The economy

Belarus was more fortunate than many of the former Soviet Republics because it had a well-developed industrial sector before the collapse. The country still produces machinery, television sets, refrigerators, furniture, and beauty products for export. State ownership has deterred the large-scale asset stripping and other corrupt practices that accompanied privatization in some other CIS countries. Some state enterprises were privatized from 1991-94, but 80% of all industry remains state-controlled. The few banks privatized after independence were renationalized. The agricultural sector, due to lack of investment, is in steady decline.

Belarus has also been able to shield its inefficient economy thanks to Russia, which subsidized Belarus directly with cheap energy and indirectly by accepting barter in mutual trade. These subsidies contributed to the relative stability of the Belarusian economy for years. In 2006, Russia began to reduce its subsidies on oil and gas to Belarus when Lukashenko refused the Russian Federation priority on privatization deals. The tensions between the two countries escalated in December 2010 when Russia stopped the export of subsidized oil to Belarus. In November 2011, Belarus and Russia reached an agreement in which the price of natural gas would be reduced in exchange for the sale of the remaining shares of Beltransgaz, the Belarusian natural gas pipeline operator. The reduction in subsidized energy and the financial crisis led to the three-fold devaluation of the Belarusian ruble in 2011. The situation stabilized due to a $3 billion loan from the Russian state-owned bank Sberbank, and the $2.5 billion sale of Beltransgaz to the Russian state-owned gas company, Gazprom. At the beginning of 2012, Belarus became part of the Single Economic Space with Kazakhstan and Russia, which means that goods, services, capital and labor forces can move freely between the three countries.

With Russia now a member of the World Trade Organization, there is increased pressure on Belarus to adopt structural reforms that will make its industry more productive and competitive. In order to prevent Belarus businesses from moving abroad, the Belarusian government issued a decree liberalizing the business climate for entrepreneurs in rural areas and medium-size towns. Decree No. 6 exempts companies from income and property taxes, and a tax on individual entrepreneurs that produce their own goods and services. It also releases these entrepreneurs from mandatory contributions to state innovation funds and no longer requires them to sell 30% of their foreign currency revenues to the state. Despite the recent decree, no strategy is in place to restructure and privatize state-owned enterprises. In 2011 Belarus had 100% inflation and the government is hoping that the inflationary level will not exceed 25-30% in 2012. Under these conditions, it is unlikely that Belarus will attract significant foreign direct investment, and Belarus businesses may have no other choice but to move overseas.