Economic Freedom Heritage Foundation 2006
Rank: 151 / 157
Belarus is both one of the most repressed countries of the former Soviet Union and the one that has retained the closest political and economic ties with Russia. President Alexander Lukashenko, whose authoritarian regime has ruled since 1994, remains firmly in control. In October 2004, a referendum was passed ending presidential term limits, thereby allowing Lukashenko to run again in September 2006 for another five-year term and remain in office indefinitely. The same month, parliamentary elections were held, with opposition candidates prevented from running in many districts and pro-Lukashenko candidates winning every seat. Under Lukashenko's dictatorship, there has been little progress on structural economic reform and market liberalization. Roughly 80 percent of all industry remains in state hands, the industrial base has become obsolete, and more than 40 percent of industrial enterprises work at a loss. Extensive budget subsidies are required to maintain the agriculture sector, which is dominated by Soviet-era collective farms. Arrests and disappearances of opposition leaders and the absence of freedom of expression, coupled with gross economic mismanagement, inhibit foreign investment, and outdated distribution systems unnecessarily constrain exports. Belarus's fiscal burden of government score is 0.2 point worse, and its informal market score is 0.5 point worse. As a result, Belarus's overall score is 0.07 point worse this year.
The World Bank reports that Belarus's weighted average tariff rate in 2002 (the most recent year for which World Bank data are available) was 8.9 percent. (The World Bank has revised the figure for 2002 upward from the 8 percent reported in the 2005 Index.) According to the Economist Intelligence Unit, "Belarus has followed active policies of import suppression and
and export promotion." The International Monetary Fund reports extensive use of licensing and quotas. Based on the revised trade factor methodology, Belarus's trade policy score is unchanged.
The Embassy of Belarus reports that Belarus's top income tax rate is 30 percent. The top corporate income tax rate is also 30 percent. In 2003, according to the International Monetary Fund, government expenditures as a share of GDP increased 0.8 percentage point to 47.2 percent, compared to a 0.4 percentage point decline in 2002. On net, Belarus's fiscal burden of government score is 0.2 point worse this year.
The World Bank reports that the government consumed 21.4 percent of GDP in 2003. In the same year, based on data from the International Monetary Fund, Belarus received 4.91 percent of its total revenues from state-owned enterprises and government ownership of property. According to the Economist Intelligence Unit, however, "The president, Alyaksandar Lukashenka, pursues a policy of pervasive state involvement in the economy.… [T]he Lukashenka administration bases its economic policy on consistent support and preservation of large and obsolete state-controlled enterprises." In addition, "95% of the country's industrial output [is] still derived from large state-owned or state-controlled enterprises." Based on the apparent unreliability of the revenue figure, 1 point has been added to Belarus's government intervention score.
From 1995 to 2004, Belarus's weighted average annual rate of inflation was 27.04 percent.
The International Monetary Fund reports that there are significant restrictions on capital transactions, that foreign investment must be registered with the Minsk City Executive Committee, and that financial institutions must register with the National Bank of Belarus. With the exception of insurance organizations and banks, the proportion of a foreign investor's share is not restricted. However, anti-Western sentiment, an inefficient bureaucracy, corruption, a concerted resistance to the private sector, and resistance to privatization all serve to hinder foreign investment. According to the Economist Intelligence Unit, "Even enterprises in which the government owns less than a majority stake are still technically subject to state intervention. The latter can be exercised through a ‘golden share' rule, which gives the government majority voting rights in decision-making, even if it owns only a small number of shares. In March 2004 [the president] extended the golden share rule to include even those enterprises in which the government had no ownership claim at all." The government does not permit foreigners to own land. Natural resources, waters, forests, and land are owned exclusively by the state, although 99-year-use agreements are permitted.
Banking and Finance
According to government information, as of March 2005, there were 32 banks in Belarus, including 27 banks with some foreign capital. Although the government has issued licenses to a number of private banks and has relinquished some of its holdings in state-owned banks, it continues to exert enormous control over the banking sector. According to the Economist Intelligence Unit, the Central National Bank of Belarus "has been reduced to a conduit for the government's economic policy." In addition, "commercial banks, although nominally independent, have also frequently been pressurised by the government into providing loss-making loans to selected industries and purchasing government-issued securities. Although the government has assured the IMF that it would end this practice, pressure on commercial banks to finance the agricultural sector has continued."
Wages and Prices
The Economist Intelligence Unit reports that the government subsidizes many basic goods and services, including housing and utilities; intervenes directly in agricultural markets; controls most of the economy through state-owned enterprises; otherwise influences prices through its credit policies and purchasing practices; and "retains tight control over the partly privatised retail sector through price regulation…." The government mandates a monthly minimum wage and determines wages in the private sector. According to the EIU, "Enterprises have been under intense pressure from the authorities to raise wages at a rate well in excess of any improvements in productivity."
The legal system does not fully protect private property, and the inefficient court system does not consistently enforce contracts. "Since November 1996," reports the Economist Intelligence Unit, "the judiciary on the whole has proved neither independent nor objective by international standards. Independent lawyers were barred from practising in 1997."
According to the Economist Intelligence Unit, "The authorities discourage private enterprise through a combination of high taxes, excessive government regulations, and a deliberately anti-business climate. This has led small and medium-sized private enterprises to concentrate in retail and catering, where relatively low sunk costs prevent excessively high losses in the event of official harassment." In addition, "The administration's lack of progress on political and judicial reforms has further dampened investors' interest…." Transparency International reports that corruption in the bureaucracy is very high.
Transparency International's 2004 score for Belarus is 3.3. Therefore, Belarus's informal market score is 3.5 this year—0.5 point worse than last year.
Banking and Finance4.0
Wages and Prices5.0
Total area: 207,600 sq. km
GDP: $14.9 billion
GDP growth rate: 6.8%
GDP per capita: $1,513
Major exports: machinery and equipment, mineral products, chemicals, textiles, metals
Exports of goods and services: $11.4 billion
Major export trading partners: Russia 49.1%, UK 9.4%, Poland 4.4%, Germany 4.2%
Major imports: mineral products, foodstuffs, metals, chemicals, machinery and equipment
Imports of goods and services: $11.4 billion
Major import trading partners: Russia 65.8%, Germany 7.1%, Ukraine 3.1%
Foreign direct investment (net): $159.4 million
2003 Data (in constant 2000 US dollars