Economic situation: ignoring economic laws leads to crisis

April 22, 2016 19:04

Economic situation: potential wasted while waiting out crisis 

The main trend in 2014 was that the government attempted to distance itself from the devaluation underway in Russia and Ukraine, Belarus’ main partner-countries, by adopting certain administrative decisions. This ultimately led to inevitable devaluation which will be announced in 2015.

Despite overcoming the crisis in potash fertiliser sales, increasing petroleum products exports under the guise of bituminous mixtures and antioxidants, and enjoying favourable economic conditions for exporting food to the Russian market (due to Russia’s food embargo), Belarus failed to solve the problems caused by the devaluation of the Russian rouble and Ukrainian hryvnia.

Wage growth was restrained – the authorities did not repeat their mistakes of 2010 and did not artificially stimulate an increase in people’s well-being. However, the National Bank’s exchange rate policy that did not allow devaluation of the Belarusian rouble to happen sooner despite the growth rate of the Russian rouble almost doubling, led to a loss of competitiveness on the Russian market and foreign trade deficit.

Yet another negative factor was the falling oil prices, which, given the 30% share of oil products in Belarus’ exports, led to reduced foreign exchange earnings. The problem with servicing international public debt was solved thanks to loans from Russia.

In December 2014, the international reserves dropped below the critical level of USD 6 billion. People’s expectations that devaluation was imminent increased sharply, and led to a sudden rise in demand for foreign currency. As a result, the government adopted several inconsistent measures concerning the currency market, which may serve to aggravate some negative trends in the Belarusian economy.

 

2015: devaluation, negative GDP growth, lay-offs, reduction in imports and investment projects

In 2015, Belarus will have to solve several key problems: setting the market value of the Belarusian rouble, significant international public debt payments, and finding new export markets.

Administrative decisions concerning the national currency exchange rate may create additional risks for BYR landslide devaluation (as in 2011). The 30% devaluation of the national currency is insufficient, and the authorities’ current decisions contradict the laws of economics. Amid 30% devaluation, the introduced moratorium on the rise in prices could lead to a significant reduction in the number of importers and shortages of industrial and consumer goods.

Servicing international public debt would require additional loans from Russia, because Belarus would not have enough proceeds from export duties on oil products to meet all obligations. Russia might provide additional financial aid for Belarus in exchange for her loyalty to the EEU.

In order to preserve the international reserves, the government might introduce restrictions on transactions with foreign currency deposits. 

Due to reduced activity on the Russian market, Belarus would be prompted to adapt her products to become competitive on other markets. However, as that would be difficult to implement in the short-term, industrial enterprises will be more likely to carry out mass lay-offs. One of the main problems will be part-time employment at industrial enterprises, and due to the difficult economic situation, the number of new start-ups will be insignificant. In addition, enterprises’ investment activity will be reduced due to high interest rates in the economy. 

In foreign trade, the value of exports will decline. Despite the declared free movement of goods on the EEU market, member-states will introduce protection mechanisms for their markets. Imports of consumer goods will decline due to economic reasons (devaluation) and administrative actions by the public authorities. New start-ups with production aimed at the EEU market will become significantly less attractive, leading to some companies which have considered having production in Belarusian industrial parks needing to revise their previous investment plans. 

The retail market will be hit by stagnation. Falling incomes, a significant increase in purchases of goods outside Belarus due to the Russian rouble devaluation, and mass demand for durable goods in the country following restrictions on foreign currency sales will reduce commercial enterprises’ revenues. Retail chains will be unable to develop or have to substantially readjust their strategies. 

Thus, in 2015, the Belarusian economy will stop growing. In the best-case scenario, the GDP will reduce by 1%-2%. Terms and conditions for curbing inflation will depend on the amount of aid from Russia. If Russia fails to provide enough funds, devaluation will continue to spiral. Complete revision, or substantial readjustment of Belarus’ current economic policy, which has proven to be ineffective in the past six years, is not feasible.

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The Belarusian authorities have launched a discussion on the moratorium or abolition of the death penalty under the pressure of Belarusian human rights activists and international community. Apparently, the authorities are interested in monitoring public sentiments and response to the possible abolition of the capital punishment. The introduction of a moratorium on the death penalty would depend on the dynamics in Belarusian-European relations, efforts of the civil society organisations and Western capitals.

In Grodno last week, the possibility of abolishing the death penalty in Belarus or introducing a moratorium was discussed.

The Belarusian authorities are likely to continue to support the death penalty in Belarus. During his rule, President Lukashenka pardoned only one person, and courts sentenced to death more than 400 people since the early 1990s. Over the past year, Belarusian courts sentenced to death several persons and one person was executed.

There are no recent independent polls about people’s attitude about the death penalty in Belarus. Apparently, this issue is not a priority for the population. In many ways, public opinion about the abolition of the death penalty would depend on the tone of the state-owned media reports.

That said, the Belarusian Orthodox Church and the Roman-Catholic Church stand for the abolition of the capital punishment, however their efforts in this regard only limit to public statements about their stance. Simultaneously, the authorities could have influenced public opinion about the death penalty through a focused media campaign in the state media. As they did, for example, with the nuclear power plant construction in Astravets. Initially unpopular project of the NPP construction was broadly promoted in the state media, and eventually, according to independent pollsters, was accepted by most population.