Belarus attempts to replenish its international reserves at China’s expense
On July 19th, National Bank’s Chairman Ermakova talked about ongoing negotiations with China concerning an untied loan to replenish the gold reserves.
As a result of Lukashenko’s Chinese visit, USD 1.5 billion worth agreements were signed. The Chinese visit’s main purpose was to find further funding to support Belarusian socio-economic model. Belarus offered China a duty-free access to the Russian market at a relatively small cost. China continues evaluating what Belarus has to offer.
Official reports say that as a result of the Chinese visit, a number of economic cooperation agreements were signed, altogether worth circa USD 1.5 billion. On the one hand, Belarusian exports to China are insignificant – mainly potash fertilizers. In January - May 2013 Belarusian exports to China earned USD 279.1 million (of which potash exports were USD 184.1 million). On the other hand, Belarus’ imports from China were USD 1.13 billion during the same period, and trade deficit with China is only worse than Russo-Belarusian. The newly signed contracts will only strengthen the negative trends in Belarus’ foreign trade, but country’s leadership is not particularly worried about it.
The planned potential of the Sino-Belarusian industrial park (USD 50 billion) is already higher than the current exports and for a number of reasons cannot be considered as a potential export growth source. Russia will not allow for all variety of goods to be supplied at its market, irrelevant of the created common economic space. Belarus’ statements about the signed agreements deemed to disguise the main purpose of the visit, i.e. searching for financial resources to replenish the gold reserves. China is the largest international reserves holder – over USD 3.3 trillion – and is searching for profitable investments. Belarus needs financial fueling for its economic model, which is back to negative current account payment balance after a short ‘break’ in 2012.
From Belarus’ view, mutual interest is obvious. At a relatively small costs China can get a base for expansion into the Russian market and other Belarus’ neighbouring markets. As an additional bonus, China receives contracts to expand Chinese exports to Belarus and enhances its long-term impact on the country. Belarusian exports to China should be regarded as development of potential competition for Belarusian goods in the Russian market. China has a successful market expansion tactics: it makes test purchases of marketable products, makes their copies and offers analogues at prices, lower than their market values. Belarus needs financial resources, and China has it. Using Chinese funds, Belarus will attempt to modernize its economy, hoping for further growth in exports, which might lead up to a positive trade balance. So far, Belarus’ progress in this regard is questionable.
Belarus continues searching for additional financing to support its ineffective economic model. In the long term, Belarus will strengthen its financial dependence on the external contractors and will have to agree to projects that are not the most efficient.
According to Belstat, in August 7,600 people were dismissed, including 4,800 civil servants. Dismissals of civil servants were due to the optimisation in the public administration by up to 30%. Some civil servants would retain their job however would lose the status of a civil servant. Vacancies on the labour market are likely to reduce in number, thanks to the optimisation, the state administration would increase wages for public servants. The payroll fund for retained employees is likely to increase and some former state employees are likely to get jobs in affiliated organizations. The optimisation of the state apparatus should complete by January 1st, 2018, and some former civil servants are likely to join the ranks of the unemployed.