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U.S. DEPARTMENT OF STATE
BELARUS: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                             BELARUS

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                     1992      1993      1994 1/

Income, Production and Employment:

Real GDP Growth 2/                    -10        -9       -24
Labor Force (000s)                4,887.4   4,823.7   4,608.0
Unemployment (pct.)                   0.5       1.4       2.0

Money and Prices:  (annual percentage growth)

Money Supply (bil. rubles)            N/A     3,748     3,470
Base Interest Rate                    N/A       310       310
Retail Inflation                    693.5     517.1     283.7
Wholesale Inflation               1,627.5     936.8     327.9
Exchange Rate                         341     3,160     2,241 /3

Trade and Balance of Payments:  (USD millions)

Total Exports (FOB)                   N/A   2,941.0   2,556.0
  Exports to U.S.                    43.0      39.1      37.5
Total Imports (CIF) /4                N/A   3,216.0   3,193.0
  Imports from U.S.                  91.9      87.3      37.8
Trade Balance                         N/A    -275.0    -636.0
  Trade Balance with U.S.           -48.6     -48.2     -0.26
Aid from U.S.                        38.6      60.0       N/A
External Public Debt /5               N/A       890     1,652
Debt Service Payments (paid)          N/A         2       108


N/A--Not available.

1/ January-September 1994.
2/ National Bank base rate for loans to commercial banks.
3/ Average exchange rate through September 1, taking into
account the August 20 denomination.  Exchange rate on 
December 1 was 9,100 Belarusian rubles:$1.00.
3/ Merchandise only - does not include energy imports.
4/ Does not include over $450 million debt to Russia for energy.



1.  General Policy Framework

    Belarus formally declared independence on July 27, 1991. 
With Russia and Ukraine, Belarus was a founding member of the
Commonwealth of Independent States (CIS) in December 1991.  In
March 1994, the parliament passed Belarus' first post-Soviet
constitution, building the framework for a government with a
strong executive branch.  In July 1994, Alexander Lukashenko
was elected president of Belarus.  Economic policy is directed
by the president's administration through the Cabinet of
Ministers, led by Prime Minister Chigir.

    Belarus has declared its intention to create a
"socially-oriented market economy," but the pace of reform in
Belarus has been slow.  The delay in implementing a
comprehensive program of economic reforms has been blamed on
the government's fear of possible social unrest caused by
decreased living standards and unemployment.  In October, the
parliament approved the president's "plan of urgent measures"
for the Belarusian economy.  Like the plan for 1993 and prior
years, October's plan calls for increased reliance on market
mechanisms, but maintains central control over key market
sectors, including agriculture.  The plan has produced some
encouraging results thus far, including removal of energy
subsidies to state-owned enterprises, and cutting off
electricity and gas supplies to enterprises which have not paid
their share of Belarus' arrears to Russia for energy, which now
total over $450 million.  The Government of Belarus recently
came to agreement with the IMF on a standby arrangement, to be
financed with a second Structural Transformation Facility (STF)
loan and an upper credit tranche.  Prior actions for this
program included significant food price liberalization. 
Unfortunately, the government delayed the price liberalization
and damaged the credibility of its new reform drive.  A
pledging session for the program did not yield sufficient donor
country support and IMF Board consideration of the program was
delayed from the end of December into January 1995 while the
IMF tries to adjust the program and seek additional donor
support to close the balance of payments gap.

    Belarus has a diversified economy, which during the
Soviet-era gave Belarus one of the highest standards of living
in the former Soviet Union.  Belarus can meet most of its own
basic food needs, with the exception of feed grains, sugar and
vegetable oil.  The agricultural sector accounts for an
estimated 26 percent of net material product (NMP) and relies
heavily on livestock, which contributes about 60 percent of the
sector's NMP.  The industrial sector is biased toward heavy
industry, with concentration in machine building, electronics,
chemicals, defense-related production, and construction
materials.  Virtually all enterprises are state-owned.

    The industrial sector continues to experience major supply,
demand, and price shocks as it relies on other CIS countries to
supply about 70 percent of its raw materials and to absorb more
than 40 percent of Belarus' output.  As prices for raw
materials approach world market levels, thus causing demand to
slacken, Belarus' industrial production continues to fall. 
Despite past reform efforts, the military complex is in need of
vast restructuring which will require investment as well as
changes in operations and ownership.

