As part of the former Soviet Union, Belarus had a relatively well developed industrial base; it retained this industrial base following the breakup of the U.S.S.R. The country also has a broad agricultural base and a high education level. Among the former republics of the Soviet Union, it had one of the highest standards of living. But Belarusians now face the difficult challenge of moving from a state-run economy with high priority on military production and heavy industry to a civilian, free-market system.

After an initial outburst of capitalist reform from 1991-94, including privatization of state enterprises, creation of institutions of private property, and entrepreneurship, Belarus under Lukashenko has greatly slowed its pace of privatization and other market reforms, emphasizing the need for a "socially oriented market economy." About 80% of all industry remains in state hands, and foreign investment has been hindered by a climate hostile to business. The banks, which had been privatized after independence, were renationalized under Lukashenko.

Economic output, which declined for several years, revived somewhat in the late 1990s, but the economy remains dependent on Russian subsidies. Until 2000, subsidies to state enterprises and price controls on industrial and consumer staples constituted a major feature of the Belarusian economy. Inflationary monetary practices, including the printing of money also has been regularly used to finance real sector growth and to cover the payment of salaries and pensions.

Peat, the country's most valuable mineral resource, is used for fuel and fertilizer and in the chemical industry. Belarus also has deposits of clay, sand, chalk, dolomite, phosphorite, and rock and potassium salt. Forests cover about a third of the land, and lumbering is an important occupation. Potatoes, flax, hemp, sugarbeets, rye, oats, and wheat are the chief agricultural products. Dairy and beef cattle, pigs, and chickens are raised. Belarus has only small reserves of petroleum and natural gas and imports most of its oil and gas from Russia. The main branches of industry produce tractors and trucks, earthmovers for use in construction and mining, metal-cutting machine tools, agricultural equipment, motorcycles, chemicals, fertilizer, textiles, and consumer goods. The chief trading partners are Russia, Ukraine, Poland, and Germany.

The massive nuclear accident (April 26, 1986) at the Chernobyl power plant, across the border in Ukraine, had a devastating effect on Belarus; as a result of the radiation release, agriculture in a large part of the country was destroyed, and many villages were abandoned. Resettlement and medical costs were substantial and long-term.

In 2000, Belarus managed to unify its currency exchange rates, tightened its monetary policy, and partially liberalized the foreign currency market. These developments led to the conclusion of a staff-monitored program in cooperation with the IMF, addressing, among other topics price and wage liberalization, a widening of privatization, fiscal reform, the adoption of international accounting standards in the banking sector, and the repeal of several egregious laws and decrees to improve the investment climate. The program was conducted between April and September 2001, with relatively disappointing results.

In 2002 Belarus' economy remained stagnant or in decline with more than 40% of industrial enterprises operating at a loss. Belarus continues to be heavily dependent on Russia, with the potential for greater economic dependency looming in the proposed EU-style union between the two states. Due to the economic and political climate, little new foreign investment occurred in 2002, while two major companies, the Swedish furniture firm Ikea and Russian beer producer Baltika, ended operations in Belarus due to unrealized government commitments or unwelcome interference. The government itself faced increasing fiscal difficulties as arrears rose in wages and pensions, and in tax payments.

The World Bank is currently considering a new country assistance strategy for Belarus, focusing on areas such as targeted social assistance, AIDS/HIV and tuberculosis prevention, environmental protection, Chernobyl-related damage, and small and medium enterprise development. In June 2001, the World Bank approved a loan of $22.6 million to finance repairs in over 450 schools, hospitals, and homes for orphans, the elderly and the disabled throughout Belarus. Finally, an IMF mission in September 2002 was unable to establish a basis even for a monitoring program.

Environmental Issues
Belarus has established ministries of energy, forestry, land reclamation, and water resources and state committees to deal with ecology and safety procedures in the nuclear power industry. The most serious environmental issue in Belarus results from the accident at the 1986 Chernobyl nuclear power plant. About 70% of the nuclear fallout from the plant landed on Belarusian territory, and about 25% of the land is considered uninhabitable. But government restrictions on residence and use of contaminated land are not strictly enforced. As noted, the government receives U.S. assistance in its efforts to deal with the consequences of the radiation.