WAYS TO INCREASE THE LIVING STANDARD OF THE POPULATION OF BELARUS IN THE CONTEXT OF THE ENERGY CARRIERS’ PRICE RISE

Leonid Zlotnikov,
Economic Sciences Candidate (Belarus)

The end of the regenerative growth period (the arisen restrictions have already started to brake the economy growth), an increase of a technological lag behind the advanced countries and a decrease of manufacturing industry competitiveness, the energy carriers’ price rise, the labour outflows from the country both to the east and to the west where labour deficiency grows and where salaries are higher than those in Belarus - all these create adverse conditions for the country’s further development.

What can be done in a short-term period (up to 1,5 - 2 years) in order to break the negative tendencies and to provide at the same time a real transition to competitive market economy?

1. Cheap foodstuffs

In 2006, 53 percent of a retail commodity circulation is a purchase of food. All in all, according to statistics, the population spends for food 43 - 45 percent of their incomes. Adding indirect expenses for foodstuffs (through taxes and various forms of subsidizing the agro-industrial complex), it develops that the population spends for food 55 - 60 percent of their incomes.

Today, the food prices in Belarus are much higher than in the neighbouring countries (except for Russia). They are higher than, for example, in Germany, let alone Lithuania and Poland. In its turn, the world market prices for meat and dairy products are lower than the prices for the same products at local markets of separate countries. For instance, the price for one kilo of butter at the world market is 1,65 USD (Western Europe, October 2006). At the same time, in Germany the price for butter is 2,6 - 2,7 USD for one kilo (wholesale price), in Poland - about three USD. A similar situation is at the meat market. In the first half of 2006, the Belarusan firms imported from Poland poultry meat at 0,78 USD for one kilo, pork - on the average 1,7 USD for one kilo, frozen beef - 2,3 USD for one kilo. It is less than the cost price of their manufacture in our country and it is less than their public cost (i.e. the cost price plus subsidia).

The price difference between the world market and the markets of separate countries is caused by subsidizing support of farmers (on the average 600 USD for one ha of farmland in EU). In Belarus, the agro-industrial complex is also subsidized (about 150 USD for one ha). However, it is high time to admit that it is a debacle of our agrarian policy - food prices are higher than in Germany while the salaries are beggarly) and to stop subsidizing “the black hole”. (In the future, probably, it would be necessary to subsidize the agro-industrial complex but only after a land and agrarian reform).

Taking into account the situation at the markets, it is possible to assume that with the help of liberalization of foreign trade and development of competition at the local market, the food prices in Belarus can be made equal or even lower than those in Poland. It means it is potentially possible to reduce the food prices 30 - 35 percent within four months.

As a matter of fact, the food prices for the population should be lowered 20 percent which would allow the population to save 1 - 1,3 billion USD. Simultaneously, the state could net 0,5 - 0,7 billion USD (the sum of the VAT and three percent food duty).

To reduce the budgetary sponsorship of the agro-industrial complex on one billion USD. (There is still the budgetary financing of agrarian science, actions to implement reforms, including small business development in the agro-industrial complex - 0,3 - 0,4 billion USD).
The state will still have 0,8 - 1,1 billion USD (Reform Support Fund + the VAT + the food import tax). These incomes can be used to support the unemployed and reforms in the agro-industrial complex. The specified deductions to the reform support fund are approximately equal to the annual fund of salary for workers of agriculture and food-processing industry. This sum would suffice, for example, for a regular payment of grants (150 USD per month) to 500 thousand of the unemployed.

To reform the agro-industrial complex according to the Ukrainian sample and to include workers of the vertical of the agro-industrial complex and correspondent enterprises. To provide them with a possibility of receiving land shares and shares of property of reformed farms.

The opening of economy will cause a shock but it will be not the price rise but a fast growth of bankruptcies. It is necessary to take a number of actions to curtail them. Still, it is possible to expect a burst of unemployment up to 15 -20 percent (as in Poland). Assuming that during a short period up to 50 percent of agricultural productions and enterprises of food-processing industry will go bankrupt, it means unemployment will grow up to 300,000 people (9 percent of all who work). Therefore, there must be social support of the unemployed.

