Belarusians prepare for devaluation
The National Bank’s data suggests that the NB’s efforts to reduce the devaluation expectations among the population have failed – people have started converting their rouble savings into hard currency. Devaluation appears inevitable, even if Belarus receives new loans.
In November, the population changed their views on the Belarusian rouble’s stability. In November the outflow of rouble deposits from the banking system was record-high. People converted their roubles into US Dollars and Euros, which led to record-high net purchases of cash and non-cash foreign currency. The population acquired about USD 325 million in total, which led to Belarusian international reserves depleting in November.
With these actions, the population attempted to secure their savings. The population noted the devaluation in Russia and logically assumed that similar events could happen in Belarus in the short term. The population started converting roubles into US Dollars regardless of the National Bank’s significant efforts to reduce the devaluation expectations. In November, the Belarusian rouble was as stable as ever (rouble devalued only by BYR 90), deposit rates went up to 30% per annum, and there was no shortage of foreign currency in the exchange offices. Nevertheless, the population’s fears have not gone away. The difference between the BYR/USD exchange rate in the exchange offices and the National Bank’s exchange rate demonstrates there is a persistent demand for the international currency in Belarus.
The National Bank might escape devaluation only if Belarus receives new large enabling her to meet the increased demand for foreign currency for a specified period. However, that would not resolve the issue of slumped Belarusian exports to Russia (make up to 42% of total exports). If the current exchange rate policy persists, the negative trends in foreign trade might also increase. A number of industrial enterprises might suspend their activities, social tension might grow and international reserves might reduce to a critical level. Unfortunately, devaluation of the Belarusian rouble (within the margins of the RUR devaluation) would not solve all the problems in the Belarusian economy. The Belarusian economy requires structural reforms, especially in private property, but the Belarusian leadership is not susceptible to such measures.
The population realistically assesses its risks in terms of rouble savings depreciation and seeks to minimize potential losses from future devaluation. New borrowings can only delay the moment when the country’s leadership would be forced to devalue the national currency.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.