Looking Back at Lukashenka's Fourth Term

On 11 September candidates for Belarusian president officially started their campaigns. From the previous presidential campaign slogan “For independent, strong and prosperous Belarus”, Lukashenka left only “independent”.

In order to buy voters in 2010, Lukashenka embarked on excessive wage growth in the public sector, while exploiting international reserves to sustain the Belarusian ruble. However, this year, given the shortage of resources Lukashenka has to abandon his policy of cheap populism.

Despite promises in 2010, there has been no change in economic freedom, the private sector share in GDP remains at a minimum, and the number of the small and medium enterprises still remains low.

Belarus Moves Away From Populism

Until recently Lukashenka focused his election campaigns primarily on raising living standards. The authorities and society had an unwritten “social contract”. Lukashenka who has ruled the country for over 21 years substituted the lack of political change with a substantial increase in social welfare.

Lukashenka's current fourth presidential term has become his worst

In each presidential campaign since 1994 Lukashenka had vowed to increase the populace's average wage by the end of that presidential term. So far, the economy in 2001 and 2006 delivered the expected outcome with ease, while in 2010 artificial help from the officials was needed. In 2010 Lukashenka promised to raise the average monthly wage to $1,000 by 2015. Yet, in July the average salary fell below the level that was reached by the end of 2010.

For the first time Lukashenka is running for re-election without any commitment to guarantee a certain wage. Unfavourable external conditions and the ineffectiveness of the Belarusian economy, has left the authorities with no sources to boost the economy in the near future. Minsk has simply no extra money to buy voters.

Economic Stagnation Instead Of Bright Promises

Lukashenka's current fourth presidential term has become his worst. In early 2011 the Belarusian authorities forecasted that GDP would increase by 62-68 per cent by the end of 2015. In reality, growth will likely only hit 6 per cent. The discrepancy between the official forecast and the performance of main economic indicators affects all other measurements.

The Belarusian economy faces a systemic crisis. In the period 2001-2008 economic growth amounted to 8.8 per cent annually, while in the period 2009-2015 growth was limited to 1.9 per cent. With such a performance the economic gap between Belarus and the EU, measured by GDP per capita on Purchaising Power Parity (PPP), has remained unchanged for the past five years. That has disappointed many Belarusians who are the absolute leaders in the world on the number of Schengen visas per capita. Through access to the EU, Belarusians can compare the living standards at home and abroad.

Minsk has avoided reforming the economy in the past five years. According to the main national forecasting document, the Socio-Economic Development Programme for 2011-2015, Belarus had to join the Top-30 countries in the world for the ease of doing business by 2015. However, Belarus’ position in the World Bank ranking has barely changed as the table below demonstrates. Despite promises, experts saw no change in economic freedom, the private sector share in GDP, and the share of small and medium enterprises.

The Doomed Future of The Belarusian Economy

During Lukashenka's current term for the first time since 1995 Belarus has experienced a recession. In January-July 2015, GDP plummeted by 4 per cent year-on-year. In addition, the IMF forecasts a minor recession in Belarus in 2016 (-0.1 per cent).

Lukashenka faces rising unemployment, the unpredictability of the automotive industry, a shorter working week in many industrial plants, declining real wages, and currency devaluation by 50 per cent since the beginning of the year. How to solve them remains unclear, and Lukashenka keeps silent about this.

The Belarusian economy in 2015 is more unstable than in 2010. In 2006-2010 the US dollar in comparison to the Belarusian rouble went up by 40 per cent, while in 2011-2015 the currency rate grew six fold. A similar deterioration happened in regards to inflation. Furthermore, Belarus has become more vulnerable to external shocks. The international reserves have decreased while foreign debt has increased.

Light At The End Of The Tunnel

Minsk seems to have learnt a lesson that populism has ruined the economy since the last political cycle of 2010. The new government, elected at the end of last year, has conducted in 2015 quite a reasonable economic policy which has gained positive feedback from representatives of the international financial institutions. Since the beginning of 2015, each IMF mission, the World Bank and the Eurasian Development Bank has praised the new authorities for a responsible economic policy.

On the positive side, the Belarusian government consciously decided to control the economy's total foreign debt. Because of that the foreign debt in terms of GDP has increased insignificantly in the past five years, only by 1.4, from 51.6 per cent. That manifests a profound change in Belarusian economic policy in comparison to the second half of the 2000s when foreign debt increased dramatically.

Belarus still has great potential to benefit from liberal reforms

Belarus still has great potential to benefit from liberal reforms. Privatisation of state owned enterprises and a favourable business climate for establishing new entities could support Belarusian fiscal policy and boost the economy. For example, income from the privatisation of one of the biggest Belarusian company's, Belaruskali, could pay off a half of Belarus's total foreign debt.

The standard of living in the recent 5 years has slightly improved. Suddenly, Lukashenka has stopped declaring any progress in the social well-being in the near future. Deeply rooted traditional statement “if only there was no war” and national security issues has replaced economic rhetoric. The reason is simple: Lukashenka has nothing to boast about since no economic prediction for his current 5-year presidential term has come true.

Although many experts often predict the quick collapse of the Belarusian economy, it still allows for small growth. Yet, in the absence of decisive reforms and low oil prices Belarus could stay in stagnation for coming years. However, the stagnation would not bring immediate political changes since Belarusians have accepted living under state propaganda and are afraid of any revolution after the Ukrainian Maidan in 2014.

Time will show whether Lukashenka goes down in history as a reformer or as the captain of a sinking ship​.

Aleś Alachnovič is the Vice President at CASE Belarus and PhD candidate at the Warsaw School of Economics, an alumnus of the London School of Economics.​

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