Belarusian government forces large business to support socio-economic model

April 17, 2017 12:24

The state has resumed the quest for additional budgetary resources and stepped up the pressure on large business. Amid high affiliation of the Belarusian business with security forces, businessmen wanting close contacts with the authorities are the most vulnerable. In order to support the existing socio-economic model amid languishing state resources, the authorities are likely to increase the costs for large businesses.

Co-owner of the Fenox Global Group Holding Vitaly Arbuzov has come into view of Belarusian law enforcement on tax evasion suspicions.

Amid lingering recession and languishing budgetary resources, the Belarusian leadership is scaling up practices of milking large private business. The authorities have resumed redistributing proceeds of large businesses engaged in public procurement in favour of the state. The most recent high-profile case concerned criminal allegations against businessman Yury Chizh, who was close to the president. He was released from the KGB jail after paying a damage compensation to the state (the amount was not disclosed). In early 2017, among other managers at state enterprises, the authorities arrested successful businessman Knyrovich, who was known for his publicity, liberal rhetoric and criticism of the government's economic policies.

The state has stepped up the pressure on large business and launched criminal persecution in order to prompt business to donate funds to the budget and to chasten business representatives. According to media reports, Arbuzov was under close surveillance of law enforcers since last year and avoided coming to Belarus, which could imply that he disagreed with the state claims against him.

Apparently, the authorities are attempting to take away part of proceeds from large businessmen, who could transfer their assets abroad. In 2011, Arbuzov registered Fenox Venture Capital company in the Silicon Valley and was engaged in venture capital investments. Analysts note that large business in Belarus is closely affiliated with security forces; however, such ties may weaken if entrepreneurs shift their activity abroad. That said, the Belarusian leadership is attempting to ease tension among entrepreneurs by declaring an intention to relax business environment in Belarus.

Overall, the Belarusian leadership is likely to continue to persecute some large businessmen in order to milk some funds for the state budget.

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Amid budgetary cuts on social protection, the Belarusian public sector is experiencing a management crisis and a balance shift in the state resource redistribution system. The authorities are forced to revise their most unpopular decisions during the implementation due to the pressure from affected social groups. The state is unlikely to oppose to some civil society and opposition organisations in strengthening their role in society in order to retain touch with the population and to be able to respond to the most harsh criticism of state initiatives.

The Architecture and Construction Ministry has acknowledged that the decree No 585 on assistance to large and young families in building and buying housing was prematurely rescinded.

The authorities are often forced to revise their decisions on curtailing social assistance to different social groups during their implementation, without preliminary impact assessment and feedback from the population, so as they lead to the growth in social tension. Due to the centralised decision making, languishing state resources and the lack of public debate as a balancing instrument in issues related to social protection, the state administration is losing control of the population.

Perhaps, the compensatory mechanisms of the state apparatus lack the time to adjust to dwindling state resources for supporting the existing social model, even in a reduced form. The authorities have completely or partially paralysed operations of independent public institutions and representative bodies, through which they could monitor public moods and receive feedback from the population, such as local councils, the parliament, political parties and NGOs. Last year, under the pressure of the authorities, the last independent institute for measuring public sentiment, IISEPS, suspended operations.

President Lukashenka’s self-removal from the decision-making on current socio-economic issues, also could have affected the state apparatus’ operations. The president has always been very sensitive about adopting unpopular decisions which could lower his popular support, hence demanded a careful preliminary assessment of such decisions. However, recently, especially after the introduction of the tax on social dependants, the president has mainly focused on the foreign policy agenda.

Hence, a lacuna has formed in the state decision-making after the president reduced participation in the current socio-economic policy formation, which leads to an increase in manifestations of dysfunction in the public administration.