Euro-Batko 2 or why Belarus will benefit from financial crisis?

In September of 2010 I published on the pages of "The Capital of the Country" my impressions from the trip to Belorussia^I, which resulted in interesting discussion of the readers, where arguments based on facts intertwined with theoretical disputes. But events that happened one year ago and that reflected pre-crisis success of the Belorussian model and the life level of the population turned out to portend the monetary and financial crisis of 2011. What changed for a year in the republic of Belorussia? How the government is reacting on the challenges of the financial crisis? It will be unfair to leave the "Belorussian saga" unfinished.

The end of my summer trip to Belorussia this year, in August 2 2011, symbolically coincided with the date when the decision of the increase of the USA debt ceiling was made, and this marked the official beginning of the second wave of the financial crisis. And of course the task to combine these two crises (financial crisis in small Belorussian and global financial crisis) and to identify some patterns of anti crisis policy, which maybe one day could appear even in Russia, arises.

The fact that from spring 2011 Belorussia is in heavy monetary and financial crisis has inspired a lot of our liberal theorists for prolific, but windy conclusions about deadlock social-economic model of this small, but proud republic, and has inspired Russian "real politics" for acquisition on more profitable terms than before the crisis of tidbits of Belorussian state property. Our social — political journal editions have been lately fulfilled with horrible descriptions of simple Belorussian residents, which should cause in Russian narrow people resentment about stupid and even criminal management of the country by Batko Lukashenko and by his illiterate team.

This year I visited Vitebsk, Minsk, Brest and other regional centers of the Brest region. Externally our country grows prettier. The infrastructure is improving. Streets are clean as in Germany and Poland, and they are even cleaner than in France or Italy. Roads are accurately paved, and pavement in all cities, even in small villages, is laid out with ecological tile. By the way, on the way back to Moscow, I noticed that on the street Tverskaya in the center of Moscow the process of removal of asphalt on pavement has just been started. In Belorussia in every center of the region all main streets and squares are covered with these nice ecological tiles, which make you breath easier during a hot summer day. But behind this external well-being deep social tragedy of poor Belorussian man is hiding.

Yes, the scales of flight from Belorussian currency impress a lot. All Belorussians actively get rid of the national currency. We all remember how in spring Belorussians were buying up all electronic devices, sugar, canned goods and other non-perishable products. But in July people were really tired of this kind of sport, or maybe ammunition, Belorussian rubles, has finished, and now people are hunting for currency, and besides for any non-Belorussian currency.

I have to note that Russian ruble is the last in the hierarchy of the currency preferences of Belorussian people. The first place, of course, goes to the dollar, euro and British pound are also part of the desired defensive assets, but the most amazing fact is that Chinese yuan is also in the list of the traded currencies of Belorussian banks. But there is nothing surprising in this fact due to active development of Belorussian — Chinese relationship: the country is filling with Chinese traveling expenses, and in these situations Chinese people need Belorussian currency for household purchases.

Of course, devaluation of Belorussian currency had a negative impact on the living standard of the population. Belorussian ruble fell twice against the Russian ruble — last year they were giving 90 Belorussian rubles for the Russian ruble. The well-being of the population according to "optimistic" official estimates decreased 30%, and according to alternative estimates of independent Belorussian experts it decreased twice. By the way, these independent estimates you can find in a quite officious weekly journal "Belorussia today", past "Soviet Belorussia". And where is, I ask, "Batko's totalitarianism"? Desired monthly salary of 500 dollars, which before crisis, in summer of 2008, was available for many workers and which meant gaining the level of Belorussian middle class, now is a fate of few qualified specialists working at rather good companies. Before spring recession of 2011 in December 2010 the average salary in the republic was 1,596 million rubles or in foreign currency terms — 527 dollars^II. According to official data in May of 2011 the average salary was 1,649 million rubles. We divide this number by 180 and get the result of 9161 Russian rubles. According to our Russian standards it is very little. And in spite of more equal income distribution in Belorussia in comparison with Russia, more than 60% of workers don't reach the level of average arithmetic salary. Average median salary of the Belorussian person is 1.1 to 1.2 million rubles. In Russian rubles it will be miserable 6,5 thousand. For example, in education sphere the salary of 74,7% of the workers doesn't reach the level of 1,5 million rubles^III.

