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Poland, Belarus & Ukraine Report: August 19, 2004

19 August 2004, Volume 6, Number 29
MINSK POSTS 10 PERCENT ECONOMIC GROWTH -- TRUE BUT NOT MIRACULOUS. When Belarusian President Alyaksandr Lukashenka ordered last November a 10 percent economic growth in 2004-2005, few believed that this could be achieved without cooking statistics. However, the country's economy did grow rapidly in the first half of 2004 with GDP increasing by 10.3 percent. Industrial output grew by 14.4 percent and agricultural production by 5.5 percent. A strong growth of domestic demand (real incomes of the population grew by 12.9 percent) caused by increased labor productivity and wage hikes in the budget sector stimulated domestic investment at a rate of 21.7 percent for January-June.

In December 2003 (see "RFE/RL Belarus and Ukraine Report," 16 December 2003), this author expressed an opinion that as factors accountable for the expansion in previous years were either ruled out by the Belarusian authorities themselves (such as inflationary stimulation of the economy) or are no longer feasible (for example, subsidizing the economy through the access to cheap raw materials in Russia), reaching the Lukashenka-mandated target would be complicated. Indeed, although the budget still subsidizes industrial and agricultural producers and the National Bank helps to stimulate the Belarusian economy by offering banks significant resources to credit the real sector, the real interest rates remained positive and inflation was brought to less than 1 percent per month in July. Likewise, discounts for gas and oil were removed and cut down. The reality of the growth, however, is not seriously questioned even by independent observers. For example, the Institute for Privatization and Management, the country's most prominent economic-policy think tank, corrected its annual forecast for GDP growth to 9-10 percent per year, up from the 7 percent it initially predicted at the beginning of the year.

Luca Barbone, the World Bank director for Ukraine, Belarus, and Moldova, expressed some mistrust about the official statistics, pointing to the fact that Belarus has yet to adopt international accounting standards. However, in a recent interview with the Internet newspaper "Belorusskie novosti," he insisted that, even if the accounting standards were adopted, the GDP figure would have to be brought down by just 1-2 percent.

Another important detail is that, unlike in the past few years, when the Belarusian authorities clearly prioritized the output growth over its quality, qualitative indicators have witnessed a significant improvement. Thus, profitability of industrial production rose to 16.2 percent compared to 12.5 percent in 2003 and the energy component in GDP was reduced by 8.5 percent. The number of loss-making companies dropped 1.3-fold, even though the figure still accounts for 35 percent of the total number of companies. And company profits account for 17.9 percent of GDP compared to 9.8 percent in 2003.

However, observers have once again explained the strong economic expansion by outside factors -- although of a different sort. The favorable economic situation on foreign markets may be given as a primary reason for Belarus's remarkable economic performance. Skyrocketing oil prices generated strong economic growth in Russia, Belarus's main trading partner. Rapidly expanding purchasing power on the Russian market has created enormous opportunities for Belarusian exporters. Belarusian exports grew by 32.4 percent in January-June, including a 35.7 percent increase to Russia and 27.2 percent increase to non-CIS countries.

The strengthening of the Russian ruble, because of oil price hikes, has made a favorable impact on the Belarusian economy as well. The monetary policy of the Belarusian National Bank made the Belarusian ruble appreciate (in real terms) against the weakening dollar and devalue against the strengthening Russian ruble (and, for this purpose, the euro). As a result, Belarusian exports have became more competitive on the Russian and European markets (which account for more than 80 percent of Belarus's trade turnover), whereas the real value of the dollar-denominated energy bills Belarus has to pay to Russia has decreased. Finally, the introduction of protectionist measures by Russia to limit imports from non-CIS countries also benefited Belarus, as it expanded its exports to Russia.