Thus, the opening of the foodstuff market together with preservation of the achieved level of the population’s food consumption saves 1 - 1,3 billion USD of the population’s expenses; it increases the budget’s proficiency in 0,8 - 1 billion USD and reduces implicit expenses (apart from taxes to the budget) of enterprises from other sectors to support the agro-industrial complex.

2. Loans and incomes from privatization

Only the opening of economy, implementation of liberal market reforms (according to the Concept) and the country’s neutrality will make it possible to expect these incomes. Belarus still has large reserves (up to 40 percent of gross national product) for external credit activities - up to 10 - 12 billion USD. It is possible to expect probably 0,5 - 1 billion USD during the first year of reforms in the form of credits for certain projects allotted by international financial organizations (such as credit STANDBY or System transformations).

It is also possible to expect at least 1,5 - 2 billion USD of incomes from privatization (including 0,65 billion USD per year – money from Beltransgaz shares in the nearest four years).

Foodstuffs cheapening, loans and incomes from privatization will neutralize in the nearest 2 - 3 years the negative influence of the gradual price rise for the energy carriers. But nothing else. The decrease of competitiveness of Belarusan enterprises and the Belarusans’ work migration in other countries will keep reducing the living standard.

In order to overcome the negative tendencies and to double, for example, gross national product per capita (today it is about 7,500 USD per person), it is necessary to have 140 billion USD (with elasticity of gross national product in investments is 0,5 and with the highest norm of accumulation achieved in 2006) and 20 years. In fact, it means that Belarus’s living standard will lag behind the neighbouring Baltic and Central-Eastern European countries if it keeps its 2006-sample economy.

3. A better use of the available resources

Here, it comes to the use of standing idle areas and equipment, involving any unused resources, a fast development of a resources’ recycling branch (i.e. things which have served their term and waste products of manufacture, household waste products), plus inclusion of the unemployed into economic activities. This matter can be settled quite well by small private enterprises in case the state does not interfere with entrepreneurial initiatives. In the conditions of liberal economy, tens of thousands of people will have to seek themselves for what to be done in order to earn their money.

To create in one of the research centres a department for development of resources’ recycle in Belarus (study and propaganda of foreign experience, development of projects and necessary statutory acts, etc.)

4. Liberalization of economy (“rough” adjustment of an economic mechanism)

Belarus’s delay in its economic development from the Baltic states and the countries of Central and Eastern Europe is caused by an excessive intervention of the state into economy. Belarus’s further development without its inclusion into the processes of globalization is impossible. However, only a country with the market economy can join these processes. Liberalization of economy is the basic contents of the initial stage of market reforms:

- Liberalization of prices. To cancel the law “About counteractions against monopolistically activities and development of competition” when it comes to the price formation by all enterprises. To cancel the state control over the price level at enterprises, including the state-run one and the minimal indicative prices). To keep the state regulation of prices for the municipal housing economy’s services, wire communication, public transport, public health services and education, services provided by the state-run organizations;

- Commercialization of the state sector enterprises. In addition to freedom of pricing, they must have freedom to choose assortment and volumes in manufacturing their products (services). Direct and indirect restrictions to cooperate with the private sector enterprises must be cancelled. Restrictions on the number of workers of an enterprise must be cancelled. Simultaneously, it is necessary to lower essentially the number of the enterprises subsidized by the state;

- To support competition. To direct military departments’ efforts not on the struggle against opposition, but on the struggle against racket, officials’ extortion, oligarchs and politicians’ arrangements and other things that lower the level of competition at the markets of Belarus;

- Liberalization of foreign trade (the opening of economy);

- Liberalization of bank activity (with the control of the National Bank over liquidity of commercial banks and monetary mass);

- The state’s support in forming the institutes of the market (investment funds, commodity exchange, etc.);

Goods and services’ transfer through the border must be fast (hours, not days) and simple in registration. In this case, it will be possible to achieve the standards accepted in the advanced countries and to promote the growth of business appeal in Belarus. Only in this case, it will be possible to lower frontier corruption the present authorities cannot bridle. Corruption is one of the primary factors which push away foreign investors. With this purpose, it is necessary, for example:

