Confused Government

August 2 meeting of the Council of Ministers reviewed the outcomes of the socio-economic development in the first half of the year.

Following a brief introduction on the positive results and progress achieved in the first half of the year, the majority of top officials had a long and open discussion about the problems, new negative trends, threats and challenges. In other words, the Government criticized the Government. First Deputy Prime Minister Sergei Rumas was the most critical of the situation. He pointed out that the second half of the year will see the consumption decrease due to declining of real incomes. In case producers are unable to shift focus to foreign markets, they will suffer from growing stocks or decreasing production volumes. The issue of the size of external debt and its repayments in the coming years is yet another problem that threatens national security. Against the backdrop of growing GDP, the losses of enterprises grow too, today once the most profitable enterprises in the country are the leaders in losses: “Beltransgaz”, Belarusian Steel Works, “Belarusian Telecommunications Network” (“BeST”), Mozyr refinery. All together these enterprises account for 43% of the total losses incurred in the real sector in the past five months.

Economy Minister Nikolai Snopkov has not restricted himself to stating the major problem, i.e. the country’s down-spiraling into hyperinflation of “prices – wages”; he also tried to name the guilty one, i.e. the National Bank, which prints uncovered money intensively. In his view, to slow down the growth of prices it is necessary to restrict the growth of wages and bring them in line with the production growth.

Prime Minister Mikhail Myasnikovich criticized yet another building block of the Belarusian economic model, the concessional lending to inefficient farmers. He also touched upon the problem of debt repayment, as well as mechanisms of reorganization and bankruptcy which do not work. The PM said, in the first half of 2011, one in three borrowers had not repaid their debt to the budget.

Comment

Inability to reduce the negative trade balance and its financing through FDI, the inefficiency of the public sector, the problems in the foreign exchange market and the inability to solve them using administrative tools, as well as increased arrears – all these issues have long been anticipated by independent experts. However, de facto senior government officials diagnosed the inefficiency of the economic model in their open talks on these issues, which implies there is an acute crisis of governance and a conflict between the power and economic forces inside the government. In the meanwhile, the Government’s economic policy is mainly criticized by First Deputy PM Rumas, while the Prime Minister Myasnikovich remains behind the scenes. Mr. Rumas is an experienced banker. He stands in favour of market methods of economic regulation and it is very likely his views have not allowed him to become the Head of the National Bank of Belarus (though his nomination would have been the most appropriate).

It is obvious that the real state of the economy and of the major companies is so bad that media is allowed to talk about the problems and the need of painful reforms aimed at further compression of the demand. The remedy recipe has long been known (its interim results are recession, increasing poverty, etc.), however there is no political will in the Presidential Administration for its implementation.

It is unlikely that in the following two weeks any action will be undertaken.

In the second half of August an enlarged meeting of the Government, National Security and the President on important economic issues has been scheduled, which will need to take important policy decisions. It is unclear what they will be.