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. Last Updated: 07/27/2016

Belarus Plans to Scrap Food Subsidies

MINSK, Belarus -- The former Soviet republic of Belarus, fed up with supplying cheap food to neighboring countries, plans to scrap big subsidies on milk and bread, allowing prices to rise 10-fold and more.

"Previous experience has convinced us that protecting the population with fixed prices is impossible," Deputy Prime Minister Sergei Ling told a news conference late Monday.

"We tried filling Poland with goods. Now we are attempting to feed Lithuania. But are in no shape to feed Russia."

Ling said big state subsidies for consumer goods had resulted in an exodus of goods from Belarus to neighboring countries, where prices are 12 to 15 times higher.

"The only choice now is to get away from subsidies," he said.

The changes mean a liter of milk will go up to 3,000 Belarussian rubles (12 cents) from 160, and a loaf of bread will cost 4,000 rubles instead of 300, he said.

Impoverished Belarussians have long taken advantage of their country's subsidized prices to sell food abroad.

The streets around Moscow's Belorussky station are crowded with pensioners off the overnight train selling bread, cheese and meat.

Belarus officials now hope this situation will change. Meat and vodka prices have already been freed and Prime Minister Mikhail Chigir said after the news conference that prices for other goods, including electricity and gas, would start to rise this month.

"The shock of price increases will be difficult, but we must get it over with now," he said. "Without freeing prices, all other reforms will have no effect."

The new Belarus President Alexander Lukashenko has emerged as a proponent of slow but steady market reforms since he was elected last month. He appointed market reformer Chigir as his prime minister to replace the conservative Vyacheslav Kebich.

Despite the fixed level of many prices in Belarus, inflation has raged at up to 40 percent a month.

Chigir said that because of this and Belarus' relatively unreformed economy, the long anticipated monetary union with Russia was now unlikely in the short term.

Chigir also said he expected a government decision to devalue the Belarussian ruble by a factor of 10 within the next two weeks.

To compensate Belarussians for the price increases, the government also planned to increase salaries by five times on average, but this would not take place immediately, Ling said.

He said pensioners, students and the unemployed would receive a monthly subsidy of 90,000 Belarussian rubles ($3.60) as soon as prices rise.

Chigir said the government would take steps to regulate the price rises until they become level with higher market prices.

"We can't do this all at once. The difference between the sale price of goods and what they cost to produce is too great. To free them immediately would create an uncontrollable situation, so the government will regulate prices for a while."

(Reuters, Interfax)