BELARUS’S “ECONOMIC MIRACLE” MAY BE OVER…

According to its official data, Belarus during 1997-1998 was one of the fastest growing economies in the CIS, reporting GDP growth of 10.4 percent in 1997 and 8.3 percent in 1998. This growth was often portrayed by the Lukashenka government as vindication of its strategy of avoiding market reforms and pursuing close economic ties with Russia. Recent data, however, indicate that Belarus’ rapid growth even as officially reported has come to a halt in 1999. And policymakers in Minsk are also struggling with the CIS’s worst case of inflation and exchange-rate instability.

According to the Belarusan statistical office, GDP growth during the first three quarters of 1999 had slowed to 2 percent. Although industrial production was reported up 7 percent at mid-year, investment, retail sales, and transport all shrank during this time. The sharpest declines, however, were noted in Belarusan trade with other CIS countries, chiefly Russia. CIS exports were down 38 percent during the first half of the year, and imports by 35 percent. Although Minsk tried to compensate for the fall in trade with Russia by boosting exports to non-CIS countries, imports from outside of the region also fell, by some 27 percent during the first half of the year. In a nutshell, Russian import demand has contracted dramatically in 1999, and Russian suppliers of energy and other key exports are demanding that Minsk pay cash on the barrelhead. Without a growing Russian market and easy payment for imports, the Belarusan economy is in increasingly dire straits.

Belarus’ problems are most apparent in inflation and the exchange rate. Consumer price inflation, which was running at 67 percent at the time of the August 1998 Russian ruble crisis, rose to 358 percent in August 1999. This inflation,the highest in the CIS, is occurring despite the presence of price controls on many consumer goods. Even more instability is apparent in the exchange rate, which fell from US$1 = 53,200 Belarusan rubles in September 1998 to US$1 = 303,000 rubles on November 4. This is only the official exchange rate, which is but a fraction of the black-market rate. At a time when many other CIS economies have brought inflation and the exchange rate under control, and are recovering from the worst of the August 1998 Russian financial collapse, the economic crisis in Belarus seems to be only beginning.

…BUT MINSK STILL LOOKS TO MOSCOW FOR ANSWERS.