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. Last Updated: 07/27/2016

Belarus: Capitalism, Socialism, Chaos

MINSK, Belarus -- Olesya Muss has the same wishes and dreams as other girls her age: She likes dancing, clothes and makeup. She dreams of becoming a doctor.


And after spending three weeks with a German host family in Goettingen, Olesya knows what the life of a 14-year-old girl could be like.


But in her hometown of Dubovy Log, in the southeast of Belarus, life is different in almost every way, her dreams beaten down by the poverty of her surroundings.


Ten years after the Chernobyl nuclear catastrophe in neighboring Ukraine, the ground of the small village -- 200 kilometers northeast of Chernobyl -- is still contaminated. Since the wispy girl came to Dubovy Log with her mother and her 12-year-old twin brothers last year, she has had regular fits of dizziness and her immune system is weak. She was hospitalized with bronchitis for nearly three weeks recently. Now she is coughing again.


A decade has passed since the Chernobyl disaster, but the Belarussian government still hasn't evacuated all the people in the radioactive zones. One-fifth of the Belarussian territory has been contaminated, and experts estimate that 70 percent of Chernobyl's radioactive fallout came down on Belarus.


At a time when people should be moving away from Dubovy Log, the population is actually growing. "Where could I have gone?" asked Olesja's mother, Galina. After leaving her alcoholic husband, she had no home, no job, no prospects. "Here, most of the houses are abandoned and they offered me a job as saleswomen in the small village shop."


Dubovy Log is a sad example of the hopeless situation many Belarussians now find themselves in. Since the breakup of the Soviet Union, Belarus has gone from its position as one of the richest republics of a world superpower -- a key producer of machine parts, televisions and tractors -- to one of the region's poorest new countries. Over the last two years, no other former socialist country has gone through a comparable economic decline. According to a recent study by the World Bank, every third Belarussian lives in poverty.


In spite of this apparently dismal record, there is hardly a political leader on the territory of the Commonwealth of Independent States who enjoys as much popular support as Belarussian President Alexander Lukashenko. Lukashenko captured more than 80 percent of the votes in Belarus' 1994 presidential election, mostly thanks to his promise to reunify the country with its neighbor to the east, Russia.


And Belarussians took to the polls again over the weekend to voice their overwhelming support for Lukashenko, voting in his favor on all seven questions posed by the president's sweeping referendum. In response to the ballot's key question, over 70 percent of the country's total electorate gave their support to Lukashenko's plan to amend the constitution and widen his presidential powers. However, many observers have expressed doubts about the validity of the results.


While in the past Lukashenko has often ignored the country's constitution and the verdicts of the Supreme Court, the latest constitutional changes will, if implemented, give him the upper hand. As part of the new constitution, Lukashenko will appoint the bulk of the parliament and half the judges on the Supreme Court as well.


According to Stanislav Baktankevich, former president of the National Bank and now one of the opposition leaders in parliament, Lukashenko wants to built up a totalitarian state; Sunday's referendum represents one large step toward that goal.


Though the opposition against Lukashenko has become stronger and more vocal within the last few weeks, many Belarussians seem to want a strong leader. Although demonstrations against him have attracted attention in the media outside Belarus, the rallies in his favor have received less notice: Each time Lukashenko appeared around the country during the two weeks leading up to the referendum, thousands of people turned out to greet him warmly.


Lukashenko received just such a hero's welcome in Mogilyov, about 250 kilometers east of Minsk, where he was a student of history and sociology. On the cold, wet day that he addressed crowds from beneath a statue of Vladimir Lenin, policemen were continually escorting exhausted and over-exerted old women away from the press of the crowd.


For hours they had been waiting on the muddy ground, just to get a glance of the former kolkhoz director: "If he doesn't make it, no one will make it. He is one of us, he is out of the working class," said pensioner Anastasiya Volchenka. The old women must get along with a monthly pension of 560,000 Belarussian rubles -- less than $30.


"I haven't eaten meat for a long time," she said.


Many of Belarus' 10 million citizens are convinced that Lukashenko is the man to lead them to a better future. He promises what people want to hear in times of post-socialist chaos : order, justice, and the "unification of the Slavic people." It is a populist message that everyone in the crowd can follow.


