Government: Perfect storm ahead

Polina Makarova

Summary

In 2019, the government made efforts towards systemic development of regions and public sector management, although its high-profile initiatives in many respects contradict those attempts. The Council of Ministers made several decisions to ensure that the national rulemaking is rational and argumentative, and to facilitate consultation with experts and stakeholders when preparing legal acts. However, a number of important government decisions that could produce significant results for building the economy and society were based on ideological and opportunistic considerations.

Trends:
State as a proprietor, state as a regulator

We assumed in the last year’s forecast that government policy will remain fragmented and inconsistent in key areas (the economy, employment and regional development), being largely based on tight control and penalties. This turns to be true on the whole, despite certain hopes associated with the coming of young professional managers to the government. Still, reformative efforts of Prime Minister Sergei Rumas and some members of his Cabinet deserve attention.

The beginning of the year was marked by a number of government’s initiatives. It would be an exaggeration to say that they showed an intention to reform the public administration system. Attempts were made to systematize at least some of its aspects. The work on a bill on the public sector was announced in January.1 It was planned to finally separate the functions of the state as a regulator and proprietor: enterprises will be managed by state corporations under the supervision of the State Property Committee, and ministries will engage in formulating sectoral policies.

This separation was an innovation back in 2016, when this provision was added to the Program of Socio-Economic Development of the Republic of Belarus for 2016–2020.2 However, there was no breakthrough in 2018 since “state administration bodies failed to consolidate their positions”, as newly appointed Prime Minister Sergei Rumas said.3 He spoke about the plan to reduce the number of public officers in supervisory boards of state-controlled enterprises and replace them with professional managers.

Sergei Rumas, who chaired the Supervisory Board of the Minsk Tractor Plant (MTZ), said in April that the Board would not interfere in the company’s business, but only set targets and monitor their achievement. According to the prime minister, supervisory boards could reduce the unnecessary work stress on Minister of Industry Pavel Utyupin so that he can stop dealing with local company strategies and “look into larger matters, on which the future of the entire industry depends.”4

In other words, the government tried to extract maximum opportunities out of the public sector management reform, since privatization of loss-making and hopeless enterprises seems to be removed from the political agenda, although international analysts underscore the need for conceptual reform of the public sector with privatization and inevitable bankruptcies.5

Belarusian independent experts say that changed approaches to the public sector management and building directors’ awareness of modern methods of administration can produce results with certain conditions in place, but their effectiveness is not limitless. The experts believe that advanced corporate governance methods introduced by the government at distressed enterprises, which cannot sell their products even after costly upgrades of their capacities, will not help solve long-standing problems of the public sector.

If this separation of functions takes place one day, this would be the end of the Soviet era in the Belarusian state administration system, when the Communist Party and later the Presidential Administration played the role of a policymaker, and the Cabinet was tasked to supervise enterprises.

However, as of late 2019, the bill on the public sector was yet to go through lengthy approvals at the level of the Council of Ministers, although the Economy Ministry hopes to submit the bill to the parliament in 2020, as a concept for starters.

First analyze, then adopt

In late January 2019, the Council of Ministers approved instructions for forecasting effects of new regulatory legal acts6, which introduces a quite innovative idea that effects of laws and regulations should be analyzed before they take effect, and that forecasts can be made not only in quiet ministerial offices, but also through public discussions and proposals filed by individuals.

The establishment of the Belarusian Institute for Strategic Research, a state think tank, was announced in February. It is meant to provide more professional expert support for the lawmaking activities of the state. The Institute is engaged in strategic analysis of everything that is related to foreign and domestic policies of Belarus and working out recommendations to government agencies. The BISR took over from the Information and Analytical Center at the Presidential Administration, which was severely criticized in 2017 by the president for half-baked research.7 The new think tank is expected to render services not only to the president, but also to the Council of Ministers, the Security Council and other institutions.

Despite these useful government initiatives, it seems that a number of last year’s major decisions were made without analyzing possible impacts, merely basing on political and market considerations. For example, in coordination with the Security Council, the Ministry of Defense submitted and the parliament passed the bill ‘On Amendments to the Laws on the Effective Functioning of the National Armed Forces’, popularly known as the “law on deferments.”8 This took just three months after the bill was announced in March. According to the new law, young people liable for military service can only be granted a draft deferment once. This means that all who want to continue education in graduate schools must serve in the army for at least a year and a half.

Educational professionals reasonably warned that this would trigger a massive outflow of graduates who seek scientific careers to foreign universities. Much was said about the damage that the law would cause to the future of Belarusian science and knowledge-intensive sectors of the economy. However, these arguments were dismissed by the ideologically motivated president and the government. In response, they only proposed punitive measures, such as a travel ban for draftees, who have already been granted one deferment, and a ban from public offices and some professions for those who did not serve in the army as prescribed by the law.

