis of March 1998 and its aftermath, notably spiraling inflation. It says the inflation led the government to tighten and extend price and convertibility controls and to increase state intervention in the economy. It also says that the lack of structural reform and economic stability have created what it calls a "highly uncertain and difficult investment climate" which is undermining the process of market-oriented transition.

To keep inflation within official targets, the government reversed earlier progress on foreign-trade and exchange-rate liberalization, reintroduced price controls and halted the privatization of large enterprises. The report says, "As the events of 1998 have shown quite dramatically, crisis can lead governments backwards as well as forwards." The report suggests that the failure to press ahead with reforms has been compounded in Belarus by the political environment.

In an open reference to President Alyaksandr Lukashenka's government, the report states, "There remains a number of authoritarian regimes, particularly in Belarus, and in most of the countries of Central Asia, where effective multi-party democracy has not taken root."

The report concludes, "The experience of transition to date has shown that the reliance of these regimes on manipulation and control undermines sound economic decision-making and prevents an effective response to economic difficulties once they have arisen."