Economy of Belarus
Encyclopedia
Recently, the Belarusian economy has shifted into sustained high gear, along with Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...

, Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...

, and many other Commonwealth of Independent States
Commonwealth of Independent States
The Commonwealth of Independent States is a regional organization whose participating countries are former Soviet Republics, formed during the breakup of the Soviet Union....

 economies. The economic boom provided by mineral wealth of Russia and other CIS nations and its key location as a transit route between the EU and Russia have enabled it to sustain this impressive growth, albeit from a low base level. Following 9.9% growth in 2006 in the first quarter 2007, the Belarus GDP grew 8.2%. GDP further grew in 2008 by 10%.

Overview

After the fall of the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....

, all former Soviet republics faced a deep economic crisis. Belarus
Belarus
Belarus , officially the Republic of Belarus, is a landlocked country in Eastern Europe, bordered clockwise by Russia to the northeast, Ukraine to the south, Poland to the west, and Lithuania and Latvia to the northwest. Its capital is Minsk; other major cities include Brest, Grodno , Gomel ,...

 has however chosen its own way of overcoming this crisis. After the 1994 election of Alexander Lukashenko
Alexander Lukashenko
Alexander Grigoryevich Lukashenko has been serving as the President of Belarus since 20 July 1994. Before his career as a politician, Lukashenko worked as director of a state-owned agricultural farm. Under Lukashenko's rule, Belarus has come to be viewed as a state whose conduct is out of line...

 as the first President
President of Belarus
The office of President of Belarus is the head of state of Belarus. The office was created in 1994 with the passing of the Constitution of Belarus by the Supreme Soviet. This replaced the office of Chairman of the Supreme Soviet as the head of state...

, he launched the country on the path of "market socialism
Market socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...

" as opposed to what Lukashenko considered "wild capitalism" chosen by Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...

 at that time. In keeping with this policy, administrative controls over prices and currency exchange rates were introduced. Also the state's right to intervene in the management of private enterprise was expanded, but on March 4, 2008, the President issues a decree abolishing the golden share rule in a clear movement to improve its international rating regarding the foreign investment.

As part of the former Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....

, Belarus had a relatively well developed industrial base; it retained this industrial base following the break-up of the U.S.S.R. The country also has a broad agricultural base and a high education level. Among the former republics of the Soviet Union, it had one of the highest standards of living. But Belarusians now face the difficult challenge of moving from a state-run economy with high priority on military production and heavy industry to a civilian, free-market system.

From 1991–1995, all sectors of the national economy were affected by the profound economic crisis, triggered by the collapse of the Soviet Union. At first, this event triggered the end of traditional economic processes, the sharp drop in the economic capacity of enterprises and of the population of the republics of the former Soviet Union that were key consumers of Belarus products, cessation of financing from the Soviet Union’s military sector which accounted for a considerable share of Belarus’ industry, shocks of price liberalization, and, above all, outpacing growth in prices for raw materials and energy resources. Moreover, Belarus, like the rest of the former Soviet Union republics, was characterized by a general lack of preparedness of the country’s institution and society for the market system of relations. The sharp growth in prices for raw materials and energy resources revealed the technological weakness of the economy with its resource-intensive and low-quality output. At the same time, the weak competitiveness of the local products, legal inter-government restrictions, and absence of marketing and financial management skills prevented the country’s economic entities from making up for the drop in effective demand at the traditional markets through the conquer of new export markets.

Peat
Peat
Peat is an accumulation of partially decayed vegetation matter or histosol. Peat forms in wetland bogs, moors, muskegs, pocosins, mires, and peat swamp forests. Peat is harvested as an important source of fuel in certain parts of the world...

, the country's most valuable mineral
Mineral
A mineral is a naturally occurring solid chemical substance formed through biogeochemical processes, having characteristic chemical composition, highly ordered atomic structure, and specific physical properties. By comparison, a rock is an aggregate of minerals and/or mineraloids and does not...

 resource, is used for fuel and fertilizer and in the chemical industry. Belarus also has deposits of clay
Clay
Clay is a general term including many combinations of one or more clay minerals with traces of metal oxides and organic matter. Geologic clay deposits are mostly composed of phyllosilicate minerals containing variable amounts of water trapped in the mineral structure.- Formation :Clay minerals...

