Mikita Bialiayeu: Belarus needs fast reform

Belarusan experts and opposition politicians have held several meetings in the framework of the European Dialogue on Modernization with Belarusan society to discuss future reforms. Opinions differed on the speed of change.

Belarusan experts and opposition politicians have held several meetings in the framework of the European Dialogue on Modernization with Belarusan society to discuss future reforms. Opinions differed on the speed of change.

More haste less speed?

Slow reform advocates point to the failure of Yegor Gaidar’s shock therapy in Russia in the 1990s marred by a fall in living standards, strikes by miners, hyperinflation and rampant crime.

On the other hand, Russia failed to properly accomplish reforms. It was not transition to a market economy, but redistribution of assets in favor of some persons.

Fast and successful modernization was completed in Poland, the Czech Republic, Estonia and Slovakia.

The Bulgarian and Romanian governments chose slow reforms for fear of public discontent. But they proved more painful and distressing.

The countries that carried out fast reforms had an advantage, says Anders Oslund, an expert on transition economies.

Belarus cannot afford to drug its feet

A slow reform in Belarus can end in failure. Gradual reform would be possible on condition of economic stability, public support for reform and the lack of external factors affecting modernization.

Belarus lacks these conditions. The most favorable time - the 1990s - has been lost. Any reform is likely to make public concerned.

The most painful will be the elimination of concessions and subsidies. The Belarusans got used to cheap public transport, low utility rates, free health services and government price controls.

Subsidies are financed primarily through cheap Russian energy supplied in return for concessions to Russia from the Belarusan government. But the Kremlin may eventually hike prices.

Russian claims

An oil price hike may force Belarus to launch a speedy reform. Moscow has been fed up with subsidizing Belarus. More often than not Russian officials hinted at the need for reform.

Moscow eyes Belarusan assets. It presses for a merger of the Belarusan and Russian truck makers, MAZ and KamAZ, and seeks control of Belarus’ potash industry. Russian Ambassador Aleksandr Surikov repeatedly raised the issue of a single currency. Some see the idea as a threat to Belarus’ economic independence.

Moreover, Russia also needs reform because a slump in oil prices can sink its economy. However, the Russian government is reluctant to begin meaningful modernization.

Belarus should not count on help from Russia in transition to a market economy. But if modernization does not fit into Russia’s scenario, Moscow may employ all tools at its disposal, including energy prices and market access to force Belarus to stay in the Eurasian Union project.

If Moscow hikes energy prices or restricts Belarus’ access to the huge Russian market, Minsk would need to act fast to redirect trade flows and find new partners. If it drugs its feet it may fail.

In addition, Belarus’ economy is hardly competitive because of low productivity rates, a lack of high technologies (only 4.4 percent in industries) and investment. The Ministry of Economy says that as much as $90 billion in investment is needed for industrial development. If reform is slow, Belarus may fall further behind.

Apart from external, there are internal reasons for choosing a fast reform. Reform is likely to meet with opposition from various influential groups, including agricultural and industrial managers and local authorities. If reform is slow, they will be in a better position to sabotage and disrupt it.

Brain drain is another acute problem for Belarus. If it is not tackled as soon as possible, consequences may be severe, as other countries’ transition experience suggests.

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