And how does the salary look like in dollars? Multiple exchange rate of Belorussian ruble in the middle of July 2011 varied from its minimum of 4990 of Belorussian National Bank to 8600 in the payment system WebMoney. In currency exchange offices people can buy dollars for 6000 Belorussian rubles. So, average salary in dollars is approximately 275 dollars. And median salary is less than 250 dollars. So here is the fall of real income of Belorussian people in twice and even more.

But let's continue our "household methodology" of examination of Belorussian life. How can people live on Belorussian salary of 1.2 million rubles or 6666 Russian rubles? Of course, they can, if pricing levels of the main goods are several times (somewhere ten times) lower than in Russia. It would be really useful to compare the prices of consumer goods baskets of two countries in Russian rubles, but not having the data of annual statistics I will give the most thrilling examples. Of course, we should start with vodka. The richest arsenal of Belorussian vodka is 50 to 80 Russian rubles, three times cheaper than in Russia. And besides, I am more confident in the quality of Belorussian vodka with their still existing state monopoly than in the quality of our Russian unlicensed vodka. Wonderful Belorussian "Lidskoe beer" in Belorussian rubles is 3-4 times cheaper than our Russian "Baltika" and other European brands. Excellent Belorussian milk production is half the price of the same yogurts on Moscow shelves. Smoked sausages of local Belorussian production are 3-4 times cheaper than salami of Moscow retailers that cost 800-1000 rubles. And the same situation is happening with all range of food.

It is easier to say what in Belorussia is NOT cheaper than in Russia. It would be tea, coffee and buckwheat, because in the country it is impossible to produce these products due to climatic reasons. As it is known, before the crisis the independence of Belorussian products was ensured for 85%, and after this crisis Belorussia focused more on self-supply of food. The problem of massive shop-tours from neighboring countries appeared because of rather cheap Belorussian products. And besides, if before the crisis when Belorussian ruble was "heavy", Belorussian people preferred to go to Poland, Ukraine or Lithuania, today citizens of these countries benefit from buying cheap Belorussian products. ^IV Russians from the nearest Smolensk and Briansk regions are in a more advantageous position. It is calculated that every day trips to supermarkets of Vitebsk, Mogilev and Gomel are paid off even when petrol costs are about 500 rubles. By the way, petrol in Belorussia in Russian rubles is 10% cheaper than in Russia. What an unprecedented case, in past years we were considering with understanding the fact that in the country which imports oil gasoline costs 20% more than in oil-producing Russia.

Price gap in services and non-food products could reach ten times. Cellular prices in Belorussia are such that Russians should protest in front of the offices of our Big Three (Bolshaya Troyka). Belorussian MTS (Mobile TeleSystems), which is being bought by our Russian giant with the same name MTS, offers the following interesting tariff: 1200 minutes per month for 9000 Belorussian rubles, it is 50 Russian rubles. Would you like to talk for 40 minutes per day for less than 2 rubles? In Russia one minute costs even more. So just count how cheaper it is to talk on the cell phone in this small republic.

Prices on cloth and bath and beauty accessories of Belorussian production arouse sport passion in Russian people and at the same time make them buy the biggest Belorussian luggage in order to take away all new stuff. Here the gap is 4-5 times. The same situation is happening with barber's services. For example, I came to cut my hair to a fancy salon in the center of Minsk on Independence Avenue and I paid just 120 Russian rubles. For the same fashion haircut in my Moscow salon I pay 600 rubles. It is 5 times more expensive.

One way ticket for public transport in Vitebsk after summer price increases cost 750 Belorussian rubles or 4,1 Russian rubles. "And they are dissatisfied with Batko!" — Muscovite, depressed by monopoly high prices for public transport, will cry.

