Belarusian Economic Reforms: An Irresolvable Paradox
Aliaksandr Lukashenka returned from Moscow with victorious news ahead of V-Day. He convinced his Russian counterpart Vladimir Putin to issue a new $1.5-2b loan and to agree on a stage-by-stage reduction of oil export duties in the emerging Eurasian Economic Union. This may bring Belarus nearly $1.5b in 2015 alone.
These agreements, if implemented, will temporarily alleviate the country’s ongoing economic problems, but will not resolve them. Belarus is not generating the double-digit growth rates demonstrated before the 2011 currency crisis. Only an ambitious programme of reforms may provide a foundation for sustainable growth in Belarus, though such reforms contradict interests of the current leadership.
Soviet-Style Model: Lack of Efficiency
Aliaksandr Lukashenka long believed that the Soviet model was generally efficient, with some relatively small drawbacks. Therefore, when he came to power, he reversed market reforms in Belarus and introduced a Soviet-like model.
This economic model has been based on the state controlled property and enterprise, strong employment guarantees and an extremely high level of government intervention. Close ties with Russia have served as the main pillar of the model as Russia provided Belarus with subsidised energy resources and cheap loans.
Belarus has remained at a level of economic transition akin to Uzbekistan and Turkmenistan Read more
As a result, Belarus has remained at a level of economic transition akin to Uzbekistan and Turkmenistan – the two other outliers among the 29 countries in the transition indicators report published annually by the EBRD. The state still owns more than 70% of all enterprises. Many of them are inefficient and lack the capital necessary for their operations and modernisation.
They rely on state support to survive and greatly increase its fiscal liabilities by up to 4-5% of GDP per year. A lot of state-owned factories do not also have an appropriate level of energy efficiency, thus putting their success at risk should there be a rise in Russian energy prices.
Long Live Socialism?
Additionally, wage-levelling leads to lost opportunities in the labour force as it sidelines human potential and ends up creating an environment of low morale and incentives for self-improvement and professional development. A low-educated loader in Minsk earns only $100-150 less than a chief economist in a major bank with 20 years of experience. As a result, the most productive specialists and promising young people migrate to Russia or Western Europe/the US.
Wage increases ahead of productivity result in inflation, and this, combined with low cost efficiency of companies, leads to very high prices even for basic products. Today prices for most household appliances, clothes and food are the same or even higher in Minsk than in London or New York, though average wages remain 7-10 times lower. Today one can buy a pizza or get a haircut on Fleet Street in London cheaper than in a distant district of Minsk.
Lukashenka’s approval rating, however, remains high. Read more
Lukashenka’s approval rating, however, remains high. More than 45% of the population said they trusted the president, and 40.2% thought the country was developing in a right direction in March 2014, according to IISEPS. Moreover, 39.9% still consider socialism superior to capitalism (38.3%) and view it as the best model for Belarus.
This data accentuates the importance of academic exchange and education programmes for Belarusians such as Erasmus, OESS and ESSYB. More internship opportunities in Western countries, increased tourism, visa liberalisation and closer ties with the EU would also be helpful to increase pro-democratic moods in Belarus.
Worsening Situation Sobers Market Economy Critics
Whatever people believe in, the Belarusian leadership cannot ignore the noticeable signs of economic stagnation. GDP growth reached only 0.9% in 2013. The government did not meet Lukashenka’s 8.5% growth target and is also likely to miss the 3.3% growth target this year.
Belarus is a small open economy that exports goods and services to the tune of 82% of its GDP (2012). Its economic and industrial output growth depends largely on the competitiveness of the country’s exports which have been falling since 2012. An associated current account deficit has reached an alarming level of nearly 10% of GDP in 2013, putting pressure on decreasing international reserves and exchange rates. The split within the Belaruskali-Uralkali cartel further reduced the country’s exports and potash revenues.
The Crimean crisis only aggravates the external position of Belarus, because both the Ukrainian and Russian economies are contracting, both of whom are at the top of the list of Belarus' main trading partners. Besides, Russian involvement in the Ukrainian conflict frightened the Belarusian leadership who saw how harsh Vladimir Putin can be when pursuing his interests. They understand better now that Russian support comes at the price of independence.
