Belarus: Prices, Markets, and Enterprise Reform Book

Belarus is in a major economic crisis. The trade deficit has become unsustainable. External reserves have fallen to negligible levels. The number of loss-making enterprises is increasing rapidly. Budget revenues are falling far short of targets, and the Government has announced its intention to pursue expansionary monetary and credit policies to support these loss-making enterprises in industry and agriculture, to pay workers, and to cover its own expenses. Like all former Soviet Union (FSU) republics, Belarus suffered the twin shocks of higher energy prices and the loss of traditional markets when the former Soviet Union collapsed. In addition, the adverse effects of high inflation on the investment climate were compounded by unpredictable tax enforcement and extensive government controls on pricing, business establishment, credit, and access to suitable business premises. The situation has become worse in the last 18 months because the Government, instead of focusing on monetary discipline and structural reforms, has intervened actively in the foreign exchange market to maintain an artificially stable exchange rate. Escaping the current crisis and restoring growth will require rapid creation of a stable, predictable business environment that will attract the domestic and foreign investment needed to improve productive efficiency and international competitiveness. After a review of recent economic developments in Chapter 1, the report identifies the measures needed to create an efficient, productive market economy that will attract the investment necessary for increasing productivity and improving living standards in Belarus. Chapter 2 examines the measures that are needed toestablish the market-determined process required to guide the efficient allocation of resources. Chapter 3 outlines the actions required to establish profit-maximizing enterprises. Chapter 4 describes the actions needed to protect people, particularly the poor, during the transition process. Chapter 5 concludes the report with a discussion of three scenarios that illustrate the future prospects of the Belarusian economy under alternative policy strategies, and of the resources that will be required to finance the transition of Belarus to a market economy.