Regional development: political contradictions

In February, the Sergei Rumas Government took the first step towards a systematization of regional policies, in particular the assignment of districts to the category of lagging behind in terms of socio-economic development. Supposedly, this aimed at coping with the task that the government set itself in 2018: to bridge life quality gaps between the regions. The standard of living will be defined as an aggregate indicator calculated according to a special method. If it is below 72%, the region is considered lagging behind.9

First Deputy Prime Minister Alexander Turchin said at a meeting of the Economy Ministry Board that the low economic activity in such regions is a threat to national economic development and this issue may be resolved by pegging incomes of regional officials to local business activity growth. However, as was said at the meeting, local executives were afraid to assist in establishing and expanding new enterprises, fearing allegations of corruption.

Local officials believe that businesses can only be assisted by expediting approvals (even, sometimes, in defiance of the law) and persuading state bodies (for example, the Ministry of Emergencies) not to put obstacles in investors’ way.

As the deputy prime minister said, adequate bonuses to public officers for promoting local business activity would solve this problem.

As usual, the government’s plan to apply a systemic approach to regional development was out of sync with spontaneous decisions made by the head of state. The president began his ‘spring tour’ to the regions with Baranovichi, where he promised a large-scale audit like that in Orsha.10 A. Lukashenko warned of the possibility of a repetition of the situation in Orsha, when a personnel reshuffle in the government took place as a result of (or at least shortly after) the audit, and the prime minister, four deputy prime ministers and several ministers were replaced. When in Baranovichi, the president mainly spoke about an audit of state-owned industrial enterprises, rather than private business development. On the contrary, he emphasized the need to bar “all kinds of intermediacy.”

Several members of the Rumas Cabinet lost their offices after the spring tour of the president. During his visit to Kupalovskoye Agricultural Holding (Mogilev Region), Lukashenko was outraged by mismanagement and the dairy herd treatment. Government veterans, Deputy Prime Minister Mikhail Rusy, who had been in charge of agriculture since 2012, and Minister of Agriculture and Food Leonid Zayats, had to resign.

Throughout the year, the tasks that the head of state set to the regional authorities contradicted the government’s attempts to systematize regional policy based on private business engagement. For instance, when visiting the Vitebsk Region in June, Lukashenko said that favorable conditions for small and medium businesses had already been created, and local officials should be concerned about development of strategic industries, such as woodworking, oil refining and agriculture, although many independent and state experts had more than once questioned the efficiency of made or planned investment in their upgrade.11

More than a half of 118 districts of the country reported the sufficiency of own funds below 50%. The Mogilev Region is troubled the most: 18 out of its 21 districts were defined as “low-income.” Three districts are subsidized from the central budget by 75%12 despite the special tax preferences granted to them by a presidential decree in 2015 and nearly a million rubles provided for their economic and social development.

The peculiar difference in approaches to regional policies surfaced again. The Council of Ministers set the targets for accelerated socio-economic development of some administrative-territorial units, which included wage rises, higher employment rates and local budget revenues, under the responsibility of heads of the district executive committees. The president ordered to ramp up production capacities “as it was done in the Soviet times: new plants with new housing”, and promised “pressure so firm that some eyes are going to pop out.”13

Better forecast is not the same as good

Closer to the end of the year, the president traditionally threatened the entire government with dismissal for “insufficiently ambitious” economic growth forecast for 2020 and for the inevitable failure to achieve the targets set for 2019.14 The prime minister promised to join efforts with all state bodies for a more optimistic outlook.

However, in the last quarter of 2019, the government plunged headlong into talks with Russia, primarily on oil supply terms in 2020, so all domestic conflicts and disputes fell by the wayside. One relatively insignificant appointment in the government took place in late November: Deputy Prime Minister Alexander Turchin, who actively advocated regional development with reliance on private business, was sent to put his ideas into practice as Minsk Region governor. He was replaced by Dmitry Krutoy, former economy minister.

Conclusion

In 2018, many hopes were pinned on the new government, where the state-planned economy is liked by few. However, personal traits are not much of help, as the years-long attempts of the Belarusian Council of Ministers to carry out at least some economic reforms show. Young educated ministers who speak a common language with international financial institutions are, of course, more likely to be heard in negotiations, but when it comes to implementing the decisions made their market advocacy loses to political aspirations of the country’s leadership, and social policy (education, health or employment) is subdued to ideology.

A number of experts assess the first year of the ‘new old’ government as falling short of expectations.15 The year 2020 will see whether the Sergei Rumas Cabinet will act within the established limits as before, slowly introducing nearly invisible, yet potentially significant innovations in the Belarusian state administration, or will muster all strength to withstand the ideal storm in the Belarusian economy16 predicted by experts.