- to establish 2 - 3 levels of the import duty. For example, for any foodstuff - 3 percent, for luxury goods (expensive cars, brilliants, etc.) - 15 percent. For all other goods - 6 percent. (To simplify the procedure of registration and to exclude corruption as Estonia, Chile, Tajikistan did in due time.) Exceptions in rare cases (for example, humanitarian cargoes, cargoes for international exhibitions);

- the base to calculate the custom duty must be defined only by the cost specified in the accompanying documents or the cargo’s weight;

- to refuse the practice of controlling transit cargoes (except for drugs, weapon, especially dangerous cargoes) during transportation;

- to cancel foreign trade contracts’ registration;

- to cancel the obligatory presentation of trade contracts when purchasing foreign currency means;

- to cancel non-tariff methods in regulating foreign trade (quotas, licenses, movements, a special way of certification of the goods and to recognize certificates of globally known firms), etc;

- to allow for two years duty-free import of goods by individuals for the sum of up to 10,000 USD;

- to create a free trade zone (FTZ) with Russia and denounce the Custom Union Agreement. To create a FTZ with other interested countries.

- to create identical conditions for foreign and domestic businessmen, including the bank and insurance activity (on the model of Hungary). To modify the Investment Code, removing a chance of investment contracts’ conclusion. Only the law, not an official, must establish conditions of activity of foreign investors.

The economic theory says that protectionism lowers the living standard in the country and that liberalization of foreign trade raises it. Still, it happens when manufacture of one goods (replaced by import) is reduced and the country’s resources are switched to manufacture other goods for export. However in Belarus, there is not enough of steadily effective export manufactures (for example, the steadiest ones are Soligorsk-based potash plant, BMZ and some others). Still, it is impossible in a short-term period to increase export of these goods.

It is not necessary to be afraid that the home market will be filled only with import goods because it is only possible to import after export which will bring foreign currency. As a result of liberalization of foreign trade and removal of restrictions on entrepreneur activity inside the country, it is possible to expect a more effective use of foreign currency from export, and, hence, a growth of purchasing capacity of a dollar, i.e. strengthening of positions of Belarusan enterprises (except for agriculture, food and light industries) both at internal and foreign market.

Liberalization of foreign trade by all goods is included into the priority actions as it will essentially improve the investment rating of the country and will attract investments (at the second, intermediate term stage of development).

5. Business de-regulation (“thin” adjustment of an economic mechanism)

There are many offers from business associations and foreign investors to decontrol business. All it takes is to implement them.

6. Curtailment of expenses on the state machine and redistribution of incomes

Liberalization of economy means a reduction of functions of the state management, transferring them to the mechanism of market self-regulation that enables to reduce the administrative personnel considerably. A number of branch firms and ministries during market economy are not necessary. For example, who will need the Trade Ministry in case it is deprived of the functions of allocation of wine import, etc.

- together with liberalization of economy, decontrol of business and commercialization of state-run enterprises, to liquidate the branch ministries and departments. Instead of them, to create one Ministry of Trade and Industry (as, for example, in Japan), giving it the forecast, analytical and other functions of indirect regulation. To reduce approximately 90 percent of number of the present officials of these departments, having moved the rest 10 percent either to the Ministry of Trade and Industry or the State Property Fund. To reconsider and reduce functions of management of functional departments, to reduce their number.

- to keep the Ministry of Agriculture, having transformed it to the Ministry Agriculture and Forestry without functions of directive management of enterprises (except for scientific research, experience and other establishments, enterprises to create state stocks and support of stability of market prices);

- functions of the state control over state-run enterprises and shares of the state in private enterprises must be transferred to the State Property Fund.