, sand
Sand
Sand is a naturally occurring granular material composed of finely divided rock and mineral particles.The composition of sand is highly variable, depending on the local rock sources and conditions, but the most common constituent of sand in inland continental settings and non-tropical coastal...

, chalk
Chalk
Chalk is a soft, white, porous sedimentary rock, a form of limestone composed of the mineral calcite. Calcite is calcium carbonate or CaCO3. It forms under reasonably deep marine conditions from the gradual accumulation of minute calcite plates shed from micro-organisms called coccolithophores....

, dolomite
Dolomite
Dolomite is a carbonate mineral composed of calcium magnesium carbonate CaMg2. The term is also used to describe the sedimentary carbonate rock dolostone....

, phosphorite
Phosphorite
Phosphorite, phosphate rock or rock phosphate is a non-detrital sedimentary rock which contains high amounts of phosphate bearing minerals. The phosphate content of phosphorite is at least 15 to 20% which is a large enrichment over the typical sedimentary rock content of less than 0.2%...

, and rock and potassium
Potassium
Potassium is the chemical element with the symbol K and atomic number 19. Elemental potassium is a soft silvery-white alkali metal that oxidizes rapidly in air and is very reactive with water, generating sufficient heat to ignite the hydrogen emitted in the reaction.Potassium and sodium are...

 salt
Salt
In chemistry, salts are ionic compounds that result from the neutralization reaction of an acid and a base. They are composed of cations and anions so that the product is electrically neutral...

. Forests cover about a third of the land, and lumber
Lumber
Lumber or timber is wood in any of its stages from felling through readiness for use as structural material for construction, or wood pulp for paper production....

ing is an important sector.

Under Lukashenko

The Belarusian government takes a series of measures in order to stimulate growth like provision of monetary stimulation by fostering banking credit
Credit
Credit may refer to:* Debits and credits, a type of book keeping entry* Credit , acknowledging the ideas or other work of writers and contributors* Course credit, a system of measuring academic coursework...

 activity and reduction of interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

; provision of fiscal stimulaion (raise of the first class wage rate, and, consequently, all pay rates); attraction of foreign loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....

s to maintain stability of the currency market in conditions of the high demand on import; and smooth devaluation of the national currency.

The period between 1996 and 2000 was also characterized by significant financial distress, in particular in 1998 and 1999 as a result of the financial and economic crisis in Russia. This resulted primarily in a sharp increase in prices and the devaluation of the national currency, a decline in trade with Russia and other CIS countries, growth in inter-enterprise arrears, and overall deterioration of the country’s balance of payments
Balance of payments
Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...

. Extreme tension within the foreign exchange market was the key factor that destabilized the economy in 1998 and 1999. In 1999, consumer prices grew by 294%.

Between 2001 and 2005, the national economy demonstrated steady and dynamic growth. The GDP grew at an average rate of 7.4 percent, peaking in 2005 at 9.2 percent. This growth was mainly a result of the performance of the industrial sector, which grew on average more than 8.7 percent per year, with a high of 10.4 percent in 2005. Potato
Potato
The potato is a starchy, tuberous crop from the perennial Solanum tuberosum of the Solanaceae family . The word potato may refer to the plant itself as well as the edible tuber. In the region of the Andes, there are some other closely related cultivated potato species...

es, flax
Flax
Flax is a member of the genus Linum in the family Linaceae. It is native to the region extending from the eastern Mediterranean to India and was probably first domesticated in the Fertile Crescent...

, hemp
Hemp
Hemp is mostly used as a name for low tetrahydrocannabinol strains of the plant Cannabis sativa, of fiber and/or oilseed varieties. In modern times, hemp has been used for industrial purposes including paper, textiles, biodegradable plastics, construction, health food and fuel with modest...

