Let’s Say Lukashenka Leaves, but Russia is Hostile to Belarus. What Could Help our Economy Pull Through?

let’s say Lukashenka leaves, but Russia is
hostile to Belarus.
what could help our economy pull through?

Aleś Alaсhnovič

April 2023

The Belarusian economy is unlikely to grow under the current government: the only chance for reform will be after Lukashenka leaves. But this window of opportunity will not remain open for long, which is why it’s so important to prepare now—so that we’re ready to rapidly implement reforms and make the Belarusian economy a success.

Aleś Alaсhnovič

Aleś Alaсhnovič serves as an economic reform advisor to Sviatlana Tsihanouskaya. He is also the Head of the CASE Belarus Team and holds the position of Vice-President at the Association of Belarusian Businesses Abroad (ABBA). Alaсhnovič holds degrees from both the London School of Economics and the Warsaw School of Economics.

Only three countries in the world will grow more slowly than Belarus in then next six years according to the latest IMF forecast. Facing a domestic political crisis, economic sanctions, the loss of the Ukrainian market, deepening demographic problems, and heightened dependence on a down-spiraling Russian economy, our country has some of the worst growth prospects in the world.

But stagnation really began much earlier: by the 2010s, the growth of the Belarusian economy had slowed almost to zero. Even in October 2019—the last prognosis before the pandemic—the IMF had predicted that Belarus’s average annual growth would be 0.0% in 2020–2024. This was the worst forecast among all European countries.

Without radical economic reform, Belarus faces more stagnation, which will cause it to lag even further behind its neighbors. But as long as the current regime remains in power, waiting for change remains pointless. Democratic elections are the only way to reform the political system and restore trust in government institutions. This, in turn, will create the necessary conditions for economic transformation.

What to prepare for

It is unclear what the state of the Belarusian economy will be during a transition period, and the geopolitical situation in the region is equally difficult to predict (particularly in Russia). Nevertheless, we have to start planning a way out of the current crisis. To anchor this discussion in realism, I suggest preparing for the worst, which would entail a very weak economy upon Lukashenka’s departure and a Russia that is hostile to democratic and economic reforms in Belarus.

If a window of opportunity opens, Belarusians will need to act fast. A critical mass of reforms will need to be passed before an anti-reform lobby consisting of populists, members of the previous undemocratic regime, or pro-Russian forces takes hold. Initially, reformers will enjoy a measure of trust, which will allow them to finally set in motion a long-awaited economic transition.

Reforms must be born out of inclusive national dialogue and reflect the values and aspirations of society. This is impossible without free elections. Surveys show that Belarusians see the private sector and entrepreneurship as sources of economic growth; meanwhile, they perceive the government as primarily a supplier of services like healthcare and education.

The new authorities will need to convey their vision of reforms to society, along with time frames, order of priority, costs, benefits, opportunities, and potential problems. Previous reformers’ inability to do this has often been their downfall.

The goal of economic transformation is to address social problems. This means offering financial aid to those most affected by changes. For example, restructuring loss-making government enterprises will lead to a downturn in employment, and people who lose their jobs because of these processes need to receive decent compensation from the government during the transition: they need to be given the opportunity of realizing their ambitions by starting a business or looking for other employment. It’s important for the people to understand that the government is not conducting reforms for its own enrichment, but rather to empower the Belarusian people to improve their standard of living.

Economic reforms have a better chance at success if other areas are reformed simultaneously, like the judicial and education systems. The former is crucial for defending the foundations of a market economy: human rights, property rights, and proper enforcement of contracts.

In general, Belarus’s experience of economic transformation must be smoother than in the early ‘90s. Belarus has fallen behind in its reforms, but it can learn from the mistakes of other countries and adopt best practices. One of the most important tasks is to reform the state sector: it’s role in the Belarusian economy is two times smaller than it was three decades ago, which makes reforming it easier. Meanwhile, the private sector, which accounts for almost 50% of employment nationally, is dominated by relatively healthy companies. This could facilitate the restructuring of government enterprises.