Belarusian producers have taken advantage of extremely favorable market conditions. Industrial output growth is almost completely export driven. With industrial growth standing at 14.4 percent in the first six months of the year, state companies increased their exports by 55.8 percent (the food sector recorded even higher export growth rates -- 70 percent in January-June). This year is perhaps the best year in the recent history of Belarus's machine-building sector. In the first quarter of 2004, it was accountable for 3.2 percent of the 13 percent of industrial production growth (in the same period of 2003, it added just 1 percent to the 7 percent production increase). Resource-oriented sectors have also performed strongly due to the growing energy prices (the growth in the ferrous metallurgy sector reached 14 percent during the first four months of 2004, mineral fertilizers also reached 14 percent growth, while the production of certain oil refinery products grew by as much as 90 percent).

But the strong performance of the Belarusian economy is in no way a miracle. The country is not alone in reaching a double-digit growth in 2004, and its performance reflects the general trend in the CIS. Ukraine and Kazakhstan, for example, have even higher growth rates, whereas the increase of output in these countries was generated by the private sector. This casts doubt on Lukashenka's assertion that only his economic model can bring forth such a boom.

Furthermore, while export-led growth is undeniable, Belarus hardly has resources to sustain it once oil prices fall, as the internal sources of growth are weak. The performance and profitability of locally oriented industries are inferior to the export- and resource-oriented branches of the economy. In spite of the strong growth in exports, the trade deficit in the first five months of 2004 was $15 million. This reflects the low competitiveness of the domestic sector, which is not alleviated by the series of protectionist measures recently taken by the Belarusian government to restrict competition on the internal market (increased customs duties for goods imported by individuals, licensing of certain imports, etc.).

And despite some indicators showing an improvement in quality, others leave a lot to be desired, as inveterate problems of the "Belarus economic model" remain. Thus, the stock of unsold goods remains high at nearly 60 percent of monthly output. Cement stocks increased 15 times, chemical fibers and TV sets increased twice, and refrigerators more than 12 times year on year. Company finances remain far from being perfect, as credit indebtedness increased by 3.8 trillion Belarusian rubles ($1.7 billion) and debit indebtedness by 3.3 trillion Belarusian rubles. The debts for loan payments amount to 6.6 trillion Belarusian rubles.

High rates of growth have not prevented debts to the budget from growing by 22.6 percent to 3 percent of GDP in the first four months of the year, compared to the same period of 2003. At the same time, however, the consolidated budget recorded a surplus of 3.5 percent of GDP. Such a solid performance merely reflects the growing fiscalism of the budgetary policy, as tax burden to GDP reached 47.4 percent in 2004, as opposed to 45 percent in 2003. And as it has ever been under Lukashenka, foreign direct investment remains negligible, and companies are still nourished by budget subsidies to fulfill their investment programs.

To sum up, the first half of 2004 demonstrated that Lukashenka's version of a "mobilized" command economy can be sufficiently responsive to a favorable economic situation, and it does not lack a growth potential. Undoubtedly, the achievement of macroeconomic stabilization and a moderate hardening of budget constraints also played a positive role. There is not as much optimism, however, about sustainability of the current expansion, especially once the external factors stop playing into Belarus's hands. Moreover, the country seems to be losing the opportunity to use the good times to address some of its structural and institutional problems created by the command economy model. Their solution, however, lies in the political rather than economic field. (Vital Silitski)

'ADMINISTRATIVE RESOURCE' IN ACTION. Last week the Committee of Voters of Ukraine (KVU), a nongovernmental organization monitoring election campaigns in the country, posted on its website ( an extensive report on the presidential election campaign during its first month, July. The KVU found that in July various governmental and budget-subsidized institutions and organizations provided illegal campaign assistance to Prime Minister Viktor Yanukovych, the main presidential candidate of the pro-government camp.

The KVU categorized the most widespread illegal election interference by state officials -- the so-called "administrative resource" -- into four groups: a) using state money, property, and equipment for campaign purposes; b) state officials conducting campaign activities during their working hours and drawing state salaries at the same time; c) coercing or bribing voters to take part in public rallies and other campaign events; d) forcing voters to sign nomination lists for Yanukovych (each registered candidate has to submit at least 500,000 signatures in his or her support to the Central Election Commission by 20 September).

