ANALYSIS: Belarus: an economic miracle? (07/27/97)

ANALYSIS

Belarus: an economic miracle?

by David R. Marples

Is Belarus performing better than Ukraine economically? That is the claim being made by official government statistics, and supported by the optimistic public statements of President Alyaksandr Lukashenka. Belarus, according to its president, has emerged from its economic crisis and achieved a dramatic turnaround. How accurate are these comments, and how has Belarus managed to pull ahead of Ukraine despite its failure to implement economic reforms?

Stagnation followed by decline

Since the late Gorbachev period, Belarus, like other Soviet republics began to experience a period of economic stagnation that shortly became one of unmitigated decline. In the early years of independence, this process was accelerated. In 1995, for example, gross industrial output fell compared to the same period in 1994 by almost 12 percent. Among the sectors of the industry with the most precipitous reductions in output were light industry (a drop of 34 percent over the year), industrial construction materials (a decline of 21 percent), and machine building (a 20 percent fall). As the economy contracted, unemployment began to increase, embracing approximately 4 percent of the population by 1996 according to official figures. In reality it is almost double this figure today, with over 450,000 working on a part-time basis and often receiving wages only after long intervals or not at all.

Some economic repercussions of the transition to independence were surely inevitable. The economy of the republic was linked closely with that of its neighbors. Moreover, Belarus served as a military base for the Soviet army. As Russian soldiers left the territory, military industries had to be reprofiled or closed down. By November 1996, Belarus had reportedly transported all its nuclear weapons to Russia for dismantling.

Independence also left Belarus as an energy-hungry republic, dependent on Russia in particular for the bulk of its energy supplies and responsible for the provision of only 12 percent of its own needs. Belarus also faced a constant balance of payments problem; exports were well below imports, and foreign investment fell in 1995 to 20 percent of the levels of 1991. Suddenly, however, the Lukashenka administration claims to have resolved the economic problems.

The "economic miracle"

Recently, the president announced to the nation that in the year 1996, gross output of industry rose by 3.2 percent and the GDP by 2.6 percent. He has also expressed his hope that unemployment will fall below 3 percent of the workforce by the end of 1997 and has ordered factory managers to retrain rather than lay off workers.

Newspapers such as Natsyyalnaya Ekanamichnaya Hazeta have contained pages and pages of official statistics, all bearing the same message: the economic decline has ended and the public can now look forward to a period of recovery under the benevolence and guidance of the state, presided over by the powerful president. If not a return to the Soviet era of economic decision-making, there is no question that the authorities seek to instill in the public the perspective that only through the state can the economic predicament be resolved.

The economic figures cited constituted a propaganda triumph for the government. Encircled by nations that have chosen to embark on a risky and difficult transition to a market economy and privatization, the Belarusian government has, in practice, rejected such a route. The government has gradually removed all reformers from the administration and kept up a constant barrage against the "evils" of privatization, as exemplified by the pitfalls that occurred during the administration of Stanislau Shushkevich (1991 to January 1994), when the people suffered from high prices, hyper-inflation and erosion of real wages. In fact, official reports declare, under President Lukashenka the country had experienced an "economic miracle." Let us first examine some of the official reports.

The Lukashenka government was anxious to assure the public that many sectors of the economy had begun to perform well by 1996. The dramatic declines in the GDP had reportedly ended, and the best performances had been recorded in the forestry industry, light industry and ferrous metallurgy, all sectors of deep decline in past years. Although a reduced output had continued in electricity production and fuel production, these areas were the exception to the general rule. Over 70 percent of factories had increased their output. The rise had been higher in the small non-state sector than in state enterprises, though even the latter had recorded a rise in output. Agricultural production had also risen by 2.4 percent . The latter was significant because the Lukashenka government has claimed to be working particularly in the interests of farmers.

How accurate are these statements? What are the real facts behind the government's statistics. How can a regime that has failed consistently to embark on, or even offer, a systematic program for reform claim to have halted an economic downturn and begun to achieve positive results, so much so that the president has on several occasions addressed the nation as to their significance? Further research suggests that the "economic miracle" is as mythical as the statistics supplied annually by the former Soviet government.

Non-governmental assessments

The Belarusian revival is largely an artifical creation. In 1996, for example, even the president acknowledged in an unguarded moment that warehouse stocks accounted for over half the total output of goods, meaning that official statistics, as in the past, are hardly reliable. Few of the almost overwhelming problems facing the Belarusian economy have been resolved. The balance of payments situation has worsened as a result of import-export disequilibrium and the worsening exchange rate for the Belarusian ruble against the dollar and Russian ruble. By the end of 1996, the trade deficit amounted to $1.38 billion, about half of which comprised debts to Russia for imports of oil and gas. Though a customs union and an agreement to form a community with Russia had been signed in 1995 and 1996, these have failed thus far to result in two-way trade, according to a Belarusian account.