What to prepare for

It is unclear what the state of the Belarusian economy will be during a transition period, and the geopolitical situation in the region is equally difficult to predict (particularly in Russia). Nevertheless, we have to start planning a way out of the current crisis. To anchor this discussion in realism, I suggest preparing for the worst, which would entail a very weak economy upon Lukashenka’s departure and a Russia that is hostile to democratic and economic reforms in Belarus.

If a window of opportunity opens, Belarusians will need to act fast. A critical mass of reforms will need to be passed before an anti-reform lobby consisting of populists, members of the previous undemocratic regime, or pro-Russian forces takes hold. Initially, reformers will enjoy a measure of trust, which will allow them to finally set in motion a long-awaited economic transition.

Reforms must be born out of inclusive national dialogue and reflect the values and aspirations of society. This is impossible without free elections. Surveys show that Belarusians see the private sector and entrepreneurship as sources of economic growth; meanwhile, they perceive the government as primarily a supplier of services like healthcare and education.

The new authorities will need to convey their vision of reforms to society, along with time frames, order of priority, costs, benefits, opportunities, and potential problems. Previous reformers’ inability to do this has often been their downfall.

The goal of economic transformation is to address social problems. This means offering financial aid to those most affected by changes. For example, restructuring loss-making government enterprises will lead to a downturn in employment, and people who lose their jobs because of these processes need to receive decent compensation from the government during the transition: they need to be given the opportunity of realizing their ambitions by starting a business or looking for other employment. It’s important for the people to understand that the government is not conducting reforms for its own enrichment, but rather to empower the Belarusian people to improve their standard of living.

Economic reforms have a better chance at success if other areas are reformed simultaneously, like the judicial and education systems. The former is crucial for defending the foundations of a market economy: human rights, property rights, and proper enforcement of contracts.

In general, Belarus’s experience of economic transformation must be smoother than in the early ‘90s. Belarus has fallen behind in its reforms, but it can learn from the mistakes of other countries and adopt best practices. One of the most important tasks is to reform the state sector: it’s role in the Belarusian economy is two times smaller than it was three decades ago, which makes reforming it easier. Meanwhile, the private sector, which accounts for almost 50% of employment nationally, is dominated by relatively healthy companies. This could facilitate the restructuring of government enterprises.

What to prepare for

It is unclear what the state of the Belarusian economy will be during a transition period, and the geopolitical situation in the region is equally difficult to predict (particularly in Russia). Nevertheless, we have to start planning a way out of the current crisis. To anchor this discussion in realism, I suggest preparing for the worst, which would entail a very weak economy upon Lukashenka’s departure and a Russia that is hostile to democratic and economic reforms in Belarus.

If a window of opportunity opens, Belarusians will need to act fast. A critical mass of reforms will need to be passed before an anti-reform lobby consisting of populists, members of the previous undemocratic regime, or pro-Russian forces takes hold. Initially, reformers will enjoy a measure of trust, which will allow them to finally set in motion a long-awaited economic transition.

Reforms must be born out of inclusive national dialogue and reflect the values and aspirations of society. This is impossible without free elections. Surveys show that Belarusians see the private sector and entrepreneurship as sources of economic growth; meanwhile, they perceive the government as primarily a supplier of services like healthcare and education.

The new authorities will need to convey their vision of reforms to society, along with time frames, order of priority, costs, benefits, opportunities, and potential problems. Previous reformers’ inability to do this has often been their downfall.

The goal of economic transformation is to address social problems. This means offering financial aid to those most affected by changes. For example, restructuring loss-making government enterprises will lead to a downturn in employment, and people who lose their jobs because of these processes need to receive decent compensation from the government during the transition: they need to be given the opportunity of realizing their ambitions by starting a business or looking for other employment. It’s important for the people to understand that the government is not conducting reforms for its own enrichment, but rather to empower the Belarusian people to improve their standard of living.

Economic reforms have a better chance at success if other areas are reformed simultaneously, like the judicial and education systems. The former is crucial for defending the foundations of a market economy: human rights, property rights, and proper enforcement of contracts.