I was really interested in a pricing policy in sphere of paid higher education. In the beginning of August Belorussian government approved prices for state universities. — from 4 to 8 million Belorussian rubles. Private universities, which don't follow in their tariff policy the rules of the Ministry of Education, go through dumping in 2,5-3 million rubles. The prices are such that all Russian bummers should enter Belorussian universities. Where else will they get their desirable specialization of manager for 30-40 thousand Russian rubles per year? For example, in Moscow in State University of Management for one year of studies you will have to pay from 150 to 210 thousand rubles — five times more!

We can talk on this pricing topic forever, so let's just stop here. Let's estimate real purchasing power of Belorussian ruble in order to compare Russian and Belorussian living standards. Intuitively I think that in gross rounding average weighted price levels of goods and services, being the part of consumer basket in Russia, are three times higher than in Belorussia. So you could easily multiply by three real average Belorussian salary of 7000-9000 Russian rubles. And real purchasing power of an average Belorussian salary in comparable prices would be 21000-27000 Russian rubles. It means that on a typical Belorussian salary of 1,260 million rubles or 7000 Russian rubles Belorussian person lives in his country as a Russian person lives on 21000 rubles in his country. Not so much, of course, but it is not a humiliating poverty. By the way, in August of 2011 living minimum wage in Belorussia was at the level of 442 thousand rubles^V, In Russia — approximately 4000.

It is time to switch to more serious macroeconomic stories and to identify main reasons and consequences of the financial crisis in Belorussia.

In the present time, several months later after acute phases of Belorussian financial crisis and modest signs of stabilization, it is possible to identify three main reasons of this misfortune. First of all, redundantly stimulating monetary policy of the Belorussian National Bank. Secondly, plant food of Belorussian electors in December 2010, when salaries of state employees unreasonably grew 30%. Thirdly, unfavorable shock of the world markets — increase in prices on raw materials and food, including Russian oil and gas.

You can lecture and preach Belorussian authorities from monetarist point of view: it doesn't befit to try to deceive economic laws and live in such a way they can't afford; this is to what financial incontinence has led. Well, from the monetary point of view everything is right. Batko got too excited about investment and social programs and pumped too much money into the national economy through the National Bank. By the way, the presence of the term "National" in the name of the main statebank of Belorussia is very significant. It says about serving the national interests of the country. In Russia, for example, in the official name of the Central Bank there is no such a term as "national" — it doesn't serve the national interests of Russia, on the contrary it sucks out liquidity from the credit system and acts as an intermediate in transferring petrodollars abroad — and nothing more.

And the National Bank of Belorussia on the contrary — it tried too hard to finance national producers. Let's turn into the data of official banking statistics and compare monetary surveys of the Central bank of two countries for the year of 2010.

We chose the year of 2010 as some transition period between first and second waves of the world financial and economic crisis. On the one hand, during that period consequences of the acute phase of the recession of 2008-2009 in the world economy has been already left behind. On the other hand, recuperation during this year was going too irresolutely, so monetary authorities of all countries were not avoiding supporting financial markets and the real sector. Belorussian National Bank is very successful in financing of its banking system. The volume of lending ( line "Claims to banks" in Table 1) grew three times. In order to carry out such credit expansion the National Bank was continuing to increase net borrowing from the government. As a result of the credit pumping of the economy the monetary base grew almost 50%.

Russian Central Bank in 2010 was acting on the contrary. It is reducing the financing of the banking system almost three times from 1,9 trillion to 0,7 billion rubles. At the same time net claims to the government body from the Central Bank are also increasing. What for the Central Bank of Russia borrows money from the government (Ministry of Finance, the Treasury), if it doesn't let the money into the banking system of the country. The answer is already known: these funds turn into the capital outflow due to the increase in foreign-currency and gold reserves of the country and due to the increase in its international assets by 40 billion dollars from 439 to 479 billion dollars. ^VI

In 2010 the Central Bank resumed its favorite occupation of "sterilization" of extra ruble liquidity by placing self-financial instruments. Let's give a word to the official survey of the Russian Central Bank.

