Loans in Belarusian industry may create additional external and domestic risks
On August 3rd, the National Bank decided to reduce the discount rate from 20% to 18% as of August 17th, 2016. The decision was likely to had been lobbied by industries and aimed at stimulating the real sector. Thanks to this decision, the banking system is likely to reduce the proportion of problem loans. However, just before that the Eurasian Development Bank warned the Belarusian authorities against such measures: "Key interest rates should not reduce amid sustainable increase in the current account deficit, and persisting risks with financing a balance of payments.” Meanwhile, the current account deficit increased in January-May to 10.3% of GDP. Such an inconsistent relaxing of monetary policy may complicate the disbursement of the third tranche of the EFSD loan (USD 300 million). Domestic risks include additional pressure on the currency market, replenished stocks with illiquid commodities and deteriorated financial health of industrial enterprises.
President Lukashenka has met with the head of Chechnya Ramzan Kadyrov, who visited Minsk and the Minsk Automobile Plant. Minsk has always sought to have independent links with Russian regional elites, partially, to compensate for the Kremlin's diminishing interest in Belarus. In recent years, Belarus’ contacts with the Russian regions have been extremely intense. However, with some leaders of Russian regions, primarily heads of large republics, communication was more difficult to build. As many analysts in Minsk suggested, Minsk could regard contacts between President Lukashenka and the head of Chechnya as an additional communication channel for relieving tension in relations with the Kremlin. However, most likely, a trusting relationship with Kadyrov is a value for Minsk as such, provided Kadyrov’s broad business and political interests, and a high degree of autonomy for the Chechen leader from the Kremlin.