In general, Belarus’s experience of economic transformation must be smoother than in the early ‘90s. Belarus has fallen behind in its reforms, but it can learn from the mistakes of other countries and adopt best practices. One of the most important tasks is to reform the state sector: it’s role in the Belarusian economy is two times smaller than it was three decades ago, which makes reforming it easier. Meanwhile, the private sector, which accounts for almost 50% of employment nationally, is dominated by relatively healthy companies. This could facilitate the restructuring of government enterprises.

How to reform the economy

The first requirement is democratic regime change, which will open the way for rapid economic growth. Once the democratization process in Belarus starts, sanctions against it will quickly be frozen and eventually rescinded, as the root cause of the human rights violations and disruptions to international order in Belarus will have disappeared. Belarusian private business will once again start to grow, old foreign investors will return, and new ones will arrive.

Second, Belarus needs institutional reform, a proposal for which was published in 2021 by Chatham House Publications following discussions with more than 25 Belarusian and international economists. This proposal was based on a vision of the institutional foundations of the Belarusian economy as described in an open letter published in October 2020. The letter was signed by more than 60 Belarusian and foreign economists and renowned specialists who are prepared to use their knowledge to help the democratically elected government of Belarus.

Reforms in certain sectors of the Belarusian economy are described in more detail on the Ideas Bank website (like restructuring and privatizing state-owned enterprises, reforming the labor market, family policy, social policy, green economics, tax policy, and the pension system).

Below are some crucial steps for economic reform:

limit the government’s role in the economy: its primary duty should be to oversee the development of institutions and social infrastructure;

create an equitable, amenable business environment for all enterprises, regardless of ownership, size, and type of activity;

improve the management of state enterprises (by changing stimuli, splitting up the government’s role as both owner and regulator); audit them and privatize most of them;

make the social protection system more effective: divert resources away from loss-making collective farms and industrial enterprises in favor of direct social assistance;

increase the efficiency and transparency of the labor market and protect workers’ rights (by developing independent labor unions and transitioning away from the contract system);

rid the banking sector of bad loans, especially to state enterprises, and develop the financial market;

invest in e-government to increase the transparency of the public administration system and economic relations between citizens and the state;

increase the competitiveness and innovativeness of the economy by fostering entrepreneurship, creating ecosystems for startups, and stimulating venture investment;

guarantee the energy security of Belarus by diversifying energy sources, creating an electrical energy and gas market, and investing in renewable sources of energy and energy efficiency;

stimulate the development of the green economy in certain priority areas, including renewable energy sources, circular economics, resource efficient production, eco-friendly transportation, organic agriculture, and biodiversity.

Third, the international community is prepared to provide support as the economy recovers. In 2021, the European Commission, in coordination with Sviatlana Tsikhanouskaya’s economic team, adopted a Comprehensive Plan of Economic Support to Democratic Belarus amounting to three billion euros (about five percent of the GDP of Belarus) for the first years of economic reform. The EU plan encompasses financing for private business, large infrastructure projects, cross-border projects and other initiatives in the Eastern Partnership program, support for Belarus’s entry into the World Trade Organization, and much more.

Negotiations are being held for the US to announce a “Marshall Plan” for Belarus. The IMF, which is ready to support the economic stabilization program approved by the new Belarusian government, will also join the plans of the EU and the US. The World Bank will finance the development of the private sector, investments in infrastructure, and the modernization of the healthcare and education systems. The European Investment Bank and the European Bank of Reconstruction and Development will finance projects in the energy sector and the transition to a green economy, facilitating the activities of strategic investors in Belarusian state enterprises.

International support will also be required to restructure government debt, including refinancing (especially debts to Russia) by European countries at lower interest rates and for longer periods, with deferred repayment of the loan principal for the first few years. Assistance will also be provided to ensure energy security for the economy if Russia decides to blackmail Belarus.

