Foreign exchange market situation is unstable
On February 8th, the National Bank published January 2013 currency market data.
Foreign exchange market situation in Belarus is unfavourable for the National Bank. All economic sectors returned to a net demand for foreign currency. New potash supply contracts will mitigate the foreign exchange market situation, but the success of the first half of 2012 will not be repeated.
Since June 2012 the population became a net buyer of foreign exchange. The reason being is wages growth: nominal wages have increased by 65% compared with December 2011 and the official inflation rate 21.78%. In December 2012 in the wake of the increased devaluation expectations, population’s net demand for cash currency rose to USD 181.2 million
On January 1st, 2013 currency exchange rates have not changed significantly, thereby reducing the population’s demand for foreign currency. Partially, the reduced foreign currency demand can be explained by the increased utilities costs and increased prices for some goods (tobacco, alcohol), resulting in higher spending in local currency. In addition, high rates in the deposit market attract additional financial resources of the population, reducing pressure on the currency market. In 2012 the banking system was able to attract additional BYR 5.8 trillion in the form of term deposits.
Non-resident legal persons are traditionally foreign currency net buyers. Only in February 2012 they were net sellers of currencies due to the possibility of gaining rapid profit by selling foreign exchange and opening short-term BYR deposits in Belarusian banks at favourable rates. Compared with January 2012, the situation in January 2013 is very different: there are no fast profits from solvents sales and foreign debt payments are high. Given the circumstances, non-residents prefer not to risk with their currency resources.
Resident legal persons have reduced foreign currency supply. January is traditionally the weakest in foreign trade. Until January 9th, Russia is on holidays. Russia accounts for over 35% of Belarusian exports. The reduced number of working days reduces the turnover and currency proceeds. Potash shipments (one of the main Belarusian exports) started only after the contracts with China and India were signed on January 15th and February 6th respectively. Oil supplies to Belarus remain the same, but refiners find the domestic market more profitable than export sales which results in reduced foreign currency proceeds.
Thus, the foreign exchange market situation in Belarus is unfavourable for the National Bank. Foreign exchange net purchase by enterprises and legal persons was USD 327.4 million and only the fourth tranche from the EurAsEC Anti-Crisis Fund helped to keep gold reserves above USD 8 billion. There are no grounds to expect an improvement in the foreign exchange market. Potash fertilizers’ sales will only improve the situation in terms of reducing the foreign exchange net purchases, but will be unable to compensate for the reduced revenues from petroleum products (solvents, lubricants) and biodiesel.
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.