April 11 – April 17, 2011

Financial crisis develops into economic

The situation has not changed
Financial crisis develops into economic

In the course of the last week the National Bank continued buying US Dollars from the exporting companies and at the same time left the banks and other economic players, including the population, to search for currency sources on their own.

The position of the National Bank remained unchanged with regard to the devaluation of the Belarusian ruble, while de facto moratorium “on changes of monetary policy” did not last longer than 10 days.

Starting from the end of the last week, the National Bank proposed to the Government to cancel largest exporters benefits linked to the obligatory sale of the export proceeds in foreign currency. In the meanwhile, the President and his newspaper (“Sovetskaya Belorussia”) also entered into the controversy regarding the potential devaluation, however, opinions of Lukashenko and his mouthpiece divided in this regard. The President still firmly stands on his previous position, i.e. “No” to devaluation, and that the gold reserves are sacred, while “Sovetskaya Belorussia” (“SB”) in the person of its Chief Editor, Pavel Yakubovich called for the devaluation in the editorial issue on Friday and on National TV.


There are several reasons behind the persistence of the National Bank. 1. It needs to accumulate substantial currency flows without having any serious effect on gold and currency reserves in order to solve problems related to the operational expenditure in critical areas, i.e. loan interests and current energy supply. 2. The National Bank assesses the devaluation risks of 2011 being much higher as compared with 2009. 3. The attitude of the President, who is fearful about it after devaluation of 2009, which he considered flawed.

While the highest echelons of power continue their disputes about the need of devaluation, people and businesses continue stocking up on the foreign currency, gold and diamonds. Following the “SB” publication of the Belarusian ruble exchange rates in the neighboring countries, the currency exchange offices in the country were literally assaulted.

In the meanwhile, the financial crisis has affected related areas. The supply of consumer imports has been virtually paralyzed and with the overall perturbations of the population in the background, by the end of the week it resulted in shortage of some goods: sugar, vegetable oil, imported vegetables and fruit, initially in small wholesale networks, and later in retail sale.

Representatives of “Belenergo” say they expect problems with industrial enterprises paying the price for energy consumption. Many businesses are forced to suspend the purchase of raw materials, which will lead to the failure to comply with the output growth rate and in the long-term to the decline in exports.

Representatives of the tourist industry also declared their industry in critical state.

Some voiced recommendations to introduce a ban on early withdrawal of foreign currency deposits for the population (indeed, it increased concerns of the population about the safety of their foreign currency deposits).

The State Property Committee’s declaration of its readiness to sell 51% holding of stock in MTS, and 50% of Beltrasngaz, as well as rumors about the possible sale of the shares in Beltelekom do not add any grounds for optimism to the economic players, given the obvious all-out effort nature of it all.

Certain level of control deficiency within the administrative system is observed: the disagreements between the National Bank, the government and various departments within the government, as well as the Minsk City Administration initiative regarding audit of foreign currency accounts of enterprises and organizations are indicative.

Nevertheless, despite of the existing serious problems the financial institutions face and regardless of the impact they have on the economy of the country, we believe the expectations of systemic crisis are premature. Both the government and the National Bank still have the potential to keep the situation under control to a large extent. It includes Russian loans, immediate privatization of large companies and administrative measures. It is obvious that with the lack of political will to hold reforms, attempts to revert feeling of wellbeing and economic growth cannot be successful. However, the system is still quite capable of keeping slow decay and de-civilization within certain limits. One should not expect the acknowledgment of crisis by the authorities, on the contrary, now and in the future any difficulties will be pronounced as temporary and any problems as imported from the outside. Whether the National Bank decides to devalue the ruble in a single step, there is no doubt the Russian Federation as the creditor will be blamed for it, for “setting this precondition”.

At the same time the population of Belarus is not inclined to disobey the authorities, or the more so, to stage open protests, although the latest survey by IISEPS indicates that the number of those who believe the country is developing “in the wrong direction” is approaching half (45.3%). The same sociological polls reflect zero growth in willingness to stage protests. So far the only valid observation is that the population readily replicates the consumer practices of the 1990s.

To draw a conclusion, one should not expect a spontaneous “social explosion” even in the case of substantial deterioration of the living conditions, i.e. when large industries stop functioning and significant part of the enterprise workers are forced to go on unpaid leave, or when public-sector employees face systematic delays in salary payments. “Social explosion” is only possible when political forces take responsibility for its organization, however to the date there are no such political forces. Alternatively, one part of the population will reduce its needs and the other part will leave to look for employment in the neighbouring countries.

However, again, it is yet premature to make these long-term predictions.

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Once a week, in coordination with a group of prominent Belarusian analysts, we provide analytical commentaries on the most topical and relevant issues, including the behind-the-scenes processes occurring in Belarus. These commentaries are available in Belarusian, Russian, and English.

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