Fourth, a program is needed to encourage the repatriation of Belarusian businesses and individuals from abroad. It should stimulate the Belarusian diaspora to invest in a new Belarus, return to their homeland, or promote Belarus’s national interests in their new countries of residence. One example of such an effort is the 2021 creation of the Association of Belarusian Business Abroad, which comprises enterprises from Poland, Lithuania, the Czech Republic, and the US that are not affiliated with the regime.

In recent years, the Belarusian diaspora has grown and unified. This is an additional source of human, financial, and political capital. The diaspora must be encouraged to help grow the economy and reform the country. The best way to do this will be to ensure that the economy grows rapidly, rule of law is protected, the business climate improves, the country becomes more open to foreigners, and the Belarusian economy integrates into the global one. The Belarusian diaspora and foreigners with Belarusian roots should be eligible for a simplified procedure for receiving a “Belarusian card,” allowing them to participate unhindered in Belarusian affairs.

It is worth studying the successful experiences of countries whose diasporas have contributed significantly to national building and economic transformation, such as Ireland in the second half of the 20^th century or Israel after it received independence in 1948.

Fifth, building an economy based on the rule of law should entail holding those most closely involved in repressions accountable. Such individuals should also be forbidden from occupying government positions for a certain period. Totalitarian ideology needs to be unambiguously rebuked and victims of repressions should receive compensation. At the same time, government-affiliated individuals who did not have a hand in the regime’s crimes should not be sanctioned. Divisions in society can be overcome be restoring lawfulness and seeking national reconciliation.

The result of these reforms will be a Belarus with an open, resilient economy where the private sector—grounded in small and medium-sized business—plays a dominant role. It should have a transparent government that invests in its people through education, healthcare, and other social services while using social policies to level the playing field for disadvantaged citizens.

How to reform the economy

The first requirement is democratic regime change, which will open the way for rapid economic growth. Once the democratization process in Belarus starts, sanctions against it will quickly be frozen and eventually rescinded, as the root cause of the human rights violations and disruptions to international order in Belarus will have disappeared. Belarusian private business will once again start to grow, old foreign investors will return, and new ones will arrive.

Second, Belarus needs institutional reform, a proposal for which was published in 2021 by Chatham House Publications following discussions with more than 25 Belarusian and international economists. This proposal was based on a vision of the institutional foundations of the Belarusian economy as described in an open letter published in October 2020. The letter was signed by more than 60 Belarusian and foreign economists and renowned specialists who are prepared to use their knowledge to help the democratically elected government of Belarus.

Reforms in certain sectors of the Belarusian economy are described in more detail on the Ideas Bank website (like restructuring and privatizing state-owned enterprises, reforming the labor market, family policy, social policy, green economics, tax policy, and the pension system).

Below are some crucial steps for economic reform:

limit the government’s role in the economy: its primary duty should be to oversee the development of institutions and social infrastructure;

create an equitable, amenable business environment for all enterprises, regardless of ownership, size, and type of activity;

improve the management of state enterprises (by changing stimuli, splitting up the government’s role as both owner and regulator); audit them and privatize most of them;

make the social protection system more effective: divert resources away from loss-making collective farms and industrial enterprises in favor of direct social assistance;

increase the efficiency and transparency of the labor market and protect workers’ rights (by developing independent labor unions and transitioning away from the contract system);

rid the banking sector of bad loans, especially to state enterprises, and develop the financial market;

invest in e-government to increase the transparency of the public administration system and economic relations between citizens and the state;

increase the competitiveness and innovativeness of the economy by fostering entrepreneurship, creating ecosystems for startups, and stimulating venture investment;

guarantee the energy security of Belarus by diversifying energy sources, creating an electrical energy and gas market, and investing in renewable sources of energy and energy efficiency;

stimulate the development of the green economy in certain priority areas, including renewable energy sources, circular economics, resource efficient production, eco-friendly transportation, organic agriculture, and biodiversity.

