Government to decide: devaluation or financial paralysis
On November 22nd, Prime Minister Myasnikovich said that the state housing construction programme was short of BYR 1.8 billion.
A slowdown in lending has affected Belarus’ economy. If restrictions on lending are not lifted in the medium term, economic settlements will be paralyzed. Today the only cheap money source available is printing, but that might result in rapid devaluation.
In October, the economy felt the effects of the credit crunch policy. A positive effect from this decision was the decline in net demand for foreign currency by legal entities in October 2013 - to USD 29.4 million – the lowest in the last three months. However, there were significantly more negative effects. Some companies have used loans to finance current operations and after the credit crunch will be unable to pay wages, which may lead to greater social tensions. Cement plants have reduced production due to the unavailability of bank loans. The construction industry may derail 2013 housing construction plans due to restrictions on concessional lending.
If credit crunch policy is prolonged, payments in the economy will be crippled. Loans were used by counterparties to make payments throughout the cycle. Using loans, customers were paying construction contractors, wages were paid, building materials were bought, electricity, etc. Lack of financial resources leads to arrears and economic slowdown. Ultimately the resources will stop returning to the banking system and entire economy will become paralyzed. Even the slightest panic by depositors may result in some banks having problems with meeting their customer obligations.
Partially, the credit crunch problem is recognized in the government. The latter has elaborated some regulations, envisaging resuming concessional lending in some spheres, such as housing construction. When there is lack of budgetary proceeds, the National Bank has an option to switch on the printing press or the Government might take a decision to privatize state property. Besides sale of MTS shares (Belarus requested USD 800 million), no other major transactions have been projected. Therefore, the only source for concessional lending is money-print. However, it will rapidly increase pressure on the currency, which coupled with the lack of external lending, will accelerate devaluation.
Thus, the government has to choose between attempts to maintain the stability of ruble by slowing down the economy or to lift the credit ban, which will accelerate the onset of devaluation. Since the government has failed to fulfil most 2013 economic development indicators, it has nothing to lose and could be held responsible for the future devaluation.
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.