In the conditions of high liquidity level the Bank of Russian in 2010 activated the operations of "sterilization" of the free funds of credit institutions. The main instruments for that were deposit transactions carried out by credit institutions and operations with bonds of the Bank of Russia.

The total volume of deposit transactions made by the Bank of Russia in 2010 doubled in comparison with the year of 2009 and reached the level of 35,3 trillion rubles… In 2010 activity in the market of the Russian Bank's bonds increased significantly in comparison with the last year. In the pending period there were 34 auctions for the sale of the Bank of Russia bonds, at these auctions the volume of liabilities was 1874,1 billion rubles ( in 2009 — 32 auctions to the total sum of 297,5 billion rubles).

The Russian Bank's operations of selling and buying its bonds on the secondary market in 2010 were 14,0 and 100,0 billion rubles accordingly during the whole last year.

In order to increase the effectiveness of the monetary policy by enhancing the impact of the Russian Bank's operations on short-term rates of the money market decisions about transition in November 2010 to the emission of 3-month Russian Bank's bonds with the placement frequency once in two months and decisions about termination from December 15 of 2010 by the Bank of Russia serving as a market maker of its bonds on the secondary market were made.

The additional instrument of free liquidity absorption was the Russian Bank's operations of selling government stocks without obligations of the buy-back. The volume of operations of selling federal loan bonds from the Russian Bank's own portfolio in 2010 was 22,6 billion rubles (in the forth quarter there were no operations). ^VII

Visual representation of these relatively large-scale operations of deprivation of the blood vascular system of Russia you can find on the following picture^VIII.

We see that after the rescue operation of the Russian banking system in the crisis year of 2009 the Central Bank started to extort money from the banking system in the beginning of 2010. So the Russian Central Bank one more time proves that it doesn't intend to refinance the local monetary system. From the whole range of functions the Central Bank is ready to deal with emissions of the national currency within accumulated international assets. Central Bank doesn't want to create the functionally operative credit system, where it would be serving as a lender of last resort. Of course, you have to work hard here! But what for, if it is easier to turn into the debtor of the banking system and to suck liquidity from the economy instead of pumping the economy with money. At the same time the Russian Central Bank is proud of the fact that due to its phlebotomy inflation is decreasing and by that interest rates should decrease too. But in the absence of precise institutional system of refunding banks don't trust each other and shift all the risks onto overvalued lending interest rates, for which companies take credit.

But do they take it from Batko? Yes, they do, because in Belorussia the system of concessional lending of many important industries and companies existed for a long time. Construction organizations were receiving loans at 2% and that is why in every Belorussian city you can see blocks with beautiful houses. Everywhere new micro districts with new names are built. But for whom are built these houses? For financial speculators as in Russia? For corrupt bureaucrats-peculators, who turned this sphere into financial pyramid for receiving additional revenue? No, not for them, it is curiously enough but for ordinary people, for low-income Belorussian workers, for whom credits for housing are given at moderate rates, and huge social preferences are even higher than in Europe. For example, authorities wrote off 50% of debt on mortgage of one young family that we know after their second baby was born, and this is all despite the fact that the wife was working as a nurse and her husband always had non-permanent jobs. This is how social landmarks manage the development of the economy. In Belorussia credit and financial sphere serves for social sphere and economy, but in Russia other way round.

In result provision of housing in republic grew from 19,7 to 24,6 square meters per person. ^IX For the same period the quantity of built apartments for 10 000 people grew from 27 to 89! ^X I won't tire the reader with other statistics about housing boom, which is available on the website of statistical committee^XI. Here another thing is important. Unlike the housing boom in Moscow and other large cities in Russia, which is happening due to the excess of petrodollars and follows the idea of further enrichment of corrupt Russian elite, in Belorussia all built houses are distributed fairly among all people of the country, and not the top 1-2%.