Although Lukashenka initially tried to sell his position in the Ukrainian crisis to the West, Western countries ignored him and his rhetoric has become more pro-Russian. After the inglorious collapse of the Belarusian engagement policy with the EU in 2008-2010, Western countries do not consider Lukashenka a credible partner. In this situation, a person who will be able to negotiate economic assistance with the West as effectively as Lukashenka does with Russia may become a strong challenger to the incumbent.
Ambitious Reforms Instead of Cosmetic Changes
The government attempts to resolve the existing economic issues by temporary measures such as raising utility costs or asking Russia for inexpensive loans. Such measures do not address the inherent drawbacks of the existing model, including its low level of self-initiative, incentives and FDI.
The most crucial issue, however, is the lack of commitment to carry out reforms. The upcoming presidential election in 2015 represents a major challenge to the strict macroeconomic policies that the government has long stated their commitment to.
If Belarus wants to avoid a recurrence of this boom-bust cycle, its leadership should develop and adopt an ambitious programme of large-scale market reforms to boost labour productivity, innovation and entrepreneurship.
The emphasis should be on the development of a knowledge-based economy and accumulation of human capital, taking into consideration financial constraints and a poor natural resources endowment. A successful Belarusian IT sector with steadily rising yearly exports (from $110m in 2009 to $331m in 2012) provides an example for other sectors of the economy, because it exploits competitive advantages and does not depend on Russia.
Irresolvable Paradox for Current Leadership
Nevertheless, a completely new economic vision based on Western models challenges the very nature of the Belarusian model. Highly qualified and well-paid professionals have values and preferences significantly different from those of state-dependent factory workers.
The government will need to implement political reforms to hear the voice of these specialists and keep them in the country, but herein lies the problem of commitment. The current leadership is not willing to abandon its dominant position in government and business. The economic problems of Belarus are in fact highly political.
The EBRD clearly demonstrates with its recent statistics that Belarusian transition indicators stopped improving after the rise of Soviet-minded elite in the mid-1990s. Effective realisation of market reforms presupposes a cohort of new well-educated leaders who will be trusted by the EU and the US.
Belarus Bans St. George’s Ribbons at V-Day Celebrations
On the May 9th most post-Soviet countries, including Belarus, celebrate Victory Day to commemorate World War II.
But unlike in previous years, this time around before May 9th state organisations in Belarus received an unexpected order – replace all V-Day decorations containing the St. George’s ribbon.
Originally a Russian Empire military decoration, it was used during World War II in a modified form and since that time all former Soviet Union republics have widely used the symbol in their annual celebrations of Victory Day.
However, after the separatist actions in Ukraine, where militants use the ribbon as their identifying colours, it has acquired a negative meaning and became associated with Russian imperialism.
Unlike in Ukraine, where this year authorities introduced a completely new symbol, the Belarusian authorities simply replaced it with the colours of green-red flag of Belarus. With such a move Lukashenka is demonstrating his unwillingness to back Russia-inspired separatism in Ukraine.
History of St. George’s Ribbon
The Georgian ribbon emerged as part of the Order of St. George, established in 1769 as the highest military decoration of Russian Empire. After 1917 the Soviet authorities abolished the imperial award, but the black-orange ribbon was used in the Soviet Army under the name the Guard Ribbon on banners and decorations during World War II. Afterwards it became widely used in commemoration of World War II throughout the union.
The modern Russian army reestablished the Order of St. George, but in public opinion, which Putin’s propaganda has pushed, the imperial and Soviet ribbons are seen as identical and called the St. George’s ribbon.
The popularisation of the ribbon started back in 2005 with an ideological campaign in Russia. Activists began to distribute the ribbons among the population leading up to the annual Victory Day celebration on May 9th. People usually attach the ribbons to their clothes, cars and the black-orange colours are used on visual materials elsewhere.
However, in the current turmoil in Ukraine the St. George’s ribbon has become a symbol of pro-Russian separatists, who “fight Kyiv's fascist junta” for East Ukraine's independence.
Most militants in Ukraine wear the ribbon along with other separatist symbols. Due t this, the Ukrainian authorities banned the use of the ribbon as commemorative symbol for May 9th, although it had been widely used in the past.