Third, the international community is prepared to provide support as the economy recovers. In 2021, the European Commission, in coordination with Sviatlana Tsikhanouskaya’s economic team, adopted a Comprehensive Plan of Economic Support to Democratic Belarus amounting to three billion euros (about five percent of the GDP of Belarus) for the first years of economic reform. The EU plan encompasses financing for private business, large infrastructure projects, cross-border projects and other initiatives in the Eastern Partnership program, support for Belarus’s entry into the World Trade Organization, and much more.

Negotiations are being held for the US to announce a “Marshall Plan” for Belarus. The IMF, which is ready to support the economic stabilization program approved by the new Belarusian government, will also join the plans of the EU and the US. The World Bank will finance the development of the private sector, investments in infrastructure, and the modernization of the healthcare and education systems. The European Investment Bank and the European Bank of Reconstruction and Development will finance projects in the energy sector and the transition to a green economy, facilitating the activities of strategic investors in Belarusian state enterprises.

International support will also be required to restructure government debt, including refinancing (especially debts to Russia) by European countries at lower interest rates and for longer periods, with deferred repayment of the loan principal for the first few years. Assistance will also be provided to ensure energy security for the economy if Russia decides to blackmail Belarus.

Fourth, a program is needed to encourage the repatriation of Belarusian businesses and individuals from abroad. It should stimulate the Belarusian diaspora to invest in a new Belarus, return to their homeland, or promote Belarus’s national interests in their new countries of residence. One example of such an effort is the 2021 creation of the Association of Belarusian Business Abroad, which comprises enterprises from Poland, Lithuania, the Czech Republic, and the US that are not affiliated with the regime.

In recent years, the Belarusian diaspora has grown and unified. This is an additional source of human, financial, and political capital. The diaspora must be encouraged to help grow the economy and reform the country. The best way to do this will be to ensure that the economy grows rapidly, rule of law is protected, the business climate improves, the country becomes more open to foreigners, and the Belarusian economy integrates into the global one. The Belarusian diaspora and foreigners with Belarusian roots should be eligible for a simplified procedure for receiving a “Belarusian card,” allowing them to participate unhindered in Belarusian affairs.

It is worth studying the successful experiences of countries whose diasporas have contributed significantly to national building and economic transformation, such as Ireland in the second half of the 20^th century or Israel after it received independence in 1948.

Fifth, building an economy based on the rule of law should entail holding those most closely involved in repressions accountable. Such individuals should also be forbidden from occupying government positions for a certain period. Totalitarian ideology needs to be unambiguously rebuked and victims of repressions should receive compensation. At the same time, government-affiliated individuals who did not have a hand in the regime’s crimes should not be sanctioned. Divisions in society can be overcome be restoring lawfulness and seeking national reconciliation.

The result of these reforms will be a Belarus with an open, resilient economy where the private sector—grounded in small and medium-sized business—plays a dominant role. It should have a transparent government that invests in its people through education, healthcare, and other social services while using social policies to level the playing field for disadvantaged citizens.

How to reform the economy

The first requirement is democratic regime change, which will open the way for rapid economic growth. Once the democratization process in Belarus starts, sanctions against it will quickly be frozen and eventually rescinded, as the root cause of the human rights violations and disruptions to international order in Belarus will have disappeared. Belarusian private business will once again start to grow, old foreign investors will return, and new ones will arrive.

Second, Belarus needs institutional reform, a proposal for which was published in 2021 by Chatham House Publications following discussions with more than 25 Belarusian and international economists. This proposal was based on a vision of the institutional foundations of the Belarusian economy as described in an open letter published in October 2020. The letter was signed by more than 60 Belarusian and foreign economists and renowned specialists who are prepared to use their knowledge to help the democratically elected government of Belarus.

Reforms in certain sectors of the Belarusian economy are described in more detail on the Ideas Bank website (like restructuring and privatizing state-owned enterprises, reforming the labor market, family policy, social policy, green economics, tax policy, and the pension system).

