Graham Stack in Kyiv -

January should have marked an important step forward for the embryonic Belarus stock exchange: the end of a moratorium on the population selling shares obtained during the voucher privatisation of the 1990s. But with Belarus heading further into economic and political crisis, the moratorium is back.

The moratorium was imposed in 1998 and effectively froze the whole privatization process, creating the Belarus model of a state-owned post-Soviet economy. Lifting the moratorium, it was hoped, would mark the resumption of the privatisation process, and attract international investors. "Unfortunately, things haven't developed quite as we expected them to," says Sergei Tinnikov, deputy head of the Belarus Currency and Securities Exchange.

The original government plan was for the moratorium to be phased out in three phases. The first, for companies in which the state owns 75% or more, started in 2009; the second, for companies with a state stake of 50% or more last year, and the final stage - scheduled to start in 2011 - for companies where the state has a stake of 25% or less.

The third phase was understandably the most interesting, since it offered the potential for companies to effectively leave the control of the state - something which is almost taboo in a country where the state has relied on its control of the economy to secure political control. Whilst none of these companies could be counted as 'family silver', with the country's economy fairly buoyant and a large share of its light industry smaller-scale, a look potentially interesting for investors.

However, the administration has apparently become alarmed at trading patterns in which it detects 'corporate raiding', but which in reality likely constitute nothing more sinister than simply accumulating a share packet by buying up free float. With companies crying wolf, the government retrospectively froze share trading in a number of companies - in particular from the dairy sector - in March, suddenly claiming that they are strategically important for the country.

"This has created huge uncertainty on the part of investors," says Oleg Gud of BG Capital, "since it is unclear not only what will happen in the future, but also what is going to happen with the trades that have been concluded but are affected retrospectively by the new ban."

"From the point of the view of the exchange, nothing untoward happened in the share trading to justify a renewal of the moratorium," says Tinnikov. "Evidently however, some people had a different perception." Now the market is frozen, waiting for a new presidential decree to resolve the impasse. According to Tinnikov, the new edict will include a list of companies - including up to 100 in the processing sector - that will be temporarily exempted from the moratorium.

The decree is likely to assign first dibs for share acquisition in such companies to regional executive committees - still called Ispolkoms as in Soviet times. However there is no money in the budget to buy shares from workforce members, even at their nominal price.

Two steps forward, one step back

The delayed repeal of the moratorium was not entirely unexpected. Ever since the plan to lift it has started rolling, the government has been pulling the brake any time things seemed to be getting out of control - its control. "It's been two steps forward and one step back," laments Gud.

A list of 162 strategic companies - including oil refining giant Belneftekhim and potash giant Belaruskali - which have mostly not yet been transformed into joint stock companies, were excluded from the repeal right from the start. Next companies involved in the second phase were given first dibs to buy their own shares. However, less than fifty companies actually used this right, which expired at the end of 2010.

The story illustrates the opposing forces at work in Minsk since it launched a liberalisation strategy in 2007 in an attempt to come to terms with new energy prices from Russia. Lukashenko has consistently shown himself unable to contemplate any real concession of power - including allowing any major private ownership in the economy - and thus the strategy has been crippled from the outset, despite the huge amount of government time and effort spent.

The much-maligned Directive No. 4 serves as one of the best examples of the quagmire this dilemma is producing perhaps. Issued by Lukashenko on the eve of the end of the moratorium's third phase on December 31 2010, the document laid down general principles to support the flourishing of private enterprise. Among those was a demand "to secure unambiguous legal regulation and stability of business legislation." Only weeks later came what market participants call the 'legal nonsense' of a retrospective trading freeze.

However, with Belarus experiencing ongoing devaluation, and with a IMF reform programme not too far ahead in the future, cheap stock should be bountiful whenever the inevitable finally happens and the stock market springs to life.