Previously, Belarus also supported the post-Soviet symbol and the authorities were ordered to distribute the ribbons among state organisations and government bodies. However, this year the Belarusian authorities have apparently banned the use of St. George’s ribbon – a decision that was almost certainly made at the highest levels of government.
No St. George’s Ribbon in Official Celebrations
On May 6th a photo of a note appeared in the Vkontakte social network which was sent to all the schools in Homiel. In the note the Homiel BRSM (Pro-government Youth organisation) chief, with a direct no nonsense message, ordered the schools not to use St. George’s ribbon in their V-Day celebrations, but instructed them instead to use the green-red colours of the Belarusian flag.
Another BRSM functionary from the central committee explained to Radio Liberty that the colours of Belarusian flag are the official colours of BRSM, and the organisation does not associate its activity with the St. George’s ribbon colours.
The pro-government Belaja Rus public association, which includes practically all representatives of the ruling elite of Belarus, said that it was not planning to use St. Georges ribbons in their annual celebration. “We never used them, we have used the green-red ribbons and our emblem”, commented the Belaja Rus press-secretary.
Many other state organisations also confirm in private that they were ordered to remove or replace all decorations containing the St. George’s ribbon leading up to May 9th.
Not only the state but also private companies received the order not to use the ribbon. Belarusian retail giant Euroopt posted on its website that its volunteers will distribute the ribbons in large cities of Belarus from the 7-9 May. However, after multiple publications about the campaign in the media on May 7th Euroopt deleted the announcement.
Society and State in Symbolic Controversy
However, the authorities could not prevent some public associations and parties from distributing the ribbon.
The Liberal-Democratic Party, mostly loyal to the regime, claimed it will hand out the ribbons at its office and in the streets. Russian-backed organisations like Rus Molodaya (Young Rus') actively engaged in ribbon campaign in Belarusian cities, though fortunately they are very small in number.
Opposition forces, on the contrary, urged the authorities not to use the ribbon calling it a symbol of separatism and military aggression.
In Ukraine this year, authorities decided to introduce a new symbol of commemoration – a red poppy flower. According to Kiev, it presents a Europe-wide symbol of remembering war victims. Ukraine also launched their commerative celebration on May 8th as many countries of the anti-Nazi coalitions do annually. This symbol will avoid the glorification of war a la Soviet and will avoid parity with the separatist's symbol.
The Belarusian authorities decided on their own approach to the problem in a more delicate and gentle manner. They did not announce a total ban on individual use, but in official celebrations replaced the orange-and-black symbol with the colours of the current flag of Belarus.
Many Belarusians would not accept a ban on donning St. Georges ribbons, as large portions of the population remain friendly to Soviet ideology and are heavily influenced by Russian propaganda. Despite this, the infamous symbol has become a rare sight in Minsk, particularly when considering its widespread usage in years past.
Lukashenka Will not Back Separatism in Ukraine
This time around the celebration of Victory Day coincided with Lukashenka’s own urgent visit to Moscow, the details of which remain unknown. On 7 May he reassured Russian Prime Minister Dmitry Medvedev that, “Belarusians have never hesitated about celebrating Victory Day as the [nation's] greatest holiday”, and invited Medvedev to visit the new museum of the Great Patriotic War in Minsk. But these words sound like an excuse for the recently altered policies from the Belarusian leadership towards St. George's ribbon in Belarus, an issue which has caused discontent in Russian media in recent days.
Interestingly, in 2010 in Moscow during the commemoration events Lukashenka himself wore the green-red ribbon of Belarusian flag, while his colleagues, Medvedev and Yanukovych, wore St. George ribbons. It should also be noted that in Belarus, Lukashenka has always worn only the nation's flag colours during WWII commemorations.
The fact that the ribbon's usage was banned at the highest level demonstrates that Lukashenka is currently very suspicious of Russia’s actions in Ukraine.
Lukashenka refused to officially recognise the Crimea annexation and supports Ukraine’s territorial integrity and non-federalisation. At the annual address to the nation and Parliament in April he employed a fair amount of independence rhetoric and went on about the importance of preserving Belarus’ sovereignty as the unfolding regional crisis continues. The case of St. George's ribbon has become another sign of Minsk's altered view of the Kremlin politics.