In addition, the KVU found that state resources and officials are also employed to obstruct the election campaigns of other candidates challenging Yanukovych's presidential bid. In particular, the KVU concluded that traffic police, road inspection authorities, and railway officials acted in concert to prevent thousands of Our Ukraine leader Viktor Yushchenko's supporters from arriving in Kyiv on 4 July to take part in a pro-Yushchenko rally on that day (see "RFE/RL Newsline," 7 July 2004).

From a plethora of examples provided by the KVU to show the use of "administrative resource" throughout Ukraine in favor of Yanukovych, RFE/RL cites below only the most glaring and/or characteristic cases.

In a 12 July rally in support of Yanukovych in Kharkiv -- with between 40,000 and 100,000 people -- many participants were forced to attend by their employers who had been given quotas from government officials for the number of people they were expected to send. Workers at one plant were promised a day off in exchange for their participation, while employees of other state-run companies were threatened with dismissal if they did not obey. A 30 July youth rally in Kharkiv was organized by local officials and paid out of public funds.

Ukrainian hospitals turn out to be convenient places for applying election "administrative resource." Government health-care administrators visited a hospital in Nova Vodolaga, Kharkiv Oblast, on 19 July wearing "I am for Yanukovych" badges and ordered workers to collect signatures for the candidate. The chief doctor of the Vasylkiv hospital in Kyiv forced workers to collect signatures for Yanukovych, threatening that anyone who signed for another candidate would be "exposed" because she had "people on the Central Election Commission." Local officials in Konotop, Sumy Oblast, ordered hospital workers to attend a meeting with Yanukovych on 7 July -- as a result, doctors stopped seeing patients at 11 a.m. Doctors in the town of Vyshneve, Kyiv Oblast, invited pensioners to state-run clinics for free examination and required them to sign for Yanukovych.

The raion administration in Putyl, Chernivtsi Oblast, organized public meetings in every village in support of Yanukovych.

A pensioner in the village of Chernylyavo, Lviv Oblast, reported that she was forced to sign a nomination list for Yanukovych at the local post office in order to receive her monthly pension.

It is noteworthy that the election headquarters of Yanukovych, led by National Bank head Serhiy Tihipko, sent a letter to regional election staffs from Tihipko on 4 August requiring that they strengthen their control over the collection of signatures for Yanukovych in order to pre-empt "attempts to use the administrative resource and influence this process by state institutions and enterprises." Tihipko's message seems to have been nothing more than a propaganda trick -- at that time his staff reported that it had already collected as many as 4 million signatures to back Yanukovych's candidacy. Ukrainian observers agree that the majority of them were collected with the help of "administrative resource."

Of course, millions of signatures collected for Yanukovych are primarily intended to create the impression that the prime minister's presidential bid is enjoying support among broad segments of Ukrainian society. But some commentators argue that the methods employed during their collection -- including official coercion, intimidation, bribery, and deceit -- may backfire on the voting day when voters, left alone in polling booths, will not be so afraid to express their actual election preferences.

"The first month of the election campaign was marred by the widespread and illegal interference of power bodies in the election process, which violated the principle of the equality of all election-process participants," the KVU concluded.

The KVU postulates that voters whose legal rights are violated in the election campaign should consider appealing to courts for redress. Such appeals, however, are filed by ordinary voters in Ukraine very rarely, if at all. It is likely that, guided by everyday experience, Ukrainians do not believe that it is possible for them to win with the authorities in court. Or perhaps they think it is not worth bothering to deal with such "trifling" matters as election procedures and standards. Also, it is quite possible that they are simply afraid to stand for their election rights in public. Regardless, democracy still seems to be a very faraway prospect for Ukraine. (Jan Maksymiuk)

CORRECTION: On 10 August, "RFE/RL Belarus and Ukraine Report" erroneously identified the owner of Ukraine's Channel 5 television as Petro Symonenko -- his name is Petro Poroshenko.

"Belarusian statisticians do not apply the standards of international financial accounting. I think that if they made calculations according to the international standards, Belarus's GDP growth would be 1-2 percentage points lower." -- Luca Barbone, the World Bank director for Belarus, Ukraine, and Moldova; quoted by Belapan on 15 August.