Lukashenko promises he will build apartments; he forces directors to produce when their production lines stand still; he guarantees that Belarussians will not lose their jobs. The rhetoric may be simple -- "export, food, apartments" has been Lukashenko's rallying cry -- but this is the economic program of a man who in one interview last year approved of Adolf Hitler's economic policy.


Like Hitler, Lukashenko has no unifying concept of how to run an economy, but relies on a confused mixture of economic policies -- on the one hand a market economy, and when that doesn't deliver the desired effect, a centrally planned administrative system.


When Belarus' National Bank ran out of hard currency last spring and there was the danger of a currency-market collapse, Lukashenko re-nationalized the Interbanking Currency Exchange and set a ceiling on the exchange rate.


As a result, a currency black market resurfaced: While the Belarussian ruble has been trading at the official ceiling of 15,100 to the dollar on the official interbank exchange, where companies are obligated to sell 50 percent of their export earnings, people on the street have to pay over 22,000 zaichiki -- "rabbits," as the Belarussians refer to their currency -- to the dollar.


Lukashenko also interferes in the setting of prices: Following a new inflationary issue of National Bank credits to the government and the economy, Lukashenko ordered controls on prices for staples such as bread, milk, butter and eggs.


But this populist policy of interference in market processes is no more efficient than it was in Soviet times. Companies have already found a number of ways to get around the government's various hard-currency restrictions, and most producers refuse to offer their goods for the low prices fixed by the government. While food stocks in Belarussian shops get lower and lower, the black market is having a resurgence.


"It's an illusion of control," said one foreign economic adviser in Minsk.





Lukashenko's people go further than macroeconomic interference. Vladimir, a mechanic in Minsk, rented a small garage on one of the capital's main streets and had big plans for his tire-repair facility. But his enthusiasm didn't last long. First came the fire inspection, a bureaucratic process that kept the would-be entrepreneur busy for a couple of days making physical changes to the premises.


Then the police came around and declared a no-parking zone in front of Vladimir's shop. Since then, they have been taking away the drivers' licenses of anyone stopping their cars in front of the garage.


"They don't want money," Vladimir said of the police. "But I was made to understand that I will not repair tires here." Vladimir said he does not know why he is being targeted.


But Lukashenko has never made a secret of his antipathy for private business, and has called bankers and traders "swindlers."


Many of his thoughts on the matter are laid out in his book, "The Belarussian Republic -- Paths to the Future."


Many banks' "activities are based on usury," Lukashenko writes. "Strengthening the influence of the president on the banks' activities is inevitable."


In his 2 1/2 years of power, Lukashenko has almost destroyed the private finance sector. Out of the 50 banks operating in Belarus until recently, barely 15 are now working -- and those are under rigid state control. Lukashenko has even issued a decree fixing the wages for workers in the banking sector, with wage ceilings indexed in such a way that bank workers' salaries will rise only at the same rate as the rest of Belarussians' wages.


While this kind of populism may help make points with the masses, it has had devastating consequences on the development of the economy. According to the European Bank of Reconstruction and Development's latest Transition Report, less than one in five Belarussian rubles are produced in the private sector -- the lowest level in all of the former Soviet republics.


Even with Belarus' strategic location between Poland and Russia, it is far from being among the favorites of foreign investors in Eastern Europe.


One of the exceptions is a $20 million dollar joint venture between U.S. automaker Ford, the Belarussian government and a local investor, which plans to begin assembling the Ford Escort and Transit cars in Belarus starting July 1, 1997. "The development of infrastructure is proceeding according to plans," said Neil Campbell, the joint venture's general director.


But while big players can be sure of the president's support -- Lukashenko proposed just a few weeks ago giving Ford tax exemptions for the next 25 years -- there is very little small-scale foreign investment.


Local entrepreneurs, on the other hand, have been losing out. Most of them fear repression. Only few dare to express their opinion as openly as Natalya Shevko.


Shevko, 32, manages a financial holding company called Fico, which includes a bank, a consulting firm and an advertising agency.


Shevko's company once employed 400 people, but within the last year she has had to cut her staff in half. Her brokers lost their jobs because no one wants to trade Belarussian stocks anymore. The consulting firm no longer gets assignments because there are few private business that are developing quickly enough to enlist their help. Fico's holdings have been frozen ever since Shevko allegedly failed to declare a Russian bank's dividend payment.