Belarusan banks’ services are 5 - 10 time higher than those of banks in the advanced countries. To lower these expenses and to create, at the same time, more favourable conditions for business, it is necessary:

- to open the country for branches of known foreign banks and insurance companies;

7. Privatization

- during a short term (approximately half a year – one year) to finish small privatization. All objects of trade and consumer services must be privatized. (It is possible to believe that during privatization the private sector will accept some reduced workers from the state machinery). The proceeds from privatization of objects of the municipal property go to local budgets.

- to create the State Committee on privatization of state property (instead of the corresponding department in the Ministry of Economics) with its branches in the Regions. To cancel the law concerning departments’ and labour collectives’ consent to privatization. Decisions of privatization of objects of municipal property must be taken by the regional divisions of the State Committee on privatization and can be cancelled by the regional Council.

- In the present conditions, the basic method of privatization should become privatization during bankruptcy. This way is the “purest” and in due time it was widely applied in Hungary and Poland. During privatization, it is necessary to carry out denaturalization of enterprises. It is expedient to allocate and privatize enterprises, property complexes or structural divisions which production can be demanded outside the restructured enterprise. During privatization, the debts of the state sector enterprises to the private sector enterprises must be paid by shares of any privatized state-run enterprises.

It is necessary to remember that only after denaturalization of all kinds of enterprises, when there is a critical mass of many small and medium private enterprises (SMPE) that can work within the framework of outsourcing and contracting and join the networks of trans-national corporations, investments into manufacture will become effective. (Only after SMPE start make not less than 40 percent of gross national product, investments into a national economy are efficient). Therefore, the purpose of SMPE creation must be the determining task of privatization, alongside with attraction of investments and filling the budget. If it is achieved, then its “feedback” in an intermediate term prospect will be provided in the form of an economic growth.

Today, more than 60 percent of investments are the means of the budget and state-run enterprises.

- During the period of privatization and re-structuring of state-run enterprises, it is expedient to lower the volume of investments into the industrial enterprises of the state sector, first of all into agriculture (memorandum of the World Bank for Belarus, November 2005, says that investments given to inefficient enterprises are of a negative feedback). It is possible to believe that during the first and second years of reforms it is possible to lower investments into the state sector by 1,5 - 2 billion USD, having stopped, as a last resort, building some unnecessary objects. (For comparison - pure investments in 2006 were approximately 7 billion USD).

8. Social policy

- to constrain a growth of inequality in incomes, until a steady economic growth is provided;

- to increase the real estate tax, including abroad estates, up to 1 - 2 percent from the estimated cost (as in the advanced countries), including apartments, cars, summer houses, bank accounts. The real estate which cost exceeds a certain minimum must be taxed. (This tax must touch no more than 10 percent of the richest families). Introduction of such a tax can be considered as a tool of social reconciliation and legitimization of the riches acquired during the muddy transition period. Besides, it can become the beginning of displacement of taxation from incomes of business to incomes of citizens (as in the advanced countries);

- during the following two years (from the beginning of reforms) it is necessary to establish the unemployment benefit up to 120 USD monthly for those who dwell in villages (depending on their opportunities of receiving incomes from their part-time farm), and for those who dwell in cities - up to 150 USD for the term of one and a half years;

- all families whose incomes per capita are lower than the poverty level (including social transfers) must be paid the social benefit, making their incomes up to the level of the living wage (“nobody in the country must starve”);

- to add social partnership policy to state paternalism policy;

In order to do so, to remove restriction for creation and action of public organizations, welfare funds, and to reduce taxes for the profit of the enterprises directed on charity, reception of humanitarian help from abroad. To liquidate the Department of Controlling Humanitarian Help (the Ministry of Labour and Social Protection is enough).

It is known that humanitarian projects (help to some groups of invalids, for example) carried out by public organizations demand essentially smaller expenses than the same projects carried out by the state bodies. Besides, one group of the population caring of another group increases the social capital of society.

Эканамічныя і палітычныя перспектывы Беларусі ва ўмовах рынкавай эканомікі

9—10 чэрвеня 2007 г.