, sugarbeets, rye
Rye
Rye is a grass grown extensively as a grain and as a forage crop. It is a member of the wheat tribe and is closely related to barley and wheat. Rye grain is used for flour, rye bread, rye beer, some whiskeys, some vodkas, and animal fodder...

, oat
Oat
The common oat is a species of cereal grain grown for its seed, which is known by the same name . While oats are suitable for human consumption as oatmeal and rolled oats, one of the most common uses is as livestock feed...

s, and wheat
Wheat
Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

 are the chief agricultural products. Dairy
Dairy
A dairy is a business enterprise established for the harvesting of animal milk—mostly from cows or goats, but also from buffalo, sheep, horses or camels —for human consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-purpose farm that is concerned...

 and beef cattle
Cattle
Cattle are the most common type of large domesticated ungulates. They are a prominent modern member of the subfamily Bovinae, are the most widespread species of the genus Bos, and are most commonly classified collectively as Bos primigenius...

, pig
Pig
A pig is any of the animals in the genus Sus, within the Suidae family of even-toed ungulates. Pigs include the domestic pig, its ancestor the wild boar, and several other wild relatives...

s, and chicken
Chicken
The chicken is a domesticated fowl, a subspecies of the Red Junglefowl. As one of the most common and widespread domestic animals, and with a population of more than 24 billion in 2003, there are more chickens in the world than any other species of bird...

s are raised. Belarus has only small reserves of petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

 and natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

 and imports most of its oil and gas from Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...

. The main branches of industry produce tractors and trucks, earth movers for use in construction and mining, metal-cutting machine tools, agricultural equipment, motorcycles, chemicals, fertilizer, textiles, and consumer goods. The chief trading partners are Russia, Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...

, Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...

, and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

.

The massive nuclear accident (April 26, 1986) at the Chernobyl nuclear power plant
Chernobyl Nuclear Power Plant
The Chernobyl Nuclear Power Plant or Chornobyl Nuclear Power Plant is a decommissioned nuclear power station near the city of Pripyat, Ukraine, northwest of the city of Chernobyl, from the Ukraine–Belarus border, and about north of Kiev. Reactor 4 was the site of the Chernobyl disaster in...

, across the border in Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...

, had a devastating effect on Belarus; as a result of the radiation release, agriculture in a large part of the country was destroyed, and many villages were abandoned. Resettlement and medical costs were substantial and long-term.

Monetary policy

During 1995-1998 monetary policy was highly expansionary. Net domestic
credit of NBB was increasing at the rate of over 100 percent from 1996 till mid-1998 as a consequence of numerous presidential decrees and resolution of the Council of Ministers instructing NBB to extend credits. Since no external sources were available for covering state budget deficit, the NBB emission activity provided its financing. Also, through authorized banks serving governmental programs, the NBB extended preferential targeted loans to state-owned enterprises. The list of credited enterprises is prepared by the government and sometimes depends on the ad-hoc strategies of development. In 2000, Belarus managed to unify its currency exchange rates, tightened its monetary policy, and partially liberalized the foreign currency market. Starting from the period of an administrative peg of the exchange rate of the Belarusian ruble in 1995, the monetary policy was based on administrative regulation of interest rates. In November 1995, administrative limitations of the inter-bank credit market activity were initiated and still remain in force. In spite of the Central Bank Law passed in 1994 guaranteeing its independence, President Lukashenko has a power to nominate and dismiss the Chairman of the NBB. and to formulate monetary and foreign exchange policy. Over the past years, preferential credits, administrative price setting, and decline of the interests rate spread below 15 percentage points in the second quarter of 1997 resulted in damaging consequences to enterprises and especially banks. As the process of exhaustion of the Central Bank's hard currency reserves exhibits a dangerous tendency, government introduced restrictions on currency transactions. These have resulted in inconvertibility of the Belarusian ruble for the current transactions since March 1998.

