Belorussian-Russian Conundrum: Between a rock and a hard place?

Antoni Z. Kamiński and Bartłomiej Kamiński
WSIiZ Working Papers
No 21.
Belarus’ economy appears to be stuck in a bad equilibrium and faces gloomy economic prospects. Decent economic growth performance came to a halt in 2009. The reasons for a slowdown and prospects of stagnation are both domestic and external. Externally, Belarus was hit by falling oil prices driving down the size of Russian oil subsidy and contracting exports of manufactures as import demand in Russia and was moving up to more sophisticated products that Belarussian exporters were unable to supply.
The declining sophistication of Belarus’ exports was the result of unreformed economic system. For Belarus’ institutional change clock stopped around 1994-96: the government has followed the band aid approach to economic change. In consequence, its underlying principles have not changed since then and, for that matter, neither has its political system. Russian oil-subsidy combined with preferential access to Russian markets made possible foregoing economic reforms and putting off usually painful economic reforms. Two decades later it left the economy totally unprepared to deal with falling energy prices and shift in import demands.
Belarus is between a rock and a hard place: it has to overhaul its economic regime. Russia clearly would favor Belarus’ economic turnaround but without political liberalization and possibly without an institutional reform enhancing an overall efficiency of the political and economic system. A possible way out of the quandary is to develop a comprehensive strategy of structural reforms leveraged by the WTO accession process.
Keywords: centrally planned economies, liberalization, first- and second-generation reforms, radical and gradual approach to transition, terms of trade, regional integration, Eurasian Economic Union, European Union, economic governance, authoritarian regime, WTO.
JEL classification: D10, D20, D40, F19, F23, F51, F63, P41, P47
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