    The economy is energy-intensive due to traditionally low
energy prices.  More than 90 percent of primary energy
consumption is met by imports.  Belarus' arrears for energy
supplies from Russia, its primary supplier, now exceed $450
million.  Belarus also faces a number of environmental problems
related to the Chernobyl accident and its heavy industrial
base.  The Government of Belarus claims that over 20 percent of
its budget goes to Chernobyl-related activities.  Agricultural
activity is still restricted in many areas damaged by Chernobyl.

    Fiscal and Monetary Policies:  The Government of Belarus
allowed itself a budget deficit of no more than six percent of
government expenditures.  The Central Bank is authorized by law
to issue credits up to four percent of gross domestic product. 
The minimum wage was raised three times in the first three
quarters of 1994.  Since all other government wages, pensions
and taxes are pegged to the minimum wage, slight changes have
far-reaching impact.

    The National Bank of Belarus (NBB) is a weak financial
institution hampered by a lack of technical and financial
expertise, as well as by political interference.  However,
National Bank Chairman Bogdankevich, though not immune to
political influence, is considered to be a positive voice for
reform in Belarus.  The main instruments of monetary control in
Belarus are the volume and cost of NBB lending to banks,
reserve requirements, and restrictions on interest rates. 
Establishing monetary control is hindered by the practice of
monetizing the fiscal deficit and the past practice of
cancelling outright the outstanding debts to state
enterprises.  The refinance rate of the NBB serves as an
indirect subsidy to state enterprises, as the rate is lower
than commercial credit or the inflation rate.

    Minimal regulation of the banking industry in this
credit-starved republic has led to a small bank boom. 
Forty-four commercial banks currently exist in Belarus, one
with as many as 20 branch offices.  New regulations have been
introduced that are intended to institute new minimum reserve
requirements and encourage saving.  Although the National Bank
no longer cancels outright loans to state enterprises, it still
monetizes the government deficit, thwarting efforts at monetary
control.

    Belarus joined the International Monetary Fund (IMF), World
Bank and the European Bank for Reconstruction and Development
(EBRD) in 1992.  In late 1994, Belarus reached agreement with
the IMF on a program of market reforms, making the country
eligible for a stabilization loan of $100 million, as well as a
stand-by credit of $180 million.  The agreement calls for a
strict timetable for moving toward a market economy.  The U.S.
government and the EBRD have capitalized investment funds at
nearly $200 million targeted at small and medium-sized
businesses.  Belarus was granted GATT observer status in 1992.


2.  Exchange Rate Policy

    In October of 1992, Belarus created the "Belarusian rubel"
to supplement increasingly scarce cash Soviet rubles in
circulation.  When Russia withdrew Soviet rubles in July 1993,
the "rubel" became the de facto national currency.  After
continued attempts at forming a monetary union with Russia
failed to produce acceptable terms, Belarus gave up on the
effort and declared the rubel the national currency.  All
government obligations must now, by law, be paid in the
national currency.  Belarus has announced that, beginning
January 1, 1995, all retail trade must be conducted in
Belarusian rubels.  Licenses for continued trade in hard
currency are to be strictly controlled.

    In August, after losing over 90 percent of its value
against the Russian ruble in the two years since its
introduction, the Government of Belarus revalued the rubel to
one-tenth of its former value, reducing all denominations of
bank notes, non-cash deposits and prices by one zero.  However,
in the four months following this "currency reform," inflation
remains high and the rubel has again lost over two-thirds of
its value.


3.  Structural Policies

    The government has stated that it is anxious to attract
foreign investment and has introduced a series of reforms to
improve the investment climate.  The Supreme Soviet has passed
legislation regulating bankruptcy, leasing, and enterprises,
but implementation remains problematic.

    The process of privatization continues to move slowly
forward in Belarus.  The Minister of Privatization claims that
of all state-owned enterprises eligible for privatization, ten
percent are now in private hands.  A presidential decree on
privatization is expected to be issued by the end of 1994.


4.  Significant Barriers to U.S. Exports

    The tax code for foreign-owned businesses has not changed
significantly in the last three years.  Despite more than
twenty separate taxes on foreign-owned businesses, the
Government of Belarus has instituted legislation to attract
foreign investment.  Joint ventures with more than
30 percent foreign ownership are entitled to export products
without a license and pay no tax on profits for three years
after the company earns its first profits, if products are
manufactured by joint ventures in Belarus.  If the company
sells foods or services of third parties -- so-called
"middleman activity" -- the tax holiday on profits does not
apply.  Hard currency earnings from the export of a 30 percent
foreign-owned joint venture can be disposed of by the
enterprise after payment of appropriate taxes.