Evidence has also emerged that official statistics were not merely misleading the public, but were actually distorted. Two sources can be cited, - both of which are high-level but outside the purview of the government. First, a sobering analysis of progress (or lack thereof) in agriculture has been offered in a booklet issued by the Supreme Soviet of the 13th session in February titled "The State and Progress of the Agro-industrial Complex in Pulling Out of the Crisis".

According to figures supplied by the Parliament, consumption of basic products in 1996 declined compared to 1995: consumption of meat per head of population from 58 to 54 kilograms; milk and milk products correspondingly from 363 to 350, and potatoes from 185 to 180. The consumption of grain products remained static. In terms of output, that of meat had fallen in these same years from 323,600 tons to 278,900 tons; and grain and grain products from 1.01 million tons to 963,000 tons. Only sugar consumption and production increased in the period 1995-1996.

A precipitous and disturbing decline has occurred in the total heads of livestock of various categories. All types of livestock declined in numbers in 1995-1996, but if examined over the longer period 1991-1996, the extent of the reduction can be better comprehended. In 1991, for example, Belarus had the following livestock totals (given in thousands of head): large horned, 6,200, - including 1,699 cows; 3,545 pigs; 210 sheep; 291 (millions) poultry. In 1996, the totals were as follows: large horned, 4,035, including 1,309 cows; 2,165 pigs; 19 sheep; and 197 (millions) poultry. Not since the years of early collectivization and the wartime occupation had there been such a decline in heads of livestock, and never in what can be termed a period of "peacetime."

The gross collection of all agricultural products had declined, including grain and grain-bean products from almost 7 million tons in 1990 to 5.3 million by 1996; potatoes from almost 4 million to 1.7 million; and vegetables from 503,000 tons to 231,00 tons. The grain harvest, as measured Soviet-style, in centners per hectare, had declined from 26.6 in 1990 to 21.6 in 1996; thus, the land was less productive.

One result of this phenomenon of wholesale agricultural decline has been the scarcity of agricultural products among the population. Along with shortages, prices have escalated. By early 1997, prices in Belarus were higher than those in many European countries and all former Soviet countries with the exception of Russia. The price for chicken, for example, was five times higher than in Poland, and for pork more than double the amount. The agreements between Russia and Ukraine applied customs duties on imported goods from those countries, particularly sugar.

The portrait presented here by the Parliament was fundamentally different from the official version offered by the Lukashenka government. Indeed it indicated an almost total collapse in agriculture, thanks to the confusion of customs agreements, a reduction in the purchasing power of farmers (many of whom could no longer afford to purchase tractors and other agricultural machinery), their inability to apply mineral goods to the soil (1.5 million tons were applied in 1990; 620,000 in 1996), and other factors. The Belarusian village, where one in three inhabitants is a pensioner, has fallen into a decline that has not only has failed to be alleviated by the government, but has been exacerbated by government measures.

The second analysis is that of Henadz Karpenka, chairperson of the National Economic Council and a corresponding member of the Belarusian Academy of Sciences (he is also a leading member of the opposition). In an article published in the newspaper Narodnaya Volya (June 7 1997) that accuses the government of outright fabrications in its economic statistics, he points out that in world economics, there is a direct correlation between the rise in output and the production and the usage of electricity. In Belarus, however, the volume of output of industrial goods has allegedly risen at a time when output of electricity has declined. The government has concealed the latter fact by measuring output in millions of rubles for the first quarters of 1996 and 1997 without taking into account the decline in the value of the ruble. In short, the figures, as measured in this fashion, are meaningless.

Actual output of electricity has declined from 7.1 billion kilowatt/hours in the first quarter of 1996 to 6.8 billion in the same period of 1997. Other types of energy production have also seen reductions in output: reprocessed oil by 21 percent; benzine by 4 percent; diesel fuel by 16 percent; mazut by 24 percent. In short, there was no possibility of averting domestic shortfalls. Belarus continued to be dependent upon imports of energy supplies from Russia, Turkmenistan and other countries. The author points out that the Ministry of Foreign Affairs has failed to represent Belarusian interests in its dealings with Russia, being more concerned with the repression of the alleged enemies of the government than ensuring that economic agreements with neighboring countries actually benefit Belarus. The union treaty, for example, has brought thus far no material benefits to the people of Belarus.

A second contradiction is pointed out in agricultural statistics. According to official figures, output of milk has risen by 3 percent in the first quarter of 1997, while the heads of cows have fallen by 4 percent. Such figures cannot be explained rationally. And there are many such paradoxes, Mr. Karpenka points out.

However, the true indicator of living standards remains the purchasing power of the population. In the first quarter of 1997, the average wage fell from $80 per month to $63, or by 20 percent. Many people fell well below this figure. Pensioners were at the bottom of the scale, and saw their stipend drop from $31 per month to $28. Prices for various goods rose sharply at the same time: for industrial and food products, residential and communal services, and public transport. In plain terms, the population is worse off in 1997 than at any time in the period of independence.

