Social and economic policy: preservation of the "Belarusian model" in abridged form

April 22, 2016 19:39

Main trends in the economy in 2015:

  • Increased demand for systemic transformations in the Belarusian society amid economic recession and reduced state social protection for the population
  • The government divided into supporters of market reforms and antireform conservatives in the absence of political will at the highest level to carry out reforms
  • The president sought to preserve the existing socio-economic model, albeit somewhat curtailed, with external borrowing until favourable external conditions for economic growth restored (primarily, stabilisation on the Russian market)
  • The authorities raised additional budgetary funds from "non-priority" population groups and most profitable economic sectors

Anti-crisis measures undertaken by the new government and the National Bank helped to preserve stability on the financial market. However, the actions of the economic and financial authorities led to the freezing and later falling incomes.

The government abandoned conventional for the election year plans "to buy the loyalty" of the electorate with disproportionate pay rises. Meanwhile, deteriorating working conditions and rising unemployment had not led to an increase in protest activity among employees. People demonstrated their discontent only with some individual and collective complaints to the authorities.

Before the presidential campaign kicked off, the president offered a new social contract to the population, envisaging reduced welfare and social security standards in exchange for preservation of "peace and stability" by the state.

Authorities attempted to relieve tension in society by buying the loyalty of individual "protest" social groups, ad hoc repressions, cosmetic alterations within the framework of the existing model, and seizing the initiative from the opponents. In addition, workers’ demands on wages had reduced.

Two waves of the devaluation of the Belarusian rouble – by 40% in early 2015 and by 15% during the election campaign – led neither to higher tension among the Belarusian society, nor to stronger protest activity.

Amid presidential elections, the Belarusian government used micro management to preserve balance between social protection and economic stability. This allowed easing social tension and keeping the economy from a collapse. The government maintained acceptable level of welfare for the population by curbing inflation and price-hikes before the presidential election.

As the state had fewer opportunities to ensure full package of social services, it was prompted to enable citizens and the private sector to take on some social spheres, mainly which it could not fund from the state budget.

In 2015, amid economic downturn in Russia, the Belarusian economy demonstrated high dependence on oil prices and low diversification of exports.

Petroleum and petroleum products made about a third of all Belarus’ foreign trade. Lower oil prices led to a decrease in revenues from export duties, which reduced financial capacity of the state to support the economy. Diversification of Belarus’ foreign trade did not happen, more than 40% of produces was exported to Russia, which amid falling oil prices, reduced demand for investment goods from Belarus. As a result, current decline in industrial production was the largest in the last 15 years, leading to the devaluation of the national currency. Socio-economic effects included falling dollar wages by 35% in a year, mass-layoffs, and bankruptcy of some core enterprises. The government dipped into the state budget in order to provide financial assistance to large industrial enterprises and prevent them from stopping due to poor financial health. Modernization had not improved enterprises’ sustainability. Non-payment crisis mounted in the economy leading to some enterprises suspending their activities. Non-payment for energy may lead to problems with payment for natural gas supplied to Belarus.

Loans from Russia helped the Belarusian government to make due payments on foreign debts in 2015. However, Russia could not increase the financial support to Belarus due to limitations created by the sanctions and the deficit of the Russian budget. The talks with the IMF regarding a new loan programme were postponed until 2016 due to disagreements between the parties about the format and timing for economic reforms.

The economic result of the year was that the government recognised problems in the economy, the lack of domestic growth potential and acknowledged the need for reform.