GDP growth behind the economic imbalances
On March 13th, 2013 Statistics Ministry reported about 4.4% GDP growth in January-February 2013.
Against the background of the industrial production slowdown in Belarus, the government continues insisting on the planned GDP growth. GDP growth is secured by changed calculation methodology and the usual means’ application. Artificial heating of the economy results in increased economic imbalances and a possible repetition of the 2011 economic crisis.
Industry generates over one-third of the Belarus’ economy added value. In the first two months in 2013 industrial production decreased by 0.4% compared with in the same period in 2012. Industry cannot help the government to achieve the planned GDP growth rate at 8.5% in 2013. Therefore GDP will be growing due to investment in fixed assets and equipment and due to warehouse stocks growth.
In January 2013, the warehouse stocks increased by BYR 5 trillion, enabling GDP growth: the unsold output was taken into account when calculating GDP by production. In 2012, the methodology for calculating net taxes on products was clarified, allowing for the calculation of industrial subsidies and excluding them from the subsidies on products, thereby increasing the GDP. In February 2013 investment in fixed assets increased significantly – both, due to increased procurement of equipment, construction and installation works, and due to the changes in the calculation methodology. Wholesale trade has gone up due to the resumed sales of potash fertilizers – regardless of the reduced contract price – only supplies’ volumes are calculated.
February socio-economic indicators show an economic slowdown. Freight traffic and retail sales have reduced, agriculture is facing certain problems. Against this background, the industrial modernization looks more like a race: who spends the allocated funds in the shortest possible time. Investment import increases, deteriorating Belarus’ payments balance. The reduced cost of loans will increase the demand for the cheap national currency and will heat the inflation.
Thus, the government chose to repeat its mistakes of 2009-2010. Instead of a balanced growth, GDP growth rates will be achieved by any means, leading to the inevitable result. GDP growth based on domestic demand requires significant investment. But the investment conditions in Belarus are not the most attractive. Therefore, in order to avoid the repetition of the 2011 crisis, the government should change the strategy.
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.