"Financial diet" from Kiryl Rudy

A sensational book about the real state of the Belarusian economy by Lukashenka's assistant Rudy is already available for purchase.

The other day,there became available a book about the Belarusian economy, the first chapters of which were written by Lukashenka's assiatant Kiryl Rudy.

In the book "The financial diet", of which Rudy became a scientific editor, the economist described in detail the current model of state capitalism in Belarus. The author claims that state capitalism is an economic system "in which the state plays a major role of the entrepreneur, the employer, the owner of the means of production, and the profit manager."

According to the book, at the level of the specific arrangements, the state capitalism shows itself in the command-administrative management of the economy.

"This approach, primarily to government organizations, is expressed in communicating indicators, directed lending, budget support, and administrative pressure. This gives a certain short-term momentum, but in the long run it leads to a gradual reduction of the initiative and higher operating costs," - said Lukashenka's assistant.

According to him, in recent years, Belarus' state capitalism has been faced with barriers that are holding back the growth of the national economy.

"Belarusian News" has studied the arguments of the doctor of economic sciences Kiryl Rudy and lists seven traps that are hampering the growth of "the Belarusian state capitalism."

Deficit of the economy's financing

The money issuing support of the economy, which was observed in Belarus for many years, propelled inflation, which ultimately led to expensive loans. On the other hand, Rudy says, in recent years there has been growth of the national debt, the payment of which limits today the financial possibilities of the budget.

"By accumulating the issue inflation and foreign loans, the state capitalism of Belarus fell into the trap" of deficit of the economy's financing," he stated in the book.

Since "the main source of this deficit is public finance, one of the ways out of this trap is openness of the economy to foreign investment and stimulation of the private investment," wrote the expert.

Trap of the conflicting neighbors

The term to describe the second trap was found by Kiryl Rudy in the book of the famous British economist, Professor of the Oxford University School of Government Paul Collier. This trap is that the country surrounded by conflicting neighbors is facing a long-term slowdown of the economy.

Belarus seems to be in this very trap -- Ukraine and Russia, which are key trade partners of our country, got involved in a serious and apparently long-term conflict.

"The problems that emerged in Russia and Ukraine in 2014-2015 reduced export opportunities of Belarus. It encourages logical movement towards other markets, but there Belarusian exports are less competitive," wrote Kiryl Rudy.

He sees the way out of the said trap for Belarus "in attracting foreign direct investment for export-oriented enterprises, working for highly competitive and high-tech markets."

The trap of the average income

The paradox of the third trap is that the increase in wages may not lead to an increase in the level of development of the country, expressed by GDP per capita. "As a result, the country is trapped and constantly remains at the level of middle-income countries," said Rudy.

The economist sees one of the causes of such a trap in low productivity in Belarus. "It is important to recognize that productivity at the Belarusian state-owned enterprises is lower than that of their private and foreign competitors," said Kiryl Rudy.

In his opinion, "the difference in productivity is due not to technological difference, that are similar to those of the state enterprises' competitors after the necessary upgrades, but the differences is in the management systems, for example, "manual" versus "corporate".

To avoid the trap of "average income" in Belarus, the economist proposes to take systematic measures, which involve the implementation of economic reforms both at both the macro and micro levels.

Trap of social spending

High social costs on the background of scarce resources put the authorities before a choice: whether to finance the social security system by the state, public or other sources.

"The state, given the limited budgetary resources, is torn between meeting the growing social needs of the population and addressing the economic issues. As a result, the government usually chooses the financing of the social sphere and gets stuck in low rates of economic growth," warns Kiryl Rudy.

He sees the way out of the trap in the social security reform, namely the transition from the universal to the targeted social support. Business circles can also become an important source of funding for social spending, said Rudy.

"For example, the construction of preschool institutions by private companies in the area of ​​their residential construction and their transfer to the local authorities is also a business model aimed at increasing the attractiveness of the sold apartments," the economist said.

Change Management Trap

The fifth trap sounds like a harsh diagnosis, indicating, in fact, that the economic management mechanism existing in the country very quickly becomes obsolete.

Rudy says that changes in the national and world economy run ahead of changes in the public administration system of Belarus, that pushes the state capitalism towards the change management trap.

"This term describes a situation where the administrative apparatus has less and less impact on the subordinate system, and the increasingly complex and changing system starts to go out of control and operate independently," said Rudy.

For example, public sector Doctor of Economics shows that the "manual" governance even with the modernization of the technology does not allow many Belarusian state-owned enterprises to compete with companies with similar technology, but with a different control system.

"Administrative resources in Belarusian state-owned enterprises are aimed at compliance with procedures and regulations, the implementation of assignments and tasks brought sometimes at the expense of profits, which distorts incentives and binds initiative, hinders productivity growth," said Kiryl Rudy.

The solution to this problem is seen by him in the decentralization of state regulation of the economy and the transition of the system to the corporate sector management system that focuses on results rather than on the implementation of the performance indicators.

Trap of the natural resources

This trap has been brought up by many Belarusian economists and most often today, when commodity prices have fallen sharply, and after that fell the Belarus' GDP and the national currency rate.

"The post-Soviet structure of the Belarusian economy with a high share of the raw potash and petrochemical sectors, as well as a close relationship with Russia's commodity-dependent economies, creates the preconditions for the trap of the "resources' curse," said Rudy.

This trap occurs, according to him, when the economy, including exports, is based on privileged access to raw materials, which puts it at the mercy of external factors and leads to the damping of non-extractive industries.

"The problem of getting out of this trap "returns us to the debate on the need of institutional reforms," said Rudy, alluding to the structural reforms in the economy.

Long-term stagnation trap

The last one, seventh, trap, summarizes all of the above. Rudy comes to the conclusion that state capitalism traps threaten economic development.

"The state capitalism traps of Belarus discussed above together represent a danger of both the medium-term economic slowdown and falling into the trap of"long-term stagnation" -- the long-term slowdown and underdevelopment," noted Kiryl Rudy.

According to the economist, to accelerate convergence with developed countries, Belarus needs to grow by an average of 7% per year. To stay in the group of developing countries, GDP growth should be around 5%. Lower economic growth brings Belarus in the trap of "long-term stagnation."

"It leads to the long-term economic backlog both from developed and from developing countries (including neighboring) countries," warned Kiryl Rudy.

Political will: will there be one or not

Calculations of other Belarusian economists, who co-authored the book "The Financial Diet" confirm that the risks mentioned above are real.

According to experts of the IPM Research Center, with constant internal and external conditions, the country could plunge into a long-term stagnation.

"According to our estimates, which we made at the end of 2015, the long-term trend growth rate of GDP in Belarus is below zero. This means that with no changes in the internal and external environment, there are no conditions for the growth of the Belarusian economy, said the director of the IPM Research Center Alyaksandr Chubryk.

The reasons why the country has been stagnating in the recent years is, according to the Belarusian economists, in the fact that the policy pursued resulted in the substantial decline in the return on public investment.

In this regard, the authors of "The Financial Diet" recommend to radically review the model of financial resources' distribution and direct them into effective projects rather than engage in directive distribution thus saving the dying state enterprises.

Is there a political will in the country to undergo "the financial diet"?

The last meeting on the economy with the participation of Lukashenka, held in January, suggests that there is currently no such political will. The Head of State once again stated that he is totally against changing economic policies and called on the government to manage the economy as well as the last 20 years -- in the "manual" mode.