Below are some crucial steps for economic reform:

limit the government’s role in the economy: its primary duty should be to oversee the development of institutions and social infrastructure;

create an equitable, amenable business environment for all enterprises, regardless of ownership, size, and type of activity;

improve the management of state enterprises (by changing stimuli, splitting up the government’s role as both owner and regulator); audit them and privatize most of them;

make the social protection system more effective: divert resources away from loss-making collective farms and industrial enterprises in favor of direct social assistance;

increase the efficiency and transparency of the labor market and protect workers’ rights (by developing independent labor unions and transitioning away from the contract system);

rid the banking sector of bad loans, especially to state enterprises, and develop the financial market;

invest in e-government to increase the transparency of the public administration system and economic relations between citizens and the state;

increase the competitiveness and innovativeness of the economy by fostering entrepreneurship, creating ecosystems for startups, and stimulating venture investment;

guarantee the energy security of Belarus by diversifying energy sources, creating an electrical energy and gas market, and investing in renewable sources of energy and energy efficiency;

stimulate the development of the green economy in certain priority areas, including renewable energy sources, circular economics, resource efficient production, eco-friendly transportation, organic agriculture, and biodiversity.

Third, the international community is prepared to provide support as the economy recovers. In 2021, the European Commission, in coordination with Sviatlana Tsikhanouskaya’s economic team, adopted a Comprehensive Plan of Economic Support to Democratic Belarus amounting to three billion euros (about five percent of the GDP of Belarus) for the first years of economic reform. The EU plan encompasses financing for private business, large infrastructure projects, cross-border projects and other initiatives in the Eastern Partnership program, support for Belarus’s entry into the World Trade Organization, and much more.

Negotiations are being held for the US to announce a “Marshall Plan” for Belarus. The IMF, which is ready to support the economic stabilization program approved by the new Belarusian government, will also join the plans of the EU and the US. The World Bank will finance the development of the private sector, investments in infrastructure, and the modernization of the healthcare and education systems. The European Investment Bank and the European Bank of Reconstruction and Development will finance projects in the energy sector and the transition to a green economy, facilitating the activities of strategic investors in Belarusian state enterprises.

International support will also be required to restructure government debt, including refinancing (especially debts to Russia) by European countries at lower interest rates and for longer periods, with deferred repayment of the loan principal for the first few years. Assistance will also be provided to ensure energy security for the economy if Russia decides to blackmail Belarus.

Fourth, a program is needed to encourage the repatriation of Belarusian businesses and individuals from abroad. It should stimulate the Belarusian diaspora to invest in a new Belarus, return to their homeland, or promote Belarus’s national interests in their new countries of residence. One example of such an effort is the 2021 creation of the Association of Belarusian Business Abroad, which comprises enterprises from Poland, Lithuania, the Czech Republic, and the US that are not affiliated with the regime.

In recent years, the Belarusian diaspora has grown and unified. This is an additional source of human, financial, and political capital. The diaspora must be encouraged to help grow the economy and reform the country. The best way to do this will be to ensure that the economy grows rapidly, rule of law is protected, the business climate improves, the country becomes more open to foreigners, and the Belarusian economy integrates into the global one. The Belarusian diaspora and foreigners with Belarusian roots should be eligible for a simplified procedure for receiving a “Belarusian card,” allowing them to participate unhindered in Belarusian affairs.

It is worth studying the successful experiences of countries whose diasporas have contributed significantly to national building and economic transformation, such as Ireland in the second half of the 20^th century or Israel after it received independence in 1948.

Fifth, building an economy based on the rule of law should entail holding those most closely involved in repressions accountable. Such individuals should also be forbidden from occupying government positions for a certain period. Totalitarian ideology needs to be unambiguously rebuked and victims of repressions should receive compensation. At the same time, government-affiliated individuals who did not have a hand in the regime’s crimes should not be sanctioned. Divisions in society can be overcome be restoring lawfulness and seeking national reconciliation.

The result of these reforms will be a Belarus with an open, resilient economy where the private sector—grounded in small and medium-sized business—plays a dominant role. It should have a transparent government that invests in its people through education, healthcare, and other social services while using social policies to level the playing field for disadvantaged citizens.

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