Ben Aris in London -

Crises don't come much worse than the one Belarus has just been through. The currency was devalued three times in the space of a year and lost three-quarters of its value, inflation reached hyper levels, and bank runs drained the country of much of its hard currency reserves. But in the depths of a meltdown running an authoritarian regime has its advantages: bank withdrawals were banned, a dual-exchange rate introduced and fixed prices imposed on basic goods so no one starved - all moves unimaginable in the West.

The consequences were obvious and shop shelves quickly cleared of goods as people were forced back temporarily to the primitive system of barter that was prevalent in the first years after the break-up of the Soviet Union in the early 1990s. This was bitter medicine to swallow, yet while austerity has spawned riots in the capitals of Athens, Paris, London and elsewhere, the oppressed residents of Minsk had no choice except to hold their noses and swallow.

However, a year on and the medicine is starting to work. Over the first quarter of this year economic growth resumed, driven largely by consumption and a recovery in foreign investment. Wages have begun to rise again and the state has clawed back some of the hard currency reserves that fled in the worst of the turmoil. "The country has been through a horrible crisis, but we are on the way to recovery now," claims Anton Kudasov, deputy minister of economy, in an exclusive interview with bne. "We depreciated the currency three times all in all last year and dealt with hyper inflation, but most importantly the currency reserves have already reached two months of import cover and we will go on liberalising and relaxing the currency regime."

The economy is not out of the woods yet and the threat of a second wave of the crisis as Greece exits the Eurozone was already making itself felt by the end of May. That two months of import cover is still less than the three months economists take as a minimum necessary to ensure the stability of a currency. Still, Kudasov says once the economy is a bit steadier, the liberalisation programme can be accelerated. "It is a strategic choice to continue to open the economy. There were several measures taken in the pricing policy to protect the population, because with inflation at 108% last year we have to have price controls on basic foodstuffs. But it was a temporary measure and we will free the prices either second half of this year or start of next year," says Kudasov.

Positive signs

The government's policies to steady the economy have been rewarded with some positive moves from external sources of funding.

On June 8, the council of the Eurasian Economic Community's (EurAsEc) "Anti-Crisis Fund" approved the allocation of a third $440m tranche of a total $3bn loan for Belarus that was approved last year by the community, which is a regional economic grouping of ex-Soviet republics led by Russia. The first $800m tranche was disbursed in June 2011, the second $44m tranche in December.

In May, the International Monetary Fund (IMF) issued a mission statement following its visit to Minsk in which it acknowledged "the authorities' commendable adjustment policies" that have "restored foreign exchange markets, reduced inflation and the current account deficit, and helped increase reserves," but made clear its frustration with the slow pace of change. The IMF warned that the risk of an inflation spike goes up if the government focuses too much on boosting growth by substantially increasing public wages.

Despite the IMF's natural skittishness, so far inflation has been contained: inflation in April was a moderate 1.7%, up slightly from the 1.5% recorded in both February and March, but well down on the 109% 12-month inflation rate hit in the first quarter of 2011. The government is in the tricky position of trying to phase out price controls introduced during the crisis while at the same time boost salaries to fuel consumption-led growth, all without unleashing recovery-killing inflation.

The sunny spot in the economy is that devaluation has worked its magic and exports were surging in the first quarter, up by 49% on year, while the weak Belarusian ruble means that imports have yet to return to pre-crisis levels, rising only 4% in the same period. A healthy balance of payments means the government can start the long task of rebuilding its hard currency reserves and the National Bank of Belarus reported the 11th straight month of rises in April. At the same time, the central bank is slowly cutting its refinancing interest rates from their still high 34%.

Ironically, the biggest challenge Belarus has to face is not of its own making and beyond its control. Fears of a new wave of crisis stemming from the Eurozone caused all the major economic indicators to wilt in April. Economic growth slowed to 2.9% over the first four months and both retail sales and industrial production growth slowed to 6.8% from 11.5% and to 5.1% from 12.3%, respectively. How the republic fares over the rest of the year will depend heavily on what happens next in the Eurozone saga.

Europe is also causing Belarus political problems. It remains the butt of political opprobrium in Brussels, which slapped travel bans on senior officials and imposed limited sanctions after riots and a nasty crackdown in the aftermath of the rigged December 2010 presidential elections.

Kudasov is clearly frustrated and says that changes are happening, but the Belarusians don't like being told what to do - they had enough of that under the Soviets - and will continue to go at their own pace. "It is not like show business where you 'perform' strategy to change," he says. "Sanctions like Europe has imposed are not helpful. If you have 20 countries subject to sanctions, eventually you lose yourself. We will continue the dialogue at the levels we can do to explain how we see the development of the political system. It is not stuck, it is changing."