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Belarus - Economy (Notes)

As part of the former Soviet Union, Belarus had a relatively well-developed industrial base; it retained this industrial base following the breakup 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.

After an initial outburst of capitalist reform from 1991-94, including privatization of state enterprises, creation of institutions of private property, and development of entrepreneurship, Belarus under Lukashenko has greatly slowed, and in many cases reversed, its pace of privatization and other market reforms, emphasizing the need for a 'socially oriented market economy.' About 80% of all industry remains in state hands, and foreign investment has been hindered by a climate hostile to business. The banks, which had been privatized after independence, were renationalized under Lukashenko. The government continued to nationalize companies in 2005, using the 'Golden Share' mechanism--which allows government control in all companies with foreign investment--and other administrative means.

Economic output, which declined for several years, revived somewhat in the late 1990s, but the economy has remained dependent on heavily discounted oil and natural gas from Russia. Belarus has historically re-exported the oil and oil products at world market prices, using the profits to subsidize state enterprises. Price controls on industrial and consumer staples have also constituted a major feature of the Belarusian economy. Inflationary monetary practices, including indiscriminate monetary growth, have been regularly used to finance real sector growth and to cover the payment of salaries and pensions.

In December 2006, Belarus and Russian gas giant Gazprom signed a deal which will eventually end Russia's subsidies of Belarusian gas. Under the deal, Gazprom raised prices for Belarus gas deliveries in 2007 to $100 per 1,000 cubic meters--a significant rise from the subsidized previous price of $46, but still far less than the price paid by EU member states. The price for Russian gas will continue to increase incrementally until it equals the price paid by EU members in 2011. Additionally, Gazprom will gradually acquire a 50% stake in Beltransgaz, the Belarusian gas pipeline firm. In January 2007, Russia followed up with a steep duty on oil deliveries, which caused a significant drop in revenue from exports of oil products and Russian-sourced crude oil. The increase in gas prices and simultaneous moves by Moscow to reduce the profitability of refining Russian oil in Belarus for re-export disrupted plans to upgrade industries ranging from oil refining to cement production.

Peat, the country's most valuable mineral resource, is used for fuel and fertilizer and in the chemical industry. Belarus also has deposits of clay, sand, chalk, dolomite, phosphorite, and rock and potassium salt. Forests cover about a third of the land, and lumbering is an important occupation. Potatoes, flax, hemp, sugar beets, rye, oats, and wheat are the chief agricultural products. Dairy and beef cattle, pigs, and chickens are raised. Belarus has only small reserves of petroleum and natural gas and imports most of its oil and gas from Russia. The main branches of industry produce tractors and trucks, earthmovers 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, Germany, Ukraine, and Poland.

The massive April 26, 1986 nuclear accident at the Chernobyl power plant, across the border in Ukraine, 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. Many living in Chernobyl afflicted zones have infrequent access to medical treatment due to remoteness, inadequate equipment, and substantial costs. Although the Belarusian Government claims otherwise, many radiation monitoring stations, especially in rural areas, are either ill-equipped, poorly staffed, and/or no longer in operation. Resettlement of those in affected areas remains incomplete.

Due to the economic and political climate, little new foreign investment has occurred in recent years. In 2002, two major companies, the Swedish furniture firm Ikea and Russian beer producer Baltika, ended operations in Belarus due to unrealized government commitments or unwelcome interference. Ford Motors did the same in 1999. In July 2007, Lukashenko threatened to take unspecified actions against American businesses in Belarus.

Growth in 2005 was reportedly robust, but peculiarities in official Belarusian statistics complicate analysis. Officially, inflation moderated to 8% in 2005, though hidden inflation remains a problem. Salaries are being increased by government directive, fueling some increased consumption but also making Belarusian firms less competitive. Close to 40% of enterprises and a majority of collective farms currently operate at a loss, a level that has persisted since 2002. The government made progress in reining in its fiscal policies, largely due to constraints imposed by financial difficulties caused by the earlier economic slowdown. Belarus continues to be heavily dependent on Russia, with the potential for greater economic dependency in a long-proposed EU-style union between the two states. Prospects for an eventual union remain weak, however, largely due to the apparent lack of interest on the part of the leadership of both countries.

The World Bank's 2002-2004 country assistance strategy for Belarus focused on areas such as targeted social assistance to help open up Belarusian society, AIDS/HIV and tuberculosis prevention, environmental protection, Chernobyl-related damage, and small and medium enterprise development. The World Bank's most recent project in Belarus began with its June 2001 approval of a $22.6 million loan to finance repairs in over 450 schools, hospitals, and homes for orphans, the elderly, and the disabled throughout Belarus. In 2004, Belarus rejected a World Bank loan to help fight AIDS and tuberculosis. International Monetary Fund (IMF) cooperation is currently limited to policy and technical consultations.

Environmental Issues
Belarus has established ministries of energy, forestry, land reclamation, and water resources and state committees to deal with ecology and safety procedures in the nuclear power industry. The most serious environmental issue in Belarus results from the accident in 1986 at the Chernobyl nuclear power plant. About 70% of the nuclear fallout from the plant landed on Belarusian territory, and about 20% of the land remains contaminated. But government restrictions on residence and use of contaminated land are not strictly enforced, and the government announced plans in 2004 to increase agricultural production in the contaminated regions. The government receives U.S. assistance in its efforts to deal with the consequences of the radiation. Belarus also faces growing air, land, and water pollution levels from potash mining in the south of the country.

Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Belarusian Rouble Exchange Rates
Notes and Commentary: Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.

Facts at a Glance
Current Time
Ranking Positions
Belarusian Rouble Exchange Rates

Notes and Commentary
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.

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