The government is fighting inflation by increasing prices.
The National Statistics Committee reported 5.4% inflation in Q1 2013.
Devaluation is no longer behind the price increases. In Q1 2013 the main reason for the price growth was goods and services’ price regulation by the Economy Ministry. Quantitative plans for industries, widely practiced in the country, result in continuous price increases.
Consumer prices since March 2011 to March 2013 increased by 2.52 times. During the same period, national currency against currency basket depreciated by 2.75 times. At the same time, due to the spreading retail chains, particularly in the regions, and the increased competition in the food retail market, the prices should have had a downward trend. The number of products and services, which prices have not increased by the level of national currency depreciation, is negligible and declining.
Analysis of the price growth’s pace in Q1 2013 shows that prices grew faster for the goods and services, which are regulated by the Economy Ministry. This group includes tobacco, services of childcare facilities and public utilities. In 2012 public utilities tariffs and kindergarten services fees were not increasing as rapidly as other services’ costs due to their social importance. The government decided to hold back with increasing costs in this sphere, waiting for a favorable period, which may have been early 2013. Prices for alcohol and tobacco were increased due to Belarus’ commitment to harmonize excise duties on alcohol and tobacco with Russia, as well as for fiscal reasons. Alcohol is responsible for about 11% of the total retail turnover. Excise duty on alcohol and tobacco is one of the major sources of budget revenues, and when the economy is weak, it becomes one of the ways to compensate losses in other areas.
Another negative factor is the administrative management in the economy, which stimulates prices’ growth. In a market economy, when international economic situation deteriorates, an enterprise reduces dull goods production. But in a planned economy, the enterprise is forced to increase production for the sake of production plan implementation, illiquid products are sent to warehouses, costs increase, and output prices grow to compensate the increased costs. In addition the enterprise is restricted to carry out layoffs, therefore administrative wage growth results in inflated production costs and consequently in higher product’s final price.
Thus, the government becomes the main driver of the rising prices. If the government continues interfering in economic processes, competitiveness of Belarusian products may reduce not only in the international market, but also domestically.
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.