Inflation

Since 1996, in accordance with the presidential decree, enterprises, irrespective of their forms of ownership, and governmental bodies in charge of economic management have been given forecast figures of monthly and yearly inflation and devaluation as practically administrative directives. Over 70 percent of the goods consisted in the consumption basket have controlled prices, therefore indices of inflation are hardly reliable. In 1998, administratively imposed limit on maximum price growth was 2 percent per month (or 27 percent per year). However, monetary expansion and devaluation of the official
exchange rates had to lead to increase in official index of inflation above the planned level.

Foreign exchange market

The NBB regulates the foreign currency market by means of administrative
instruments that support a system of multiple exchange rates. Such an activity of the central bank should be regarded as quasi-fiscal and taken into account in the state budget. However, it is not the case. The NBB sells foreign currency at preferential exchange rate to a selected pool of importers that means latent financing of certain import operations. Through the channels of critical import funding, large enterprises with indebtedness for energy carriers enjoy financial benefits. Also critical import, like medicines, food-staff, raw materials, machinery and equipment is subject to preferential exchange rate. To finance critical import, a mechanism of mandatory sale of foreign currency receipts is in operation. In January 1996, the obligatory surrender requirement was 100 percent. In July 1996, it slimmed down to 50 percent, and further down to 30 percent in June 1997. On January 22, 1998, an additional trade session was introduced at the Minsk Currency Exchange, which subsisted until August 22, 1998. For the second time, the additional session was restored starting from December 16, 1998 and was cancelled again on March 1, 1999. In July 1998, the government forced exporters to sell 10 percent of their export receipts at the second session of the Minsk Currency Exchange, in addition to the existing authorized 30-percent ratio. In August 1998, following the closure of the second Minsk Currency Exchange session, the rate of mandatory sale of foreign currency was set at 40 percent.

Privatization

In 1991, state ownership restructuring began in the first 40 enterprises. On January 19, 1993 the Law "On destatization and privatization of state property in the Republic of Belarus" was adopted, which should have become the basis for wide privatization in Belarus.

Wages and labor market

The Belarusian labour market is highly regulated. Important elements of the central-planning
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...

 system are still in place. In principle, the decision to determine wages is left to firms, but the Government can affect the structure of wages through the so-called tariff system, a type of centrally determined wage grid. The tariff system is binding in the budget sector, including enterprises and organisations mainly financed and subsidised within the state and/or the local budgets. The private (so-called self-financing sector) sector, representing, as already noted, only a small share of employment, has little autonomy.

Industry

In the Soviet period, Belarus specialized mainly in machine building and instrument building (especially tractors, large trucks, machine tools, and automation equipment), in Computers and electronics industry and in agricultural production. In 1992 industry in Belarus accounted for approximately 38 percent of GDP, down from 51 percent in 1991. This figure reflects a decline in the availability of imported inputs (especially crude oil and deliveries from Russia), a drop in investments, and decreased demand from Belarus's traditional export markets among the former Soviet republics. Belarus's economy has also been affected by decreased demand for military equipment, traditionally an important sector.

In 1994 gross industrial output declined by 19 percent. At the beginning of 1995, every industrial sector had decreased output, including fuel and energy extracting (down by 27 percent); chemical and oil refining (18 percent); ferrous metallurgy (13 percent); machine building and metal working (17 percent); truck production (31 percent); tractor production (48 percent); light industry (33 percent); wood, paper, and pulp production (14 percent); construction materials (32 percent); and consumer goods (16 percent).

Energy

Belarus is a partner country of the EU INOGATE
INOGATE
INOGATE is an international energy co-operation programme between the European Union , Turkey and countries of the NIS, with the exceptions of the Baltic States and the Russian Federation. Formally it describes itself as supporting "international cooperation between the European Union, the...

 energy programme, which has four key topics: enhancing energy security
Energy security
Energy security is a term for an association between national security and the availability of natural resources for energy consumption. Access to cheap energy has become essential to the functioning of modern economies. However, the uneven distribution of energy supplies among countries has led...

,
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