Large state investment and social programs, which supported demand in conditions of restriction of traditional market outlets inside and outside Belorussia, created the illusion of continuing economic growth in 2009-2010, when the world economy was uncertainly approaching the recuperation. In 2010 Belorussia increased the volume of external borrowing, which became the reason of a noticeable growth of the foreign debt from 16,4 to 17,8% of GDP (9,7 billion dollars). We would note that according to the world standards this level of debt is not so big, but taking into account the small size of the Belorussian economy this is a serious problem for the republic. Moreover, taking into account the devaluation in 2011 this debt practically doubled. Lion's share of foreign loans went for the financing of the government programs and for concessional lending to commercial banks. Страна закружилась в вальсе искусственного спроса. Real salary and real incomes of the population grew 15% in 2010 (what a luck, like in Russia on the eve of the crisis of 2008) and outpaced a little bit rates of productivity growth. ^XII

Cheap money policy (The National Bank decreased refinancing rate from 13,5 to 10,5% and besides this it was giving actively preferential credits) created strong inflationary potential, which temporarily was hold back by the exchange rate policy of the strong Belorussian ruble. As a result in 2010 the deficit of the trade balance was 2,8 billion dollars higher than it was forecasted. In the forth quarter of 2010 this indicator reached its historic maximum level — 20,4% of GDP. Net capital inflow, which should offset the deficit of the current account, turned out to be lower than in 2009 — only 7,4 billion dollars due to low value of foreign direct investments and due to increase of the short-term debt. ^XIII So, the problems of the balance of payment led to inevitable devaluation of Belorussian ruble. The speed, with which financial crisis was unfolding in Belorussia, matches with small size of Belorussian economy.

The same way China, real economy of the world number 1, during that period by pumping public demand demonstrated maintenance of the growth rates at the level of 10%. Small economy of Belorussia, which has never been hiding its sympathy to the Chinese model, chose the same way, being stimulated by traditional social imperatives of development and by political conjucture of presidential elections, but it overrated its strength. Batko is a real patriot of his country, but he played too much with administrative methods of management, while at the same time ignoring financial and credit methods. World plutocracy by using this mistake beats out concessions (cheap privatization) from Batko and persuades him to emigrate and betray his country.

But Batko will never leave the country and will never betray it. However he can't live as before and he doesn't want to live beyond his means. Belorussian economy enters the period of tough financial and structural restructuring. What are its main features?

First of all, social security of the population represents first and only line of defense. ^XIV Batko understands that social contract with people is his most expensive social capital, which cannot be replaced with any electronic tricks during elections. The president of the country Lukashenko continues to maintain the same level of reforms and that is why he carefully raises pensions with the increasing inflation. President Lukashenko by his decree orders in August and November 2011 to recalculate pensions and to increase them in average by 13 and 8% accordingly. According to the results of August increase average pension turned out to be 757 thousand Belorussian rubles.

Secondly, monetary policy is radically changing. And it is clear in which direction it is changing. Replacement of the president of the National Bank of Belorussia has become a symbolic sign. Instead of a strong functional bureaucrat Petr Prokopovich, who for a very long time just like Alan Greenspan in USA was at the head of the National Bank and deserved the status of a wise and infallible man, in the end of July 2011 Lukashenko nominated a very quite and modest woman, Nadegda Ermakova, to a post of a principal banker of the country.

Unambigious signal was given to the companies: there will be nor concessional credits, nor government subsidies. Learn to earn money by yourself, find new markets, attract investors and restructure. Of course, there will be exceptions. Support of export oriented companies will be continued — the country needs currency.

