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. Last Updated: 07/27/2016

Belarus Tightens Control of Economy

MINSK, Belarus -- President Alexander Lukashenko tightened state control of Belarus' faltering economy Tuesday by bringing a bank payment clearing institution under state control.

A World Bank mission, meanwhile, said it had halted all credits to the former Soviet republic pending faster moves toward market reform. The International Monetary Fund has also stopped credits to the country of 10 million people.

Lukashenko's top economic adviser, Pyotr Kapitulo, said a presidential order signed Monday had turned the Interbank Accounting Center, responsible for bank clearing operations, over to the state sector. It had been owned by 16 commercial banks and the central bank, which held a 20 percent interest.

"This order was issued because laws were broken in setting up the center and funds were misused," Kapitulo said. "The interbank market cannot be left completely in the hands of commercial structures."

Kapitulo said compensation would be provided to banks in accordance with the number of shares they held.

Lukashenko has made creation of some form of union with Russia his main political plank, and he insists reforms can be adopted only with great caution under tough government control.

"The state, and only the state, will run our country, our economy," he said earlier this month. "The formation of a new banking system is being completed, fully controlled by and answerable to central authorities."

The Minsk currency exchange was nationalized in April, and Lukashenko has announced plans to increase state control over six big commercial banks. He denies allegations that the scheme is tantamount to nationalization.

John Hansen, the World Bank's chief economist for Belarus, said the country had plunged into a "foreign investment crisis" with levels at one-fifth of the 1991 figure of $1 per head of population. That, he said, was the lowest in Eastern Europe.

He said foreign investors would naturally seek out countries where they felt safe and at ease.

He said unsold goods were accumulating and the number of loss-making enterprises growing. The government had promised to turn 800 enterprises over to the private sector by the end of last year, but only 550 had changed hands.

Hansen said $115 million of $170 million promised in World Bank credits had been disbursed and new credits were frozen. The IMF last year froze allocation of most of a $300 million standby credit.

Hansen said the government could improve trade balances by freeing the exchange rate, held up artificially at about 12,500 Belarussian rubles to the dollar, about 25 percent below black market values.

A report released Tuesday by the Economist Intelligence Unit described Belarus as "one of the most difficult business environments anywhere in eastern Europe."

"There is no significant reform under way or likely, thanks to President Lukashenko's extremely suspicious attitudes to all forms of independent institution," he said.