Lukashenko`s golden rule :: Charter'97 :: News

President Lukashenko wants the right to control private business, but ministers fear it will scare off investors.

A move to give the state more powers to control private businesses has proved so controversial that even ministers who would normally support have spoken out against it.

At a cabinet meeting on January 16, President Alexander Lukashenko announced plans to expand the use of the "golden share" rule, under which the government can control the way private firms operate. In the past, the measure could be applied to companies in which the state retained even a minimal stake, but the president wants to extend it to wholly privately-owned ventures.

The golden share mechanism was introduced by presidential decree in 1997, with the aim of allowing the state to step in if it feels a private company is about to take action that would be detrimental to national defence or economic interests, or to "the morals... health and constitutional rights" of the public.

It gave the government-appointed representative on a firm`s management team the right to overrule majority shareholders and veto significant decisions, even if the state held just one share.

In principle, the regulation affected all joint-stock companies – generally privatised companies in which the state retains some shares. Since its introduction the golden share has been imposed relatively rarely, in 22 of the 1,500 companies in which the government has a holding.

In the highest-profile case to date, the golden share was invoked to prevent a Russian buyer acquiring a majority stake in a Belarusian sweet factory in 2000.

When the rule first came out, its supporters on the government side argued that it would help the state manage the process of economic transition and avoid the worst aspects of privatisation seen in other former Soviet states.

"At the time, the country`s leaders were seriously frightened by the possibility that state property would be redistributed and purchased by Russian capital finance, often of criminal origin," explained Leonid Zaiko, head of the
Strategia think-tank.

Critics of the system say it impedes business development and scares off foreign investors - a position the International Monetary Fund has agreed with in recent assessments of the country.

Now Lukashenko wants the net to be spread more widely, so that the rule can be applied to any company that was ever state-owned, even if the government now holds no shares at all.

Once again, he plans to push the measure through by decree rather than by an act of parliament.

At the cabinet meeting, he spoke of the state`s responsibility to workers at privatised firms, "So a new owner comes along - a complete stranger – and starts twisting the arms of the very people who created these enterprises by their labour and sweat."

In a rare move, government ministers said no. The economy ministry asked for a two-year moratorium on the proposed change, and senior officials including the deputy prime minister, economy minister and the head of the central bank proposed keeping the rules as they are now, warning that any change would damage attempts to attract foreign investment.

Lukashenko`s response was revealing. "Don`t investors realise that even without the golden share, there is enough legislation to intervene in the affairs of any enterprise?" he asked.

The extent of the rift was such that even the president`s normally tight-lipped press office reported the differences of opinion that were voiced.

The meeting ended without a final decision on the matter, although the press office reported that Lukashenko ordered more work to finalise his proposed decree.

Yelena Rakova, an analyst at the Minsk-based Institute for Privatisation and Management, believes the president ultimately has the strength to railroad his ministers into accepting his orders. And if they remain obstinate, Lukashenko can reshuffle them, she says.

According to Rakova, the problem with the golden share is not that it has been widely used in the past, but that it creates uncertainty about where it will be applied next. "Investors realise that their property rights can be violated at any moment, and this adversely affects the country`s investment profile," she said.

The IMF has long expressed concern at the high level of interventionism practiced by the government. At a January 15 press briefing in Washington, the director of the fund`s external relations department, Thomas Dawson, expressed concern at the "possibility of re-nationalisation" in Belarus.

In private, a source at the economy ministry suggested to IWPR that foreign investors would have more confidence if the golden share rule was restricted to certain companies of strategic national importance, and if it was made clear whether a company fell within this category at the point when it was floated on the stock market.

Alexander Potupa, who heads the Belarusian Union of Entrepreneurs, says that, in most cases so far, the government has stepped in not when national interest is at risk, but when a company has begun to fail, "The state uses the golden share to save loss-making enterprises. But it doesn`t even save them - it just slows down the rate at which they are dying."

Potupa feels that government ministers are being shut out of decision-making on key economic issues.

Yelena Rakova agrees, saying, "The government has a better understanding of the situation, and sees that the state of affairs in the real economy is deplorable and can be fixed only through reforms.

"But the presidential administration is still counting on the socialist method of tightening the screws."