Belarus experienced the highest price rises in the Commonwealth of Independent State in the first quarter of 1997 when the index rose by 141 percent. By comparison the rise in Azerbaidzhan was 118 percent, in Armenia and Kazakstan 119 percent, Russia 104 percent, and Ukraine 111.1 percent. Even in Tadzhikistan, suffering from civil war, the figure was lower: 132.6 percent. The first quarter of 1997 continued a trend established in 1995 and 1996 when Belarus led all CIS countries once again in prices rises. Inflation, according to the optimistic government picture, would fall to 26.8 percent over the 1997 year. However, the figure for the first quarter alone was 25 percent. To meet the assigned target, inflation would have to disappear completely for the remaining months of the year.

Living standards in Belarus, then, have fallen faster than in any other former Soviet republic, and are continuing to fall. There has been no "economic miracle" in Belarus. On the contrary, government policies are causing an acceleration of the decline.

The economy of a country can also be assessed through other factors that determine the quality of life: infant mortality, life expectancy, the size of families and population growth. Today the birth rate in the republic is under 10 per 1,000 population (in 1990 the figure was almost 14). The mortality rate in 1990 was 10.7 per 1,000 population; today it is over 13.

One consequence of this situation has been the decline in total population (i.e., the population reduction is not being compensated by an inflow of new immigants), a factor that has led some observers to comment pessimistically on the ultimate "extinction of the Belarusian nation" at some point in the future. In 1993, the country's population was 10.36 million; by December 1996 it had dropped to 10.28 and the decline had continued for each of the three years. On average, Belarus "loses" about 30,000 people each year. The population is aging; lifespans are shorter than in the past, particularly for men, and infant mortality rates are almost exactly double those of the United States (13.3 per 1,000 births). None of these factors can be laid at the door of President Lukashenka. On the other hand, he has failed manifestly to address them adequately.

The future?

On the other hand, Belarus is not facing economic collapse. Speculation that the Lukashenka government could eventually fall because of the failure of the economy appears to be far-fetched. However, the government has a limited vision - perceiving union with Russia as the solution to its economic ailments instead of the sort of economic reforms conducted in neighboring Poland (or, for that matter, in Russia itself) - and generally there have been no indications that the economic downturn that began in the late 1980s has ended under the Lukashenka regime. The problems can be put into perspective only with accurate information.

Officially Belarus performed slightly better than average among the newly independent states of the former Soviet Union (according to official Belarusian statistics) in 1996, behind Turkmenistan, Uzbekistan and Kyrgyzstan, but ahead of Kazakstan, Ukraine, Azerbaijan and even Russia. However, we have already noted the discrepancies in official statistics, especially when measured in terms of GDP over the previous year. There is little correlation between the figures and the increasingly grim realities. Unofficially, Belarus has fallen to last place among the nations of the former Soviet Union if assessed according to the purchasing power of the individual.

Critical dilemmas remain, from the balance of payments deficit to the continuing repercussions of the Chornobyl accident. Concerning this latter question, there has been almost no reduction of the number of people living in contaminated regions, particularly in areas affected with between 5 and 15 curies of cesium per square kilometer in the soil - the so-called region of secondary evacuation. Shortly after that accident, 1.9 million people were estimated to be living in zones of heavy radioactive fallout. Today the total is 1.6 million (of which 1.25 million reside in Homiel' Oblast). The proportion of funds allocated to the Chornobyl problem in the state budget has declined from more than 20 percent in the early 1990s to a single digit figure today. Moreover, the government has stressed its intention to recultivate these lands.

Belarus has been widely regarded as a difficult place to do business, partly because of the frequency with which laws are introduced and amended, but also because of the development of a repressive political climate. Belarus has experienced many of the problems of the first years of capitalism, but few of the benefits. The government has not to date provided a climate conducive to the development of small businesses, foreign companies, or even joint ventures. Its economic correctives have been largely superficial measures imposed centrally - such as a fixed ruble-dollar exchange rate in 1995, or the output of goods based on storage from previous years. Its economy is directed almost exclusively toward the east, despite some efforts by Poles, Germans, and Americans to rectify the situation.

Finally the economic difficulties have exacerbated (if they did not initially create) a demographic crisis: a population decline, high infant mortality rates and a reduction of the lifespan of the population, particularly that of males. Chornobyl was not the only reason for a general pessimism about the future evident in many circles in the 1990s. Government propaganda on the economy is seeking to dispel such attitudes by creating the illusion that good times are about to return to Belarus. It is a dangerous fallacy that could not only lead to skepticism among the public toward official reports, but also allow Belarus to fall further behind its neighbors - including its new "partner" Russia - on the path to economic reforms.

David R. Marples is professor of history at the University of Alberta and the author of "Belarus: From Soviet Rule to Nuclear Catastrophe" (New York: St. Martin's Press, 1996).

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