19 status of an oblast). These local revenue shares have been changed several times in an attempt to benefit low-income regions.

76. The most thoughtful approaches to these intergovernmental transfers involve formula financing for transfers from central to local governments, where the criteria for the transfer is determined in advance by legislation. Formula financing of transfers to local government makes possible greater stability, certainty and openness in these payments. Because this formula financing is systematic and open, it avoids implications that some kind of political slush fund is involved and reduces the interminable bargaining that was (and continues to be) a feature of interregional distribution in the former Soviet Union and many of its successor states.

77. Equalization schemes in many countries compensate for differences in local revenue-raising capacity, and sometimes also for local cost differences in supplying services.<sup>47</sup> Such equalization payments are unconditional with respect to uses of the funds.

78. "Conditional" grants are also used if higher levels of government wish to ensure that local governments supply specific services (an example might be to encourage the teaching of the Belarusian language in schools) or to ensure that specific levels of service are provided (usually minimum levels of service). Such grants give general guidance to local governments providing the service with respect to the objectives of the donor government but do not lead to the latter micro-managing the service.<sup>48</sup> 79. The Government of Belarus should consider adoption of such formula financing. Since officials in the Ministries of Economy and Finance are interested both in formula approaches to equalization and in conditional grants from the republican to subnational governments, the World Bank might well consider arranging courses for officials in Belarus on such approaches to intergovernmental financing.

# _Continued Partial Financing_ **_or_** _Bridge Financing of Services_ **_by_** _Enterprises_

80. Some incentives already exist for enterprises to share the burden in transferring assets to local governments. Thus local executive councils have the right not to accept housing or kindergartens enterprises wish to divest, if the latter are not in "satisfactory" condition. While it is presumed that local governments would be obliged to accept most of these assets if an enterprise failed, some kindergartens are known to have been closed by enterprises rather than tumed over to local governments.

81. Perhaps more use might be made of continued enterprise contributions to aid divestiture. An example might be drawn from the case of educational institutions where human capital is being created which is to some extent specific to the enterprise. One large enterprise interviewed in Minsk, for instance, had just divested a trade school to the local authorities but will continue to hire many of the graduates. The local authorities would seem to have a good case for asking for some continued support from the enterprise for such schooling.

# Conclusion

82. In Belarus as in other former command economies, divestiture of "social assets" is seen as a necessary process in the transformation of enterprises so that they can function appropriately in a market

> 47 Equalization schemes based on fiscal capacity usually calculate the per capita revenue-raising capacity of all taxes in different regions and redistribute revenues to achieve some target of relative per capita fiscal capacity in all regions. Such programs may consist of _direct_ redistribution between regions, as in Germany, Switzerland and Denmark or _indirect_ redistribution as in Canada, where equalization schemes for provincial revenues are a constitutional responsibility of the federal government.

> 48 Conditional grants have also been recommended for use in Russia. For a more detailed description of this type of transfer, see Annex 4, "Conditional Grants: International Experience" in World Bank Country Study, _Fiscal Management in the Russian Federation,_ 1996. pp. 141-145.