Emission provokes inflation and devaluation
The monetary base in Belarus in January-July 2011 has increased by 35.4%. The volume of cash in circulation in January-July has increased by 57.1% to 7059.3 billion rubles.
The growth of cash in circulation resulted in growth of the “black market” exchange rate of US Dollar from Br 6300 in the beginning of August to Br 7700-8000 by 20 August. Non-cash US Dollar exchange rate increased up to Br 9000-9500 per USD.
Financial state of banks is deteriorating. The negative balance of net foreign assets of Belarusian banks on 1 August 2011 amounted to USD 5256.9 million, as compared with USD 5130.5 million on 1 July 2011 and USD 4247.6 million in the beginning of the year. In January-July gross foreign assets have increased by USD 48.7 million (3.3%) to USD 1534.5 million with liabilities growing by USD 1058.1 million (18.5%) up to USD 6791.4 million. Non-residential loans account for USD 5852.1 million of all liabilities, increasing from the beginning of the year by USD 841.1 million (16.8%). Debt on ruble and foreign currency loans is growing too. The National Bank of Belarus recommended (ordered) to the banks to ensure that their regulatory capital is increased by 15-21% by the end of 2011 and to maintain the share of distressed assets of banks in the assets subject to credit risk at the level of 8% maximum.
Continuation of the current emission policy results in the devaluation and inflation risks for the economy and affects balance sheets of the banks and businesses. However the government is yet unable to stop the emissive lending to industries and agriculture.
In the current situation it is important to exclude the National Bank’s interventions to keep the ruble liquidity of state banks and therefore to reduce the amount of financial support to the economy. Only after that one could try to achieve a single exchange rate of the Belarusian ruble. In addition, the unfolding economic crisis threatens the stability of the banking system. The banks are trying to solve the liquidity crisis via borrowing money from non-residential (parent) banks, however such policy has its natural restrictions.
Last week, Belarusian Foreign Minister Makei participated in the foreign ministers’ meeting of the Eastern Partnership and Visegrad Group initiative hosted by Warsaw. The Belarusian FM emphasized Belarus' interest in cooperation in the transport sector, which could be due to Belarus’ desire to export electricity surplus after Belarus finished construction of the nuclear power plant in Ostrovets. Minsk expressed concerns about Warsaw’s stance on the Belarusian NPP, as it refused to buy electricity from Belarus and supported Vilnius’ protest on this issue. Following accusations by the Belarusian leadership and the state media against western states, including Poland, of training "nationalist militants", Minsk did not agree on the visit of the European Parliament deputies from Lithuania and Germany to Belarus and to the NPP construction site near Ostrovets in particular. In addition, the Belarusian authorities have stepped up efforts to enforce education in Russian in Polish-language schools in Grodno and Vaukavysk. Should a rift in Belarusian-Polish relations persist, the Belarusian authorities are likely to step up the pressure on the Polish-speaking minority in Belarus.