IMF Reported On Where Budget Funds of Belarus Go

Must not be given any money to the dictator.

The report on the misuse of funds by the Belarusian government has been presented to head of the IMF mission for Belarus Peter Dolman.

Authors of the report - Dzianis Kazakevich, Master of Engineering Sciences (Belgium) and Marharyta Akulich, Candidate of Economic Sciences, Associate Professor (Belarus).

Charter97.org offers the full text of the report to your attention.

On April 25, a telephone conversation took place between Head of the IMF mission for Belarus Peter Dolman, the public relations officer Marjorie Enriquez and one of the authors of the report Dzianis Kazakevich. He presented a report on the misuse of state funds by the government of Belarus. Representatives of the IMF listened carefully to these arguments.

The head of the IMF mission for Belarus thanked for the provided information and noted that the IMF staff would discuss among the issues touched upon during the conversation.

This report presents selected examples of misuse of state funds by the government of Belarus. All examples are taken from open sources.

Summary

In this report we provide selected examples of government misuse of funds. All examples are taken from the open sources. The economy of Belarus faces recurrent crises. Structural reforms are required to promote sustainable future growth. Unfortunately, the government has a coherent history of unwillingness to carry out structural reforms. After 2011 crisis it carried out some elements of structural reforms only when forced by mounting external pressures. But it did so in inconsistent manner and only temporarily. The government of Belarus has low credibility and no accountability for its actions.

Therefore, there are no reasons to believe that any financial support given to the current government would be used for structural reforms. The government of Belarus supports first and foremost the secret police (KGB), the police, the special forces, the army and other organizations that are extensively used to oppress civil society. The second priority in government spending is everything related to state propaganda.

Therefore, any financial support given to the current government of Belarus would be directed first of all to the oppression of civil society and to the support of state propaganda.

Commitment, credibility and accountability issues

IMF Directors have emphasized many times in their discussions with Belarusian authorities that deep structural reforms are required to promote sustainable future growth and break with the cycle of recurrent crises. In 2015 and in 2016 Directors explicitly underscored the importance of strong commitment at the highest level to deep, market-oriented and structural reforms.

Unfortunately, there are no reasons to believe that the government of Belarus (especially at the highest level) is committed to the reforms. Publicly Lukashenka keeps saying that he will not authorize any liberal reforms in Belarus (his latest statement in this regard was made during his address to the nation on April 21, 2017).

The government has a consistent history of unwillingness to carry out structural reforms. Moreover, in the past the government has reversed many policies recommended by the IMF as soon 2009-10 Stand-By Arrangement ended. This policy reversal raises questions regarding credibility of the government. Those questions put in doubt any plans and commitments declared by the government for prospective IMF program. The government reversed structural reforms as soon as the last IMF program for Belarus has ended. In 2009 the authorities demonstrated that they had “a clear strategy to address the challenges they face”.

There were sound plans for structural reforms in key areas. The IMF approved a 15-month US$2.46 billion Stand-By Arrangement program for Belarus in 2009. The main objective of the program was to increase robustness of the economy to external shocks. Some progress was made in that direction at the time of program implementation. But after the program ended many policies were reversed. This policy reversal was a major contributing factor to severe currency crisis in 2011. This policy reversal raises serious questions regarding credibility of the government in any future agreements. The government did not demonstrate true commitment to structural reforms. The government has a consistent history of unwillingness to carry out structural reforms. After severe crisis in 2011 the government carried some partial reforms recommended by the IMF.

However it did so in inconsistent manner and only temporarily, when forced by mounting external pressures. In that forced partial implementation of the IMF’s recommendations the least progress of all (if any) was made with respect to structural reforms. No progress was made on privatization and state-owned enterprise restructuring or with the strengthening of safety nets.

Later, in 2014, Directors once again stressed the need for deeper and more comprehensive reforms. The authorities stated in response that they preferred rather gradual implementation of only some partial reforms instead of deep structural reforms. Finally, in 4 Financial priorities 2016 once again the least progress of all was made with respect to structural reforms. By the autumn 2016, in discord with the IMF recommendations, unemployed benefits were not increased, no plans for large-scale privatization were presented, state-owned enterprises continued to receive instructions regarding production levels.

The government has no accountability for its actions The political situation in Belarus is such that judicial and legislative branches of power are under the full control of executive branch. Executive orders are de facto more important than the constitution. Therefore, legislation and policy could change dramatically at any given moment. As a result of such a political landscape, there is no transparency and accountability in government spending. Therefore, there are virtually no guarantees that any declared plans to carry out structural reforms would not be reversed after the IMF program would end, as it was the case with 2009-10 IMF program for Belarus.

Financial priorities of the government of Belarus

For more than 20 years the government of Belarus was financing first and foremost the secret police (KGB), the police (militia, the number of which per capita is 7 times higher than in the former USSR), the special forces, the army and other organizations that are extensively used to oppress civil society. The second priority appeared to be the departments of ideology, state TV and newspapers outlets, costly events of sportive, cultural, military and purely ideological nature, such as ice hockey tournaments and international sport events, annual military parades, annual “festival and fair for rural workers Dazhynki”. In short, the second priority in government spending, it seems, is everything related to state propaganda.

