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“In Belarus, Russian loans are spent on Lukashenko’s mansions”

Palace of Independence, Alexander Lukashenko’s new residence

President of Belarus Alexander Lukashenko signed a decree “On the measures to upgrade the efficiency of the social-economic system in Belarus” on February 23. To that end, it is necessary “to ensure proper management of the state-run enterprises and reduction of the cost value of the production, development of fair competition and rational import-substitution,” according to the decree. Alexander Alfimov, a Belarusian economist, commented on Lukashenko’s decree to EADaily.

Let us start with point 5 of the decree concerning the inviolability of the property. The decree binds the Prosecutor General’s Office and the courts to ensure the property protection guarantees stipulated by the Constitution of Belarus. It is nothing but self-diagnosis. If the president still has to make such decrees, this unveils the real situation with the inviolability of the private property and the reason why foreign direct investments pass by Belarus. It is noteworthy that the nationalization issues are upon Lukashenko to decide personally. The Prosecutor General’s Office and the courts decide nothing here.

Actually, he charges the Prosecutor General’s Office and the courts to limit its unlimited powers, which looks absurd. For instance, the incident with Pinskdrev holding where the owners of a private enterprise were deprived of the right to manage it.

Then let’s have a look at point 1.1. “Reduction of the cost value of the production by at least 25 percent.” How to do it is not mentioned in the decree. The labor efficiency of Belarus lags behind this indicator of the EU fivefold. Theoretically, it is necessary to reduce this difference, make a technological revolution (25% imply radical measures i.e. revolution), purchase the most advanced equipment from the leading producers (who will not sell it to the rivals in the EU before its five-year functional depreciation) etc. The president set rather an ambitious task.

Another interesting point is 1.2 that charges implementing import-substitution projects with at least U.S.$600 million proceeds from sales annually in the industrial production and service sector through non-budgetary sources. It is a very good task for the Soviet model of economy. The problem is that formally Belarus is building “MARKET socialism” while the given point of the decree contains neither market nor socialism. It contains only administration-by-fiat system and planned indicator.

The same point requires reduction of the overdue receivables for at least US$100 million. Unfortunately, it is not clear from where that figure emerged. It is like the GDP in last year’s failed forecasts. The same point charges protecting the domestic market from unfair competition and making the anti-monopoly regulation system in Belarus more efficient. We are speaking about protectionism that has led the government of Belarus to trade wars with the neighbors for many times. For instance, in 2015, the country was on the brink of a trade war with Ukraine. It is not clear what Lukashenko or those who wrote the decree for him mean when speaking about “unfair” competition. Practice shows that Belarus authorities consider any competition with the local state monopolists as “unfair.”

The decree obligates “boosting the investment activity, ensuring a wide and facilitated access to the credit lines of China provided for the implementation of investments projects, and prioritizing the sectors for these investments, as well as actively raising foreign investments.” Meantime, Lukashenko has said that Belarus is not able to use the credit lines for billions of dollars that China suggested and even opened. The decree does not indicate any specific proposals or projects. Therefore, there is no subject for discussion or comments.

The situation with the foreign direct investments in Belarus is bad without chances. As for the tied loans of the Chinese state banks, they help increasing Belarus’ state debt. Russia needs to learn China’s example and issue only tied loans to Belarus. One of the best examples of such loans is US$10 million for the construction of the Belarus NPP. Providing hard cash would mean to use them at convenience of Alexander Lukashenko. We can still remember the time when Lukashenko built a new mansion in the center of Minsk amid “temporary difficulties” and “troubles.” He will build another five mansions on Russia’s loans and will told the students of the Mogilev technologies Institute that not a ruble from the budget has been spent on the construction of these mansions.

The decree obligates to reduce the expenses of the organizations providing housing and utility services and compensate them through utility tariffs for the population. In fact, no one could increase the utility tariffs without the consent of Lukashenko. Furthermore, the issue of raising the tariff has been discussed with the IMF since 2011. This issue was discussed with the EurAsEC Anti-Crisis Fund and is now being discussed with the Eurasian Fund for Stabilization and Development.

The problem is not that the tariffs increased dramatically. The problem is that no one explains the people why it has happened. For instance, no one explains why the price of the water from water channel and artesian wells increased for the Minsk consumers. The government officials do not report how the cost value of the water supply, sewage and household waste removal services is determined.

The public discontent is natural: the water channel and pipes were left the same the sanitary technicians are the same too (though they no longer take vodka for work, only money), the salaries were not increased either, while the water supply price has been increased. It is necessary to explain the people how the prices are determined. Maybe the solid waste landfills have been sold to the investors from Qatar and now the country has to lease its former state property and increase the prices of the utility services. It is necessary to raise public awareness of the field.

An anticipated point in the decree: “part of the percentages on loans issued by non-resident banks to non-resident borrowers for purchase of Belarusian products (including through leasing) will be compensated by the Republic of Belarus in 2016-2017 at the expense of the state budget.” Actually, the expenses on the implementation of the projects are laid on the taxpayers. Officials do not want to answer for the situation. The money was transformed into nonsalable goods that are stuffed into warehouses. Now, instead of increasing the salary of schoolteachers or child-minders, someone else will be supported. I would prefer that part of the interests on loans of teachers and caregivers be written off, as they have socially important functions unlike those who retain a firm grip of power.

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