Industry needs cheap ruble loans
On March 13th, the National Bank lowered the discount rate by 1.5 percentage points to 28.5% pa.
The National Bank gave in to the government’s persistent demands and reduced the discount rate. Lower interest rates will increase the borrowing volumes by businesses and will shift the focus to long-term borrowings. But the sources for the long-term ruble lending to the economy remain unclear.
As of 13th March, 2013, the discount rate in Belarus has been reduced by 1.5%, rates on standing facilities operations to withdraw liquidity has been reduced by 2 percentage points to 17%. The interbank market has about BYR 9 trillion in excess liquidity, which results in lower interest rates on overnight loans in the national currency (to 17.4% pa). Against the background of excess liquidity, banks have started to gradually reduce loans’ interest rates.
The financial situation in the industry is unfavorable. Net profits fell in the most of the country’s industrial enterprises, overdue accounts receivable and accounts payable have increased, in early 2013 warehouse stocks grew by BYR 7.5 trillion. Additional credit resources are needed to maintain current operations, because enterprises’ own funds are limited and insufficient. Short-term loans do not solve the problem because the loans need to be repaid in a short time, when operating cycle can take several months. With sales’ profitability in the industry declining to 9%, the long-term interest rate on bank loans 40% pa and higher is prohibitive. Loans’ rates reduction to 20% pa (or lower) and better availability of long-term loans would reduce the severity of the financial problems at the enterprises.
The banking system’s liquidity is short-lived. Experience from mid-2012 demonstrates that if the interest rates on national currency loans were reduced substantially, companies would be able to “digest” the excess liquidity in -3-4 months. Individuals, if national currency deposit rates decrease, will convert ruble deposits into foreign currency, reducing the ruble liquidity in the banking system. If international counterparties provide loans, they will be in foreign currency. The government then might expand the well-advanced practices of subsidizing interest rates for businesses, and increase equity resources volumes.
While waiting for a significant reduction in interest rates on loans in national currency, businesses reduced their borrowing volumes. Lower interest rates will increase the borrowing volumes by businesses and will shift the focus on long-term borrowings. But the sources for the long-term ruble lending to the economy remain unclear.
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.