Foreign Trade Policymaking in Belarus: Current Practices and Problems

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Integration of Belarus into the world economy is one of the official priorities of Belarusian national policy. However, despite numerous government economic programs, Belarus does not have a well-defined foreign trade strategy. Understanding the problems related to the development of such strategy is of paramount significance.

As Anne O. Krueger notes, "Ideas with regard to trade policy and economic development are among those that have changed radically."(1) It has been internationally recognized that trade policy is a central driving element of economic growth and development--an integral part of general reform strategy in most transitional economics.(2) It is especially critical for Belarus to develop an efficient trade policy so that it can establish a qualitatively new system of relations with the world economy, restructure and modernize its national economy, and implement economic reforms to ensure sustainable development in line with the new geopolitical situation of the country.

Belarus began to set up its own foreign economic relations management system in 1992, after it became politically independent. Total government control over export and import operations was replaced with a more flexible arrangement allowing more freedom to individual companies, more in line with international foreign trade practices.(3)

The Organization for Economic Cooperation and Development (OECD) has produced a three-stage pattern to describe the evolution of trade regimes in the Newly Independent States of the former Soviet Union, based on such measures as import and export regulations and foreign exchange control. During 1995 and 1996, Belarus was at the intermediate stage of trade policy reform; it had gradually decreased state ownership and inflationary pressure while implementing a regulatory framework and international methods and instruments for trade.(4)

However, at the beginning of 1997 national economic policy, including trade policy, made serious shifts toward centralized government management, and the national economy worsened rapidly.(5) The government limited the size of the private sector (to 15 percent or less of national industry), imposed direct control of most prices, and increased intergovernmental barter (see figure 1). As the degree of state intervention increased, so did hyperinflation. Belarus took a step backwards to the first stage of the OECD's pattern for trade regimes.

[Figure 1 ILLUSTRATED OMITTED]

It should be taken into consideration that national foreign trade policy was emerging in Belarus amid a struggle between two antagonistic approaches. Some maintained that the faster and more comprehensive foreign trade liberalization, the sooner the national economy would be incorporated into the global economic system. The experience of the Baltic states and East European countries shows that rapid and successful reform is possible with liberalization of trade and external payments, as well as of the financial sector as a whole, and with radical economic policy.(6)

The other viewpoint held that during the transition process it was dangerous to attempt immediate and far-reaching liberalization of foreign economic relations. It was feared that liberalization of foreign trade could provoke deterioration of the macroeconomic situation, with massive bankruptcies among domestic producers who would be unable to compete with imported goods, loss of jobs, and high inflation.(7) Other countries' transition experience had already shown that having a balance of trade deficit could become a serious problem. Foreign trade reforms could result in an increasing budget deficit due to shrinking foreign trade tax revenues. In Belarus, customs duties have always been a major source of budget revenues, accounting for 15.8 percent of total revenues in 1998; the 1999 projection stands at 14.2 percent.

There were also doubts as to whether foreign trade liberalization would result in accelerated economic growth. …