In this section we provide selected examples of government spending which reveals the pattern of appreciating oppression and propaganda above everything else. ‚ Police salary alone costs more than either the whole state healthcare or the whole state education It is not entirely clear, how much exactly the government spend on the police (in Belarus it’s called militia), but it is obvious that the police consumes an extraordinary large share of state budget.

To appreciate how much the government cares about the police one can simply look at sheer number of the police officers in Belarus. Belarus was among the world leaders in number of police officers per capita as of 2010. Back then that number was 1442 per 100,000 inhabitants. 2010 was the last year when the number of police officers per capita has been revealed to the public. This number remains very high today according to numerous unofficial accounts including the estimate of lieutenant-general Myechyslaw Hryb. If one uses conservative estimate of the number of policemen at 90,000 and conservative estimate of average police salary at $600 than it follows that the salary alone make up $648 mln annually.

The exact numbers are not revealed to the public but if our calculations are correct then police salary alone costs more than the whole state healthcare system and the whole state education system combined. There can be absolutely no doubt that the police salary is substantially larger than either one of them. It is worth noting that policemen need police equipment, police uniform and many other things. Policemen in Belarus are entitled to subsidized housing, special high quality state healthcare for themselves and their family members and early high retirement benefits. That estimate of $648 mln of annual salary does not include salary of KGB staff and some other special forces. It is worth noting that the KGB was and still is a very powerful organization which, among other things, consumes a lot of financial resources.

The 2016 military budget was larger than healthcare and education budgets combined Army budget has increased in the recent years. In 2016 more than $800 mln of state funds was appropriated for military needs. It was more than the whole state healthcare and the whole state education 2016 budgets combined. Big joint Russian-Belarusian military drills will be held in Belarus in September 2017. It is expected that the drills will be the biggest military exercise ever held on that territory. Costs are unknown but apparently this is very expensive enterprise. The government spends more on propaganda outlets than on fundamental research.

The government assigned $55 mln for state propaganda outlets (state TV channels, newspapers) which was more that $47 mln for fundamental research in 2016. The outlets has cost less that 0.5 percent of GDP only once in the last seven years, usually it was more than that. It is important to emphasize that the propaganda outlets corresponds to a tiny fraction of the expenses on state ideology promotion. First, there are Departments of State Ideology in every factory, in every establishment, in every hospital, in every school. There is no way of knowing how much does it cost. It is a carefully concealed secret. But it is clear that the employees at ideology departments receive wages well above the average. Second and probably more importantly, there are costly events of different kinds which are useful for propaganda purposes.

Military parades cost more than $50 mln each year. Usually, there is at least one military parade each year in Belarus. Sometimes it might be more. They differ in scale, so it is difficult to calculate the exact costs, but rough estimate for the cost of one parade is $50 mln. Festival “Dazhynki” has cost more than $100 mln each year “Festival and fair for rural workers Dazhynki” is a traditional rural harvest 6 Poor financial management feast which is now extensively used for propaganda purposes in Belarus. The event usually preceded by extensive reconstruction and repair works. It is usually not disclosed how much is spent on the repair works and how much on the festival itself. The festival was held annually since 1996 till 2014 each time in different town.

After 2008 the cost of “Dazhynki” has never went below $100 mln. Since 2015 the festival “Dazhynki” is held in six different towns each year. It is difficult to track the exact costs since 2015, but it is a big propaganda event which requires a lot of state funds which otherwise could be used more properly.

Examples of poor financial management

Oppression and propaganda are priorities. But there are cases when the government does try to use the funds in its disposal for the improvement of the well-being of the people of Belarus.

The issue is that it often does so in an somewhat exotic and financially inefficient manner. Here we provide only two examples of poor financial management by the governments. We omit the issues which were already covered in the IMF country reports like unprofitable state-owned enterprise‚ Construction of unprofitable ice hockey arenas has cost more than $800 mln. The cost of construction of ice hockey arenas built since 2008 is more than $800 mln. Total number of ice hockey arenas in Belarus has surged from 4 to 32 since 1999. The vast majority of them are unprofitable enterprises. They make a significant burden for local budgets. The ice hockey arenas could not be regarded as a proper long time investment in a public health, because there is a constant scarcity of the basic healthcare equipment and facilities in Belarus.

The construction of “agro-towns” was a poor investment. The goal of the state program for sustainable development of the village was to attract people to resettle in rural areas. To this end, tens of thousands of small houses were built at public expense all over the country in more than 1500 villages. The total cost is not revealed to the public, but it is easy to calculate that it is hundreds and hundreds of millions of dollars at the very least because it is reported that one house costs around 40 thousand dollars. Poorly planned program proved to be an expensive failure in many cases. Thousands of houses remain empty.

Conclusions

The government of Belarus did not demonstrate the commitment to the reforms. Moreover, the government could not be trusted because of low credibility and the absence of accountability.

There are no reasons to believe that any financial support given to the current government would be used for structural reforms. The government has a long consistent history of predominant financial support of the state apparatus for oppression of civil society and for promoting state propaganda.

Therefore, any financial support given to the current government of Belarus would be directed first of all to the oppression of civil society and to the support of state propaganda.