Devaluation in Kazakhstan will negatively impact Belarus’ international trade
Kazakhstan’s National Bank has devalued the tenge, Kazakh currency, to pre-empt potential problems in the economy. For Belarus, consequences of this decision will be losses in foreign exchange proceeds and reduced international trade. Belarus will have to devalue its ruble to restore the domestic goods’ competitiveness, which has been lost when Belarusian Customs’ Union partners devalued their national currencies.
On February 11th, Kazakh’s tenge was devalued by 19%.
Kazakhstan’s National Bank decided to raise the upper margin for the tenge exchange rate against the U.S. Dollar from 150-155 tenge per USD 1 to 185 tenge per USD 1. The decision was made to address the Kazakhstan’s emerging problems with current accounts, i.e. growing imports. Coupled with weakening of the Russian ruble, devaluation expectations started growing in Kazakhstan, requiring the National Bank’s intervention. With this decision, Kahzakhstan anticipates to enhance its industry’s competitiveness on the Customs Union market and increase revenues. The decision came as a surprise, provided that Kazakhstan has accumulated significant international reserves – as of February 1st, they exceeded USD 95.6 billion.
In 2013, Belarus’ international trade with Kazakhstan was USD 785.9 million, with Belarus mainly supplying tyres, tractors, harvesting machines, and furniture. As of December 1st, 2013, Kazakh corporate debt to Belarusian enterprises was over USD 200 million. Losses from tenge devaluation are assumed to be negligible, since the bulk of the contracts was in U.S. dollars. Most problems will occur with payment deadlines because of the uncertainty over the stability of the tenge exchange rate. Belarus’ main concern is the loss of Belarusian goods’ competitiveness and reduced exports due to higher prices for imported goods on the Kazakh market. For instance, Belshina plans to offer some discounts to dealers in Kazakhstan to maintain sales. Other Belarusian enterprises exporting to Kazakhstan consider similar measures.
Devaluation in Russia and Kazakhstan on the one hand, and significant international reserves and a more stable economic situation in these countries, on the other, may prompt Belarus to devalue her national currency. Belarusian exporters require weak Belarusian ruble to reduce production costs to revenues ratio. A weak ruble could fix the chronic international trade deficit.
In the past, when the Belarusian government was raising prices on some goods on the domestic market, it argued that it was harmonising prices with its major trading partners. A similar argument could be used regarding devaluation, i.e. linking it with the devaluations in the Customs’ Union partners. The need for devaluation is no longer a question, Belarus only has to choose the way – either to hold a one-time devaluation as in Kazakhstan, or gradual, like in Russia.
For Belarus, maintaining a strong ruble is impractical, given the devaluation in other Customs Union partner states. The optimal solution would be a smooth devaluation, which could solve some problems in the economy and preserve the domestic products’ competitiveness on the foreign markets.
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.