Devaluation is inevitable
Last week’s initiatives of the authorities show that they have exhausted their resources vis-a-vis maintaining the threshold of stability. In the near future one should anticipate increased USD exchange rate, another round of inflation with inevitable consequences for production sites and markets.
Abolishment of privileges with regard to the mandatory sale of foreign currency earnings, the permission issued to five banks allowing them not to sell foreign currency to the population (with the exception of so-called "social needs") and the Azeri loan intended to maintain the status quo at the currency market for another month or so. However, foreign trade performance results, as well as information about Azerbaijan loan, cancellation of benefits, and the appointment of the new Head of the National Bank have already affected the USD exchange rate at the „gray market”. Market players assess the latest initiatives as additional barriers with regard to acquisition of currency, and the loan of Azerbaijan as a sign of the currency lack, they anticipate the growth of exchange rate and thereby trigger it. On 25 July, the „gray market” exchange rate increased by about 4%, reaching over the weekend the average of Br 6,300 per USD.
In the meanwhile the government plans to increase pensions, index salaries, fund state programmes, all of which will require broader emission. Moreover, the appointment of Ermakova as the Chairman of the National Bank spurs inflation expectations. There is not enough of resources available to prevent price increases and shortages of goods.
Foreign trade performance results show that exporters have already exhausted the devaluation shed, and that re-imports grow faster than exports. Moreover, comparative analysis of the data provided by the Customs Control Committee and by the Ministry of Statistics shows that there was no excess of exports over imports in May (as reported by the government).
There are no official channels left for obtaining loans, (except in case of political change), large privatization deals are put on ‘hold’. The most likely source of foreign currency remains the second tranche of the EurAsEC (autumn) and sale of Beltransgaz to Gazprom (probably by the New Year).
Therefore, it is reasonable to expect official devaluaiton in September to about Br 6,200 per USD with the „gray” rate closer to Br 7,500.
All actions of the authorities envisage salvation of the current economic policy and preservation of the political conrol. To be fair, their tactics works: protests grow slowly and constantly fluctuate under the influence of expectations (for instance, hopes to increase pensions and indexation of salaries, which inevitably will be devalued by rising food prices and prices for housing utilities services), and fear. Therefore the most popular ‘getaway’ from the current situation among the population is the „escape” option: into illegal business activity or to working abroad.
At the same time such policy also bears risks. First of all, it concerns the reduced functionality of the state and as a consequence reduced resource base and restrictions of the beneficiaries of the regime. Moreover, the narrowing scope of beneficiaries of the regime implies a split in the ruling elite.
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.