Belarus - Raiffeisen Bank International AG

1. The Economic and Political
Situation in Belarus
National Economy in Crisis
4
In contrast to developments in other CEE countries, the Belarus economy still remains largely in the hands
of the state. About 75% of GDP was generated by state-owned companies, and state banks comprise 70%
of the banking sector. Belarus experienced a strong phase of growth with an average rate of 7.5% p.a. in
the five years leading up to the financial crisis. Both internal factors, such as high investments and climbing
private consumer demand, and external factors such as strong demand for Belarus’s export goods,
contributed significantly to this dynamic. Exports include petrochemical products for the European market
(above all products from two oil refineries) and industrial facilities, trucks, tractors, consumer goods and
food, which are sold in the post-Soviet area (especially in Russia). With foreign trade revenues (the sum of
exports and imports) of over 100% of GDP, the country is a very open national economy.
Politically, Belarus is associated with neighbouring Russia via membership in multiple organisations. In
addition to the Commonwealth of Independent States (CIS), Belarus belongs to a union state with Russia
that was founded in the 1990s (and does not function well), and the Eurasian Economic Area (EurAsEC),
which is a customs union between Russia and Kazakhstan formed in 2010. The customs union currently
has numerous deficiencies that should be addressed by a shared economic space as of 2012. In addition,
Belarus profited, even before the introduction of the customs union, by preferential access to the Russian
market and very favourable conditions for the delivery of oil and gas.
Despite this reliance on Russia, President Alexander Lukashenko, who has been in office since 1994, has
wanted to limit direct foreign political and economic influence on Belarus. The president’s authoritarian style
of leadership, as well as the high percentage of state-owned companies, means that hardly any important
economic decisions are taken without Lukashenko’s blessing.
The Belarus economic model was based on cheap Russian energy in recent years, which increased the
competitiveness of domestic industry and allowed the subsidisation of otherwise unprofitable sectors (such
as agriculture). From 2007 forwards, however, Russia has slowly increased prices to bring them to world
market levels. Belarus offset decreasing energy subsidies on one hand by striving to increase energy
efficiency, and on the other by taking on more loans from abroad.
The state’s strong control of the economy turned out to be a good thing during the financial and economic
crisis of 2008/2009. Despite a massive collapse in exports, domestic investors were forced to avoid terminations,
thereby stabilising private domestic demand. A currency devaluation and support from the
International Monetary Fund (IMF) totalling over $ 3.6 billion successfully prevented a deep recession like
those in the Ukraine or Russia.