The last three and a half months have been full of events highly meaningful for the local legal environment and, consequently, for all businesses in Belarus. Events such as adoption of Presidential Directive # 4 on further promotion of business on the last day of 2010 and subsequent development of a 133-measure plan for implementation of the Directive, almost complete liberalisation of prices, approval of a new privatisation plan, along with new people in the government with very impressive market rhetoric may leave the impression of tectonic changes in the famous Belarusian economic model. On the other hand, state seizure of control over large private woodworking holding Pinskdrev following an industrial accident, recent foreign currency purchase restrictions imposed by the National Bank, and introduction of additional state approvals for privatisation transactions look like purely administrative measures so familiar for much of the past two decades.
The winter cold is leaving us slowly this year, and just as slowly is retreating the old and outdated regulatory system for business. But the winds of change are there, and sometimes it is difficult to believe how quickly legal limitations on business which have existed for years become history. 2011 may become a turning point in development of the national economy and legal framework, and it is exciting to watch these changes happen.
First of all, we would like to draw your attention to the following summary of facts and figures which in our opinion are essential to understanding what the next 3 – 5 years may bring to the national economy and investment environment:
- Presidential election on 19 December 2010: Lukashenka to remain president till 2015.
- Election heavily criticized by the West, travel restrictions introduced for over 100 government officials, including the president. Economic sanctions imposed by the US; the EU is considering the same.
- Talks with Russia on construction of the Ostrovets nuclear power plant, new loans, large scale investment projects resumed after unprecedented cooling of relations in 2010.
- In 2010, GDP increased by 7.6%.
- Traditional export markets recovering.
- In 2010, imports exceeded exports by USD 9.6 billion (a negative trade balance increase of 32.7% year-on-year).
- Inflation pressure increased significantly.
- Gold and currency reserves decreasing steadily from October 2010 (down from USD 6 billion to USD 4.3 billion in February 2011).
- Official unemployment rate in 2010 at 0.7%.
- Foreign national debt on 1 January 2011 at USD 9.687 billion (17% of GDP), increasing.
- Late March 2011: Moody’s Investors Service decreased country rating from B1 to B2, forecast “negative”.
Directive # 4: Government Vision of Business Liberalisation
On 31 December 2010 President Lukashenka released Directive # 4 on Development of Entrepreneurs’ Initiative and Business Stimulation in the Republic of Belarus. The Directive presents a strategy of rapid business deregulation by the following nine major action points:
1. Foster competition. Action includes deregulation of prices, elimination of administrative barriers to interregional trade within the country (a highly visible problem today), introduction of online registration of business entities. As one of the first implementation steps, Presidential Edict # 72 on Certain Issues of Prices (Tariffs) Regulation was adopted on 25 March 2011, limiting price regulation to a range of socially important goods and services, such as education, medical, notary services, utilities, certain foodstuffs.
2. Protect and develop the institution of private property. Cases when the law allows confiscation of property are to be limited to grave financial offences by businesses. Transfer of land into private ownership to be simplified, additional land fee exemptions to be granted to investors in development and construction projects.
3. Decrease bureaucracy. The Government reports on a campaign to unify administrative procedures across the whole system of government bodies, to be completed in 2011. By Resolution # 360 of 24 March 2011, the Council of Ministers reduced the number of primary accounting documents from approximately 1,600 to just eight. This means a significant workload reduction for accounting and administrative departments of commercial companies, and also decreased risk of errors in or loss of these documents, which used to be quite severely penalised in the past. Other measures in this area include further introduction of electronic document circulation, recognition of conformity certificates issued in Russia and Kazakhstan (members of the Customs Union) and other countries on the basis of international agreements.
4. Harmonise taxation system with the EU. Main measures include application of a simplified taxation system (single tax for small and medium size companies) to a wider range of businesses, further decrease of the general tax burden, implementation of IFRS.
5. State control of business to become preventive rather than repressive. The number of business inspections should decrease; administrative and criminal penalties for business-related offences to be eased.
6. Incentivise small business by improving availability of financing and development of infrastructure.
7. More freedom in employment relations, mainly in formation of salaries, where rates have so far been heavily regulated.
8. Develop legal framework for public-private partnership.
9. Increase clarity and stability of legislation.
Directive # 4 is said to cause revision of about 200 legal acts, but most of the steps described in the implementation plan are to be completed even in 2011. The prime minister, the head of the National Bank and local governors are appointed as key “drivers” of the reforms. The business community is welcome to participate in elaborating measures for implementing the Directive. All this could arouse enthusiasm about doing business here. However, some events are apparently not in line with the liberal policy and are indeed alarming signs. These include appointment of Bellesbumprom state concern as external manager for private woodworking holding Pinskdrev, an obvious lack of political will to foster privatisation, and especially recent currency restrictions introduced by the National Bank. We believe the real effects of the Directive and the essence of the new economic policy in Belarus will take the next few months to assess.
New Currency Restrictions: Importers Fighting for Survival
Since February 2011, the National Bank of Belarus has been trying hard to counter the deficit of foreign currency by the following measures:
25 February 2011: purchase of foreign equipment worth over EUR 50,000 enabled by importing company’s own resources (revenues, contributions to authorized capital, loans (at least one year maturity), interest in foreign currency) or with special permission of the National Bank.
14 March 2011: buying foreign currency at currency exchange possible only on 30-day advance order.
21 March 2011: National Bank discontinues providing commercial banks with foreign currency for sale at exchange booths; main savings currencies Euro, US Dollar, Russian Ruble become a deficit.
22 March 2011: buying foreign currency at currency exchange again possible on one-day advance order, but orders executed only with available sold currency and with priority to “critical imported goods” (imported drugs, natural gas, repayment of loans in foreign currency, plus some others).
These currency restrictions visibly impaired primarily import-based businesses. For example, most automobile dealers stopped sales of new cars, importers of home appliances have been selling stock but have difficulty buying new consignments. Importers also complain they have to buy foreign currency on the interbank exchange market at a rate 20 % higher than the official rate, resulting in consumer price increases. Expectations of devaluation of the national Belarusian ruble are increasing. The National Bank says it is not planning any further strong measures and may cancel some restrictions if the situation in the currency market stabilises.
Procedure in Commercial Courts: Easier Debt Recovery, Reduced Workload for Judges
Important changes have been introduced to the Commercial Procedural Code of Belarus. Starting from 31 January 2011 pre-trial mediation of disputes became mandatory. Prior to filing a statement of claim with the commercial court the claimant must address the debtor with a pre-trial claim (unless agreement between the parties expressly sets that no pre-trial claims are necessary) which must be qualified by the court as a document conferring a right to proceed with litigation. Amendments to the Commercial Procedural Code set certain demands as to the content of such a claim and deadlines for the party at fault to consider it.
The changes also relate to the rules of imperative (fast-track) proceedings. The procedure may now be launched if the debt is confirmed by any kind of document (e.g. letter from the debtor) rather than by an act on settlements signed by both parties, as required previously.
State fees for litigation and substitution of court-attached mediation with conciliation procedure have been increased.
The Supreme Commercial Court of the Republic of Belarus states that in the nearest future it plans to support development of electronic litigation.