Belarus's economy has been geared toward industrial production, mostly in machinery and metallurgy with a significant military component, although trade and services account for an increasing share of economic activity. Forestry and agriculture, notably potatoes, grain, peat, and cattle, are also important. Belarus's economy is closely integrated with those of Eastern Europe and the other republics of the former Soviet Union, and the breakup of the Soviet Union was highly disruptive to it. The demand for military products was cut sharply, and supplies of imported energy and raw materials were curtailed.
Despite repeated calls by the IMF for economic reform in Belarus, the Lukashenko government remains committed to maintaining state control over most industries. Lukashenko's administration has also come under severe criticism for its monetary policies. Western analysts accuse the Belarussian government of printing more money to subsidize higher salaries, thereby fueling inflation.
In 1997, Belarus and Russia signed a treaty of union, to provide for close cooperation in foreign affairs and military and economic policies, including freedom of movement for citizens, property ownership, and participation in local elections. Each country will retain its sovereignty, independence, territorial integrity, and other aspects of statehood, however. A constitution for the union was approved in 2003.
The business climate remains poor in Belarus: as of 2000, production had increased, but products were uncompetitive on the world market and many were placed in warehouses for storage. Losses from state-owned businesses are largely written off, which prevents those businesses from going bankrupt and keeps unemployment artificially low. Because Lukashenko controls all governmental power, there are no checks and balances or legal provisions for regulating business matters. However, as of 2003, Belarus had six free economic zones, which have attracted foreign investment, especially from Poland, Russia, and Germany, with the United States as the sixth-largest investor.