Population exchanges excess cash into foreign currency
Belarus’ residing legal entities can no longer compensate for the population’s growing needs in foreign currency. Increased demand from the population is the result of the real wages’ growth and therefore of the excess national currency in their hands, which, fearing devaluation people exchange into foreign currency.
On November 9th, data on transactions in the Belarusian foreign exchange market in January-October 2012 were made public.
In September 2012, the average salary in Belarus reached USD 486. In January 2012, the average monthly wage was USD 343. Wage growth in dollar terms was 41.8%.
In October, resident legal entities were again the net currency sellers. Net foreign currency sales amounted to USD 62.5 million, which was not enough to cover the population’s and non-resident legal persons’ growing needs in foreign currency.
Legal persons are incapable of increasing the foreign currency inflow. Suspension of solvent’s scam resulted in the significant turnover reduction from foreign trade and, above all, in reduced trade balance, which fed population’s growing demand for foreign currency up until July 2012.
Industrial production dynamics shows some limits for goods production in the economy. Without modernization, industrial production growth will be possible only if prices increase. The increasing competition in international markets makes it impossible to continue using the prices growth factor to secure wages growth.
The redirection of Belarusian rubles to the deposit market due to high interest rates is not a panacea. Deposits, taking into account the capitalization of interest, will return to the foreign exchange market in greater volumes, when interest rates decrease and will create greater currency demand.
Thus, the existing Belarusian economic model shows some limits of its capabilities. Wages have to be increased - otherwise the outflow of qualified personnel also increases. Pay rises cannot go above certain limits, as it leads to problems in the foreign exchange market and increases devaluation risks. At the same time, such a solution to the problem as investment potential development raises concerns among the country’s leadership because of the potential loss of control. It is a vicious circle with no way out at the moment.