Belarus economy facing trouble despite Russian help

Belarus was bailed out of last year's dire economic crisis by its giant neighbour Russia but as the ex-Soviet state heads to parliamentary polls the economy is once again flirting with disaster, AFP reports. Isolated from the West after a crackdown on the opposition, Belarus relies on Russia for financial aid but authoritarian President Alexander Lukashenko has failed to reform and the Belarussian ruble is at risk of devaluation once more. Lukashenko has announced ambitious plans for 8.5 percent growth in 2013 but the government this month put these figures in doubt after Russia halted its sales of petroleum over allegations that Belarus is avoiding its export duties. As the country prepares to vote for its parliament Sunday, the unpopular measure of a new devaluation could be just around the corner unless reforms are carried out, economists told AFP. Belarus -- which is under an array of sanctions from the EU over abuses of human rights -- borrowed heavily from Russia to come out of its currency crisis, even handing over control of its gas pipeline network in a rescue deal. Inflation last year shot up to over 100 percent after the country was forced to twice devalue its currency, wiping out people's savings and leading to chaotic buying up of dollars and euros. This year the country issued a 200,000 ruble note, now worth less than $24 (18 euros), to help consumers with their purchases. While the macroeconomic effects of last year's financial crisis have been overcome, most people are reeling from its social aftermath, surviving on an average monthly salary of just $464, less than what people took home in 2010. "There is no confidence among the population in the Belarussian ruble's stability," said analyst Dmitry Zayats. To help its ally, Russia began exporting oil to Belarus duty-free since the beginning of 2012. The measure has been a boon to cash-strapped Belarus, as a third of its exports are oil products from the country's two major refineries. Oil exports to the EU from Belarus grew as a result and Russian officials suspected foul play when the exports of solvents, not subject to duty fees to Russia, expanded by more than five-fold. In June Russia's finance ministry alleged that Belarus could in fact be selling the European Union gasoline under the "cover" of solvents, and exports of the petroleum product naphta was stopped in August. Belarus denied the allegations of unfair play, and Prime Minister Mikhail Myasnikovich said the issue was discussed by the countries' leaders, hoping the Russian exports will flow once again. "It will be difficult to close the resulting hole," said analyst Tatyana Manenok, who estimated that the "solvent business" put an extra $3.5 billion into the state coffers in the first six months of 2012. With those revenues gone, Belarus is facing tough times, since "it's impossible to sharply increase exports of goods or to increase direct foreign investment, because nobody wants to invest in Belarus," she said. The country's GDP growth slowed over the summer months. Growth averaged 2.5 percent for the first 8 months of 2012, according to official figures released last week. International institutions have repeatedly urged Belarus to reform its economy by privatising state-owned companies that now produce 80 percent of GDP, however no attempt at reform has been made. "Lukashenko is forced to begin privatisation, in essence, to sell some high-profit asset to Russia," said economist Sergey Chaly. "If economic policy doesn't change, there will be constant devaluation and price growth," he said. "Even the minuscule salaries and pensions can only be paid because the government begs Russia for preferences and accrues debt," said Stanislav Bogdankevich, who headed the Central Bank from 1991 to 1995 and has since joined the opposition. "The economic model forced upon Belarus is not effective," he said.