Soviet experiment sinks Belarus

REUTERS

A man stands with a Belarussian national flag in Independence Square in front of the government building in Minsk, November 7, 2008.

Belarus architect Maxim Kapran was supporting his wife and four children on $70 a month and foraging the woods for food by the time the economy of Europe's most isolated regime crashed.

While problems in the eurozone have sparked global alarm, Belarus has been battling one of the worst economic crises in the history of any post-Soviet nation and is expected to see inflation hit 120 percent this year.

“We were ready to just take the family and go. The border is only 150 kilometres (95 miles) away,” Kapran said.

“A lot of people were talking about it around here in August. Personally, I just want to give my girls a chance,” said the 32-year-old Minsk native.

The most dramatic months of the implosion saw prices double in a matter of weeks thanks to a long-overdue currency devaluation and panic buying of anything edible - from sugar to vinegar - that could last on the shelf.

“People started picking things from the woods and growing more vegetables. I used to be afraid of eating hand-picked mushrooms. But hunger overcomes fear,” Maxim's wife Ella added.

The one-time designer decided to leave her girls with their grandmother for a few months and work 13-hour shifts for about a couple of dollars a day at the local grocer.

“It made sense to be close to food,” she said.

Belarus appeared to defy all the rule books by using a Communist-era command system to achieve five successive years of 10-percent growth despite little foreign investment or free market competition at home.

It became known as the “Belarus miracle” - an experiment under which an isolated society with an authoritarian regime run by ex-collective farm boss Alexander Lukashenko managed to provide endless local demand for its goods.

The government fuelled this explosion by issuing cheap loans to cover state firms' budget gaps and propping up the ruble at what eventually became more than double its actual worth - a costly practice that made consumers feel rich.

The resulting balance of payment deficit was for years covered by Minsk's main ally Moscow. But the Belarus strongman's growing eccentricities and the 2008 global crisis made such help seem excessive for Russia by last year.

The consequence for both Lukashenko and the Kapran family were quick and dramatic.

A painful and politically damaging series of currency devaluations saw average monthly salaries fall across Belarus to $230 (175 euros) from $500 last year.

Economists expect the country's cash reserves of $4.5 billion to be severely tested by about $7.8 billion in foreign debt payments that come due over the next three years.

“There are almost no sources of growth at the moment. When Russia devalued its currency in 1998, it stimulated exports that helped its recovery,” said independent economist Sergei Chaly.

“But we are not seeing that here because our factories already had state orders to work at full capacity,” he said.

“This is a huge threat to the country because with open borders and much higher wages abroad ... we are in danger of losing our most skilled workers. And that is the recipe for a classic poverty trap.”

One of the biggest problems for Belarus is that Lukashenko never spearheaded the privatisation drives that helped transform its Baltic neighbours and Poland into modern nations that are now part of the EU.

Official figures show the state controlling 70 percent of the economy and all the major enterprises. But analysts say most of the remaining firms either rely on state capital or are indirectly owned by local bureaucrats.

The state's incentive to part with those stakes - a vital piece of a $7.5 billion rescue it had sought from the IMF - has been dampened by a new Russian aid package that gives Moscow control of its main gas pipeline to Europe.

The International Monetary Fund ended its last mission to Minsk in October by insisting “that the government continue to take all possible measures to contain spending and that it freezes lending under government programmes.”

But while the Minsk skyline still shows vast new vanity projects popping up around Lukashenko's home residencies, tiny towns such as Rakau are using broken cobblestone roads from tsarist time.

“I would not be so worried if I had career prospects,” said Maxim. “That is not something I have today.” - Sapa-AFP