Belarusian government aims to achieve economic growth without monetary financing
The economic authorities have decided against monetary financing to stimulate economic growth. Inflation in the economy has slowed down, albeit the economic performance was declining in the past two years due to the absence of incentives. The authorities are unlikely to start pumping the economy to stimulate growth due to the short-term potential economic impact and the loss of chance to resume credit programmes with international donors.
At a recent meeting, the Belarusian authorities decided against monetary financing of the economy. They will preserve the current credit and monetary policy, while retaining the task to increase wages to USD 500 per month. Joint actions of the National Bank and the government to curb the growth in credit to the economy led to a slowdown in inflation and some improvement in the economy in 2017. According to preliminary reports, in January 2017, the index of industrial production totalled 105.9% compared with January 2016, annual inflation slowed to 9.5%, the average interest rate on the credit market in January 2017 was 19.6%, and decreased by 15 per cent points in the last year.
In 2015 - 2016, the Belarusian economy was stagnating, mainly due to the tight monetary policy of the National Bank and the government. In order to overcome the devaluation, the growth in money supply in 2016 was limited to 19% with inflation at 10.6%, soft loans to industry were reduced, terms of loans were tightened and soft loans for housing construction to citizens were minimised. As a result, on the one hand, the national currency stabilized and strengthened against the US Dollar by 5.5% over the year. However, on the other hand, due to curbed loans in the economy, non-payments have grown in number, so as bankruptcies of state enterprises and almost 100000 people were laid off in different economic sectors.
In the given circumstances, the government was tempted to resume monetary funding of the economy to stimulate economic growth and achieve the task of the average wage at USD 500. In the short-term, that would lead to economic growth and wages would have grown up to USD 500 for some two months, however, later, the Belarusian rouble would have devaluated, financial health of successful businesses would have deteriorated, and wages would have dropped to USD 300 - USD 350 per months. These short-term economic effects and potential termination of talks on a new loan programme with the IMF and other international lenders, as well as negative effects on the economy have outweighed the need for a short-term conservation of the current economic model. Therefore, the authorities will continue implementing the tight monetary policy, albeit with minimal economic growth. That said, economic growth would depend not only on the actions of the authorities, but also on numerous factors beyond their control.
The stagnation in the economy for the past two consecutive years has created the preconditions for the resumption of the previously used monetary financing practice to stimulate the economy. However, the Belarusian government will preserve a tight monetary policy, albeit may stimulate some economic sectors.
Yet the Belarusian authorities have not taken any action to prevent massive protests against the decree on ‘social parasites’. On February 26th, 2017, multiple protests against the decree were held in three Belarusian regions in Vitebsk, Baranovichi, Brest and Bobruisk (more than 4 000 people participated in total). Very likely, the authorities, on the one hand, anticipate that the decree will be abolished, and other hand, do not want to take responsibility for decisions either on the decree or on the protests.
It should be noted, that the mass street protests on February 17th, 19th, and 26th, were held in the absence of the president in the country. There are reasons to believe that the authorities did not expect such a massive action. The state propaganda responded tangentially, insisting that protests were unjustified, because ‘the state did not require a lot’, despite the fact, that the protesters primarily complained about the lack of jobs in the country. In addition, the protesters pointed to the unfairness of the requirement to pay the tax for being unemployed as the state could not provide job and money making opportunities, while people were humiliated by the need to prove to the state they were unable to pay the tax.
In the past ten days, there were several protests against the decree, which were characterised by the following: the protesters easily picked up anti-Lukashenka slogans; they eagerly shared their outrage with journalists; many protesters said it was their first time when they took to the streets; protesters were ‘common people’, i.e. not political activists; there were fewer white-red-white flags during these protests than during conventional oppositional actions; politicians, who organised protests (eg on February 26th, by the centre-right coalition and the independent trade union) did not attempt to take the lead, especially in the regions. All this gives a picture of truly popular protests.
While refraining from interfering with the meetings and protest marches, the militia on February 26th attempted to put pressure on the protest organisers in the regions by handing out reports on administrative violations after the events. Other than that, it appears that the local and central authorities are unable to respond to the massive protests against the Decree No 3, including crowded street speeches, numerous signatories of petitions (over 80 000), multiple collective and personal appeals to the authorities, and mass meetings.
That said, the authorities are unable to enforce the Decree No 3 as they do not have sufficient resources to trial some 400 000 people for non-compliance. In addition, the authorities do not have sufficient institutional capacity to exempt all those not liable for the tax from the mailing lists of the Tax authorities. The Belarusian Bar Association will provide free legal consultations on March 1st, 2017 for those wishing be exempt from the tax imposed by the Decree No 3, however, this would only slightly east the tension in society.
In addition, despite concerns expressed by some experts and the leader of the protest in Minsk on February 17th Mikola Statkevich, there were only scarce reports in the Russian media about the protests in Belarus.