A delegation from the International Monetary Fund which visited the country warned this week that it would not resume lending, cut off since 1995, unless Minsk embarked on economic reforms.
One of Europe's poorest countries, the 10 million-strong population in Belarus has suffered a persistent slide in living standards.
"We are set for a prolonged agony, because the president is not going to embark on the road of economic liberalization. It is in the political interests of this regime to keep control of the economy, and thereby most of the population," independent economist Leonid Zlotnikov said.
Whereas nearly all other former Soviet republics have eliminated state planning and conducted varying degrees of privatizations, Belarus has kept industrial enterprises, and the farming sector, firmly in government hands.
A survey in January by the Institute of Social, Economic and Political Studies showed that 44 percent of the population felt poorer in 2002.
However, government officials point to statistics that show a rosy picture. The Belarus economy grew in 2002 by 4.7 percent, industrial output was up by 4.3 percent, and per capita revenue increased by 8.1 percent.
"Have people in our country started to live better? I say they have," Prime Minister Gennady Novitsky said recently.
But nearly four in 10 industrial enterprises are loss-making, unable to sell most of their output, and more than 60 percent of state-owned collective farms cannot make a profit. Both sectors can stay afloat only by racking up huge debts.
For the general population average income in real terms, allowing for inflation, fell by 0.4 percent last year, and the spending power of pensioners fell by 3.2 percent.
For the moment, even with relatively low average salaries of 107 euros per month, the Belarus population has been shielded from privation, but this month the cash-strapped government decided to stop keeping prices of staples such as bread and milk artificially low.
Fearful of a protest against price increases, Lukashenko strongly criticized his government for failing to rein in inflation - forecast this year to hit between 18 percent and 24 percent - and for unjustified rises in prices charged by public utilities and transport operators.
"No more price hikes! I think this will be our main task until 2005," Belarus television quoted Lukashenko as saying.
Economists complain that the government, anxious not to alienate its core supporters, pensioners and state employees, is bleeding the private sector dry with sweeping tax rises so that it can continue to finance social subsidies.
Last October, about 200,000 traders, mainly individual entrepreneurs who sell goods in market kiosks, launched a protest action across Belarus in protest at high taxes and stringent regulations which were suffocating business.
The IMF mission expressed concern at the business tax rises and advised that the Belarus government halt subsidies and peg the Belarus ruble to the Russian ruble as well as embark on structural reforms, including privatizations.
"Before we can offer the (Belarus) government standby credits, it has to come up with a positive macroeconomic policy over a fairly long period," said Thomas Richardson, who headed the IMF mission to Minsk.
Belarus' only hope for the future may be greater economic integration with Russia, which grants subsidies including gas supplies at privileged prices, and barter deals, as a means of exerting influence.
Minsk is due to adopt the Russian ruble as the national currency on Jan. 1, 2005, under long-stalled plans for an economic and political union between the two Slav countries.
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