01/08/2004: 
Criminally Absurd
Belarus Outlaws Inflation: Gravity, Aging Next
and people think we had it bad at the end of the boom.
from the Mises Econoblog:
R 061308Z JAN 04
FM AMEMBASSY MINSK
TO SECSTATE WASHDC 6833
INFO MOSCOW POLITICAL COLLECTIVE
HQ USEUCOM VAIHINGEN GE
UNCLAS MINSK 002054
E.O. 12958: N/A
TAGS: ECON, PGOV, BO
SUBJECT: Belarus Bans Inflation; Gravity and Aging Next
On December 16 the Ministry of Economy announced that inflation for the year was unacceptably high. It had reached 22.9 percent by November (26.9 percent for the previous twelve months), and was in danger of surpassing the GOB's 2003 target of 24 percent. Inflation for December was predicted to be two to three percent, for a total of 25 to 27 percent for the year. Inflation for 2003 was higher than in any other CIS country, but still lower than in previous years. Belarus' inflation was 34.8 percent in 2002 and 46.1 percent in 2001.
Some government economists attribute this high inflation to the GOB's arbitrary raising of salaries in September. [Note: President Alexander Lukashenko has decreed that the average salary should double, to $250 per month, by 2005. Because the government continues to stifle the free market and actively discourages foreign investment, all salary increases have been made by government decree.]
On December 17 the Ministry of Economy (MOE) issued four decrees aimed at reducing inflation. As of December 20, the MOE ordered that all retail prices in the country be limited to no more than 20 percent above the production cost of any product. For example, if it cost one dollar for a farmer to make a liter of milk, regardless of expenses incurred in transport or otherwise, the consumer will pay no more than USD 1.20. The Ministry stated that it is up to the producer, middlemen, and retailer how to divide the maximum 20 percent mark-up. Most imported products were also subject to this 20 percent limit, but a few, such as alcohol, margarine and mayonnaise, chicken and eggs were exempted.
This mark-up limit also applied to all goods already on the shelf, which were subsequently marked down. The decrees stipulated that each good be labeled with both the old and new price, so consumers would know how much money the government saved them. There has been no large-scale estimate of how this will affect the economy, but the owner of one grocery chain told emboffs that the decrees would reduce prices by an average of eight percent in his stores. The decrees had the added benefit of lowering vodka and domestic beer prices for the winter holiday season.
Comment: Such decrees are emblematic of the Lukashenko regime's attempts to control the economy for political reasons, with little regard for economic realities. While the decrees may help limit inflation in the short term, they are yet another barrier to a free market and another reason for private businesses not to enter the Belarusian market.
