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Published on 20 Nov 2010 - filed under Articles.

Feeding the Meat Grinder

It was the West that saved Belarus’ untenable economic model, and Lukashenka’s hide, this time. But change is still inevitable.

by Sergei Korol

Last year I predicted that Belarus Inc., a state-owned company-country personally managed by the president of Belarus, would emerge from the economic crisis without a major rupture in its political regime, but shaken enough to begin a slow and convoluted process of economic transformation toward a more normal economic model. Eighteen months and two trade wars with Russia later, and this is the sight unfolding before our eyes. The fundamentals of the Belarusian economic model have not changed in principle, and it continues to work – salaries are paid, and the downfall was not as deep and painful as in neighboring countries – but some large changes are occurring beneath the surface. This renewed economic landscape is causing the government some anxiety on the eve of the 19 December presidential elections.

It doesn’t take a Ph.D. in economics to understand how the Belarusian economic model works. Imagine a meat grinder. The meat (Russian oil, gas, and parts) comes in on one side, and out the other comes diesel, chemicals, trucks, and tractors. Some goods return to Russia, others head to Europe. Much economic “meat” is lost in the process – as a machine that processes imports into exports, Belarus Inc. is inefficient. Even at still-subsidized Russian energy prices, the company-country loses about 10 percent of GDP – seen in the form of the chronically negative trade balance. By September – and this is the first element of the post-crisis landscape – the trade deficit had risen to almost $6 billion, a quarter more than at the same time last year, and 50 percent over pre-crisis levels.

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