To Study, Study and Again Study Capitalism*

My new article on market reforms and privatization in Belarus, for Naša Niva:



To Study, Study and Again Study Capitalism*



For several weeks, before and after the Belarusian Investment and Economic Forum, the media was being bombarded by news on developments around the privatization of Belarusian state property and plans for further liberal reforms in the economy of the country. Belarusian authorities finally outlined plans to make order in the Augean stables of the national tax system - the world's worst according to international rankings. Movement in the right direction is good, but its shortcomings must be corrected.

How to attract adventurers

The Belarusian economy is perceived as a high risk investment target. To improve the image of Belarus, more than just one year is needed. Old scandals (unsuccessful investors to Belarus in the 1990s, like "Baltika" or "Ford") are much better remembered than new success stories. No protection of investments, biased courts and the overall exotic totalitarian image of Belarus - the government has a huge scope of work to do. Positive changes must happen and be recognized by the international community.

Only adventurer-type investors would be ready to invest in Belarus now. For ignoring the risky image of Belarus they want high returns on their investments. Prospects of such returns are vague: Belarus doesn't have natural resources that attract investors to Russia or Kazakhstan It is hardly possible to transform Belarus from the "Assembly Shop of the USSR", as it was called in Soviet times due to Belarusian heavy industry supplying the rest of the USSR, to "a Small Assembly Shop Near the EU" because Belarus is not even a member of the WTO. Today, when Finnish wood processors sometimes find it easier to handle Russian wood in China, Belarus is not physically able to compete with Asian countries as an eventual location for foreign production facilities.

"To be proud of one's export potential is past century," a senior foreign delegates of the Belarusian Investment Forum said in a private conversation. Investors are more interested in domestic market and the effective domestic demand, on which Belarus is not very attractive, he added.

The government could sell state-owned companies, which it can't manage anyway, for a lower price, but today the Western investors have enough cheap objects at home. This makes them less interested in Belarusian enterprises. There are many assets for sale in Belarus, but many of them lack a realistic valuation, the forum participant complained.

Bluff as style

Arrogance and inflated self-importance are usual for the foreign relations of the Belarusian government under Lukashenka. Their speeches sound like foreign capital just can't wait to rush into the country. This is where the high prices for state companies, which still require a lot of work to be done prior to a sale, come from.

So, it was strange to hear Prime Minister Siarhiej Sidorski presenting the Belarusian centralized economy as a successful model compared to the crisis-causing free market capitalism. Just as free market has very little to do with the causes of the current economic crisis, even the Belarusian Investment and Economic Forum, where Mr. Sidorski has held this speech, seems specifically to have been organized because the old approaches to the Belarusian economy had stopped working. There is a need for Belarus to catch up two decades of market reforms. In 2010 Belarusian accounting standards will be brought closer to IFRS, the licensing system will be radically simplified et cetera. Just why couldn't it all have been done in the previous years?

Already too late, or not yet?

The Belarusian government only learns to act in the circumstances of a modern economy. There has been a comic phrase occasionally said by Chairman of the State Property Committee some time ago, according to which the government of Belarus had then finally realized, what the difference between transforming of a unitary enterprise to a joint-stock company and privatization was. However, some publications in the media or the sudden appearance of the still unitary Beltelecom on the privatization list for 2009 indicate that there is still large space for the elimination of illiteracy.

Belarusian officials have found out about such a thing as a listing on a stock exchange and carefully repeat words about preparations for IPOs of companies of the Belneftekhim holding. It brings optimism to hear such things from previously conservative officials. Professionalism of the key people in the government and their ability to learn - that is what gives hope to investors.

The reforms are advancing very rapidly and even demonstrate short-term benefits of an authoritarian regime, that is not burdened by a discussion of new legislation with the parliamentary opposition. The latter is what has been drowning reforms in neighboring Ukraine over the past years. The problem is that the effect of reforms and good international ratings can be expected only in not less than five years. Much earlier will we know whether the government of Belarus is not already too late with its today's reformist enthusiasm. Those who come too late will be punished by life, Mikhail Gorbachev used to say.


// Naša Niva, translated by myself and Google Translate

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* "To study, study and study communism again" - a quote attributed to Vladimir Lenin