Thirdly, budget stimulation will also be decreased. The Ministry of Economy is occupied only with reduction of bloated state programs. It is planned to reduce financing of state programs up to 4% of GDP in 2011 and 3,1% in 2012. ^XV

Fourthly, administrative barriers existing for a long time and preventing privatization of the best and most profitable companies of the republic. A lot of experts have already state of fundamental shifts in the Belorussian economy and of almost the lost of the national economic identity. They say Batko has to "drain off" the tidbits of the state property, including such framework of the national economic security as Beltransgas (Belorussian transit gascompany), Mozir and Novopolotsk oil-refining factories, Belorussian metallurgical plant, Minsk automobile factory, which bring to the country almost all gross earnings. After privatization of all these companies Belorussia is loosing its economic and political independance.

But is it true? Let's look at Poland. Banking system of the country belongs to foreigners. So, the whole economy is controlled by Western capital. And what? Is the economy of Poland loosing its independence? No! Poland authorities managed to find subtle ways of compliance with the national economic interests, and Warsaw still is ahead of Moscow in terms of being better international financial center. Current property relations are so difficult that allow finding this delicate balance of interests of many participating agents, so the government could remain being the insider, even not having control, blocking or any other holding of stocks. We think Batko would find ways to maintain the control over privatized companies in order to comply with the economic sovereignty of the country.

And now let's return to the main title of the article. So why will Belorussia benefit from this financial crisis?

From our opinion, the reason is that government and capitalistic model of the Belorussian economy faster and more accurately reacts on the external impacts than quasi-"market" economy, but in reality uncontrollable model of the Russian economy. For example, one of the reasons of the balance of payment crisis in Belorussia was the increase in prices on energy in Russia. How did administrative system react? It reacted with diversification of energy supply and expansion of the energy base. Of course, interesting agreements on the supply of oil from Venezuela had more demonstration character. But contracts on supply of Azerbaijani oil to Mozyr oil-refining factory are lot more serious thing. Moreover, in Belorussia there are large deposits of oil shale, and this is the hit of the season! It means that conditions for attracting foreign investors would be created and also that new modern technologies would come to the country. By the way, Batko's relations with foreign investors already bear some fruit in debunking the myth about Belorussia President being unpredictable and irresponsible. For example, the head of the group of the companies BoulleMiningGroup, which was invited for further mining, noted that the West underestimates the economic system of Belorussia and Lukashenko's merits. ^XVI

Aside from raw material industries, trade, transportation and logistics services and finance today in Belorussi priority areas for investing are biotechnologies, electronics, fine chemistry and IT-technologies. For activization of this work decree №4 of June 6 of 2011 was approved, this decree added some changes to the well-known decree of August 6 2009 №10 "About creation of additional conditions for investment activity in the Republic of Belorussia". This document gives more preferential terms for attracting investments, including direct investments. In this document we can distinguish six main preferences. So, investors can use project documents, which were prepared abroad. It means that if the company penetrates into the Belorussian market with the finished project of the building, which was developed in accordance with overseas design standards, and these standards are already introduced in the territory of Belorussia, no adaptation and no adjustment are needed. Only adaptation to relief and georeferencing will be needed.

There is one more attractive standard for investor: he gets the right to deduct the whole sum of VAT, which was being paid for the goods, services and work, property rights, being used for planning, construction and implementation of objects, which were provided for investment project. Also investors are free from payments of contributions to innovation funds, from payments of VAT and profits tax due to transfer of property without compensation. Here it is all about cases when the government transfers property to investor without any compensation for realization of the project. For the period of construction and till December 31 of the next year after its termination, and also for the period of design work investors are free from payments of tax on land and rent for plots, which are government property. And during construction of objects provided for investment projects investors are free from holding contracting tenders when project organizations and contractors are chosen.

Besides these preferences decree №4 adjusts some standards towards more precise formulations and it systemizes rules to be more understandable for investors. Today in Belorussia 682 investments agreements with estimated value of $13,9 billion have been signed. Direct investments, which will come to the country, are valued for such sum.