    These taxes include:  a) individual income tax; b)
value-added tax (20 percent); c) excise tax, if the company
produces specified goods, e.g. cigarettes and alcohol; d) real
estate and land taxes; e) tax on the use of natural resources
depending on the volume of natural resources extracted and on
polluting substances emitted or disposed of into the
environment; and f) fuel tax.

    Belarusian law forbids 100 percent ownership by foreigners
of property in Belarus.  To attract some foreign investors,
however, Belarus allows foreigners to obtain property in
Belarus under a 99-year lease.  The government has also
indicated that the president might make special exception to
allow foreigners 100 percent ownership.

    To date, there is no law on currency regulation in Belarus,
although a new law on the use of hard currency is due to go
into force in January 1995.  Belarus is still operating under a
decree issued by the Supreme Soviet at the end of 1992 entitled
"Temporary Rules for Hard Currency Regulation and the
Conducting of Operations with Hard Currency on the Territory of
the Republic of Belarus."  Under this decree, hard currency
earnings from the export of products made by an enterprise with
at least 30 percent foreign investment remain at the disposal
of the enterprise.  All other enterprises must sell 20 percent
of their hard currency earnings to the Government of Belarus
and pay a 10 percent hard currency revenue tax.

    The United States is working on several levels to increase
trade and investment in Belarus.  In the spring of 1993, the
U.S.-Belarus trade agreement, providing reciprocal
most-favored-nation status, went into force.  President Clinton
signed the Bilateral Investment Treaty during his visit to
Belarus in January 1994.  This treaty, when ratified by the
United States (Belarus has already ratified it), will provide a
legal framework to stimulate investment.  A bilateral tax
treaty intended to provide relief to businesses from double
taxation is also being developed.  An Overseas Private
Investment Corporation (OPIC) incentive agreement, which allows
OPIC to offer political risk insurance and other programs to
U.S. investors in Belarus, has also been concluded and is in
force.  The U.S. Export-Import Bank also has active programs in
Belarus.  Once ratified, the U.S.-Belarus bilateral investment
treaty will provide substantial assurances to U.S. investments.


5.  Export Subsidies Policies

    One of the legacies of a centrally-planned economy is
government subsidization of state-owned enterprises.  In
Belarus these subsidies are aimed at maintaining production and
employment rather than being specifically targeted at
supporting exports.


6.  Protection of U.S. Intellectual Property

    After the breakup of the Soviet Union, Belarus acceded to
the World Intellectual Property Organization (WIPO).  Piracy of
printed material, video and sound recordings, while prohibited
by law, continues.  The U.S.-Belarus trade agreement includes
some provisions on the protection of intellectual property.


7.  Worker Rights

    The independent trade union movement is developing very
slowly.  The largest trade union in Belarus, the Federation of
Trade Unions of Belarus, consisting of five million members, is
not considered an independent organization because it still
follows government directives.  However, as Belarus progresses
toward a market economy, unions are becoming more vocal in
demanding social protections formally provided under the Soviet
system.

    a.  The Right of Association

    The new Belarusian constitution, passed in March 1994,
allows the formation of independent trade unions.  However,
workers are often automatically inducted into the 
government-affiliated Federation of Trade Unions.  The
Federation's active role in controlling social programs, such
as pension funds, will impede the growth of truly independent
trade unions.

    b.  The Right to Organize and Bargain Collectively

    The Belarusian constitution provides the right to organize
and bargain collectively, and bars discrimination against trade
union organizers.  In practice, however, there have been
reported cases of dismissals and threats of loss of employment
against independent trade union members.

    c.  Prohibition of Forced or Compulsory Labor

    The Belarusian constitution explicitly prohibits forced or
compulsory labor.  Belarus has ratified one of the
International Labour Organization's forced labor conventions. 
However, penal production of manufactured goods exists.

    d.  Minimum Age for Employment of Children

    Existing law establishes 16 to be the minimum age for
employment.  Exceptions are allowed in cases where a family's
primary wage earner is incapacitated.

    e.  Acceptable Conditions of Work

    The Supreme Soviet, along with the Cabinet of Ministers,
has the responsibility to set a minimum wage which is increased
periodically in response to inflation.  The labor code limits
the work week to 40 hours, with a required 24 hour rest
period.  Many workers, however, find themselves under-employed
and are forced to take unpaid leave due to lack of demand for
factory production.  The law establishes minimum conditions for
work place safety and employee health.  Enforcement of these
standards is lax.

    f.  Rights in Sectors with U.S. Investment

    There is no significant U.S. investment in Belarus.

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