"Two years ago we thought that our country would go forward as the Baltic countries have," said Shevko. "Now we have to start from scratch again."


There is little hope that Lukashenko will change direction. While in countries like Russia and the Ukraine many foreign specialists consult the local government in economic policies, the World Bank and the European Bank for Reconstruction and Development have not committed any new credits to Belarus within the last two years. The International Monetary Fund has stopped paying out a standby credit to Belarus and says the deal is dead.


"A new standby agreement would have to be renegotiated," said Christopher Willoughby, chief of the World Bank mission in Minsk.


But the chances of renegotiation are low: Lukashenko did not even meet with an IMF mission that visited Minsk this summer.


Instead, Lukashenko relies on the economic advice of people like Pyotr Prokopovich, the deputy head of the presidential administration. Prokopovich, a former construction industry director, has built up his own economic theory over the last couple of years.


He strongly defends his thesis that the new rise in National Bank credits in the second quarter of this year will not lead to increased inflation. "We are on the right track," said Prokopovich. "Our economy has grown by one percent this year."


But Prokopovich, 54, fails to mention the fact that nearly 20 percent of the goods produced in Belarus are piling up in warehouses, surplus goods to keep up with the Lukashenko's production demands.


If Lukashenko looked around, he would be able to see examples of what his country needs to foster economic growth -- a small, emerging private sector.


In the leather factory of Bobruisk, 200 kilometers east of Minsk, production lines are still running at 10 p.m. General Director Mikhail Kunts proudly demonstrates the new leather-dyeing machines imported from Germany.


Business is going well, he said. More than one-third of the plant's output is exported to the West, while within the customs union of Belarus and Russia which was formed in 1995, the leather company is one of the market leaders. The plant's 1,300 workers earn almost $200 a month, four times the salary of the average Belarussian. On top of that, Kunts pays his workers dividends every three months, since the company is one of the few to have been privatized in the last two years.


But Lukashenko's bureaucrats give even successful entrepreneurs like Kunts a hard time. The profit the company can make by selling its goods on the Belarussian market is determined by The State Monopoly Committee -- even though Kunts' company is not a monopoly.


Kunts is convinced that the mentality of the people hinders his country's economic development. "Most people still think that if someone makes money, another has to become poorer," he said.


Kunts' bad experiences extend even to his private life: Along with five other individuals, the 49-year-old entrepreneur began constructing a new apartment building in the center of Bobruisk. The shell of the group's apartment has already been built, but Kunts said construction has stopped. While in other countries investors receive tax exemptions for building, Kunts has had to account for the source of his money first to the Control Agency of the president, and then to the prosecutor.


Kunts says he has the documentation but isn't ready to fight the bureaucracy. And so the building will stand, half-built, until he feels the time is right to begin building again.


"This country isn't ready yet for a market economy," he said. "Here the people who stand in line are rewarded, rather than those who work hard."


Future economic decline in Belarus is almost inevitable. After almost 2 1/2 years with Lukashenko at the helm, the country is living almost entirely on its existing companies, which continue to deteriorate, while not enough new enterprises are starting up.


"What is needed now is domestic and foreign investment," said Arnold Kroener, a German adviser from Dresdner Bank to the Belarussian government. "But Lukashenko has scared investment away instead of attracting it."


Russia, which has been supplying huge amounts of energy to Belarus almost free of charge, has too many problems on its own to finance the integration Lukashenko desires. For Moscow, integration with Belarus would mean taking over a ruined economy and one of the region's worst laggards on the path of reform. That would mean huge social and structural spending that Russia cannot afford.


But the people of Belarus do not hold their president responsible for the ongoing crisis. Elderly Belarussians on Mogilyov's central square have already determined the guilty parties: "Yeltsin and the criminals in the Moscow Kremlin," they say. "Greedy Jews." "The West."


"Now you want to break us down," said one old veteran. "But we won the war once and we will beat you again."


An old woman interrupts. "Don't listen," she said, lifting her old, wrinkled hands. "You have to understand us. We build up this country with our own hands after the war. And now -- now we live like beggars."