National agency of investments and privatization, which was created specially for coordination of activities in the sphere of attracting foreign investments, is transformed to the government institution in accordance with decree №173 of April 22 2011 and now it falls into line with the activities of the Ministry of Economy. ^XVII

All bureaucratic apparatus of Belorussia is under administrative pressure: and what did you do for attracting foreign investments? ^XVIII

In the same mobilization regime Belorussian system of all the possible economies and import substitution got started. Strict control over the reduction of imports is done by the government agencies. For example, in Minsk regional program of import substitution is developed, and this program has more than 400 positions in three main divisions. One of the main directions of stabilization of the situation in international trade became the program of earning positive foreign trade balance for 2011-2015 years. Document contains the section "Activities for development of import substituting productions", realization of this document can lead to the increase of production volumes of import substituting products in twice.

In Minsk in 2011 it is planned to release import substituting products on the sum of approximately $1,2 billion, that in comparison with 2007 is 14 times higher. ^XIX

National program of export development in Belorussia for 2011-2015 years, which was approved by decree of Council of Ministers of May 23 2011 №656, is launched for adjustment of the payment balance. One of the main tasks of this National program is social and economic development of Belorussia for 2011-2015 and gaining positive foreign trade balance due to modernization and growth of economic competitiveness. The realization of this program should result in export growth of goods and services by 2,18-2,22 times by 2015 year in comparison with 2010 and gaining of a positive foreign trade balance at the rate of 0,5-0,6% of GDP. The share of hi-tech products in exports volume should reach 14-15%, the share of services — less than 20%, the share of engineering — 20,3%.^XX

After few months of 2011 these approved measures started to bring some first results. In Belorussia negative foreign trade balance is consistently reducing. In the first quarter negative foreign trade balance was 4,5 billion of Belorussian rubles. In the first quarter it was formed by 67% and only by 33% - in the second quarter. Outpacing export growth rates over the import also indicate the trend of negative foreign trade balance's reduction. At the end of 6 months the growth rates outpace the import by 8,7 percentage points. And besides this gap can be found in every market segment, independently of the geographical affiliation. ^XXI

So, we have to consider current economic crisis in Belorussia as a financial crisis, caused by the desire of economic authorities to maintain growth rates at the expense of artificial stimulation of demand by increasing foreign debt. Actually, USA, China and many other countries acted the same way after recession 2008. But poor small Belorussia, which due to its geographical and historical positions has become an integral part of the system of international labor division and also is very typical small open economy, keenly felt downturn on the world markets. In order to compensate the decline some government programs were developed, but necessary structural reforms were not carried out. Now these reforms are carried out in order to reduce the dependence on imports, and to increase self-sufficiency of the national economy. Of course, the country activates international investment and trade community, but this external economic vector is seen as secondary in regard to the main task — maintenance of economic sovereignty.

Of course, for somebody this strategy can seem really dull. They prefer such "dynamic and liberal" economies as in the neighboring Baltic countries, which already have entered the EU. However, now all this dynamism of these economies resulted in the record outflow of the population to the developed countries of Europe, where they compete for waiter jobs and jobs of hairdressers' assistants. As a result, poor Baltic midgets, who lost their soviet production base, and who now live on handouts of the EU and transit revenues from external trade flows between Europe and Russia, actually for 20 years lost economic fundamentals of the national statehood and dream of joining Sweden. Belorussia continues to multiply inherited soviet industrial basis and tries to find a good use for it in the conditions of tough international competition. If Latvia under pressure of the EU buried harmless sugar production, Belorussia managed to save all engineering, including high-tech industries. This real economic miracle, and not wily accounting games with the GDP growth rates, is envied and is subject of impatience of many foes.

PS: And what about the West vector in the modern Belorussian politics, of the current financial crisis forces Lukashenko's regime to "bend" under the Kremlin and to sell to the Russian business all tasty assets of the government property? — critical reader will ask. Does this fact disprove the sonorous name "Eurobatko", which the author endured in the headline of the article? An, no! Batko continues to demonstrate various miracles of political adaptableness and alludes to the West that not everything is lost and that the West capital also can take part in privatization. ^XXII It is understandable: socially oriented government capitalism in Belorussia reminds more a modern Europe than Russia.