Тэзісы

1. Аксиологические и экономические детерминанты общественного выбора Беларуси в 2007 – 2015 годах. Леонид Заико, руководитель аналитического центра “Стратегия”, экономист (Беларусь).
Аксіялагічныя і эканамічныя дэтэрмінанты грамадскага выбару Беларусі ў 2007 – 2015 гадах. Леанід Заіка, кіраўнік аналітычнага цэнтра “Стратэгія”, эканаміст (Беларусь).

2. Возможности повышения уровня жизни населения Беларуси в условиях роста цен на энергоносители. Леонид Злотников, кандидат экономических наук (Беларусь).
Магчымасці павышэння ўзроўню жыцця насельніцтва Беларусі ва ўмовах росту коштаў на энерганосьбіты. Леанід Злотнікаў, кандыдат эканамічных навук (Беларусь).
Ways to increase the living standard of the population of Belarus in the context of the energy carriers’ price rise. Leonid Zlotnikov, Economic Sciences Candidate (Belarus).

3. Українські реалії і білоруські перспективи: уроки, загрози, можливості. Андрій Кирчів, аналітик (Україна).
Украінскія рэаліі і беларускія перспектывы: урокі, пагрозы, магчымасці. Андрэй Кірчыў, аналітык (Украіна).
Ukrainian realities and belarusan prospects: lessons, threats, possibilities. Andrei Kirchiv, analyst (Ukraine).

4. Праблемы рынкавай трансфармацыі Беларусі. Кірыл Коктыш, кандыдат палітычных навук, дацэнт кафедры палітычнай тэорыі МДІМЗ (У) МЗС (Расія).

5. Трансформационные задачи Беларуси. Михаил Маринич, экс-министр внешнеэкономических связей Беларуси, экс-посол Беларуси в Латвии, Эстонии и Финляндии, доктор наук (Беларусь).
Трансфармацыйныя задачы Беларусі. Міхаіл Марыніч, экс-міністр знешнеэканамічных сувязяў Беларусі, экс-амбасадар Беларусі ў Латвіі, Эстоніі і Фінляндыі, доктар навук (Беларусь).

6. Альтернативные источники поставок энергоносителей Беларусь – пиар-акция или реальность Олег Мусловец, директор Интернет-ресурса Агентство финансовых новостей (Беларусь).
Альтэрнатыўныя крыніцы пастаўкі энерганосьбітаў у Беларусь — піяр-акцыя альбо рэчаіснасць? Алег Муславец, дырэктар інтэрнэт-рэсурсу “Агенцтва фінансавых навінаў” (Беларусь)
Alternative sources of energy carriers supply to Belarus – PR action or reality. Oleg Muslovets, Director of Financial News Agency internet resource (Belarus).

7. Паміж Масквой і Бруселем (перспектывы “новай” знешняй палітыкі Беларусі). Уладзімір Роўда, кандыдат філасофскіх навук, дацэнт кафедры паліталогіі ЕГУ (Беларусь)
Between Moscow and Brussels (prospects of Belarus’s new foreign policy). Uladzimir Rouda, Philosophic Sciences Candidate (Belarus).

8. Досвід України у формуванні системи енергетичної безпеки та можливості його застосування в Білорусі. Соскін Олег Ігорович, директор Інституту трансформації суспільства, професор, завідувач кафедри міжнародної економіки та підприємництва Національної академії управління (Україна).
Досвед Украіны ў фармаванні сістэмы энергетычнай бяспекі і магчымасці яго прымянення ў Беларусі. Алег Соскін, дырэктар Інстытута трансфармацыі грамадства, прафесар Нацыянальнай акадэміі кіравання (Украіна)

9. Внутриполитические последствия нефтегазового кризиса. Виктор Чернов, политолог, исполнительный директор ОО “Открытое общество”, Сергей Николюк, политический обозреватель (Беларусь).
Унутрыпалітычныя наступствы нафтагазавага крызісу. Віктар Чарноў, палітолаг, выканаўчы дырэктар ГА “Адкрытае грамадства”, Сяргей Нікалюк, палітычны аглядальнік (Беларусь).
Internal political consequences of the oil-and-gas crisis. Viktar Charnou, political scientist, executive director of PA “Open Society”, Siarhej Nikolyuk, political observer (Belarus).