Financial Liberalization in Belarus and Estonia
Kathy M. Estes

Abstract
Following the 1991 dissolution of the USSR, the newly independent republics implemented a wide range of financial regulations and monetary policies. The McKinnon/Shaw model of government financial participation predicts financial liberalization spurs economic growth and financial deepening. Although rapid liberalization can create problems, the literature generally accepts that a prudent, and possibly gradual, move toward financial liberalization improves economic viability. Estonia implemented liberal financial policies, while Belarus’s government has consistently intervened through interest rate controls, mandated financing of government debt, directed credit allocation, and exchange rate manipulation. Although economic growth has been healthy in both countries during the last two decades, the overall level of price stability, investment, and future potential is higher in Estonia. Belarus’s economy may benefit from changing its financially repressive policies.

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