National Bank’s gradual devaluation strategy challenged
On September 26th, 2013, an auction for government foreign currency bonds was declared invalid.
Paying off and servicing public debt in October might be a challenge for the National Bank. In addition, the National Bank needs resources to stop the population from withdrawing Belarusian rubles from bank deposits, which happens due to the weakening of the national currency. The only solution is to raise bank deposit interest rates. Since the National Bank will not have any additional currency revenues, it will have to sacrifice some gold reserves.
In October, public debt repayments will be the highest. Belarus needs circa USD 430-440 million to pay back to the IMF and other creditors. The situation is particularly challenging as the Mozyr Refinery is closed for major overhaul which may last until late October. As a result, petroleum products sales in foreign markets will fall. In addition, Belaruskali has had to (de facto) stop the export of fertilizers. These factors combined will result in the slowdown on the Belarusian Currency and Stock Exchange, and the National Bank will have to make more efforts to smooth out peaks in demand for foreign currency, which will continue growing in all economic sectors. Moreover, September 2013 data on gold reserves level will surely demonstrate a decline.
The situation on the deposit market raises the most concerns. In September, the weakening of the national currency against a basket of currencies will be about 2.5 %. Devaluation expectations of the population increased dramatically in September. Citizens leave their savings in banks if interest rates are circa 45%-50% per annum and deposits are made for 1-2 months. It is possible that soon the interest rates will start playing against the inflow of deposits, since clients will start questioning banks’ reliability, as they offer high interest rates against the background of an overall drastic state of the economy. Alternatively, if interest rates drop, the population’s demand for foreign currency will only increase. On September 1st, the volume of ruble deposits was about BYR 3.75 billion and in July their volume dropped by 9%.
The National Bank had planned to use external and internal borrowings to partially replenish the dwindling international reserves. Domestic borrowing failed partially – the National Bank managed to sell only USD 22.51 million worth of state foreign currency bonds in the country. The situation with external borrowing is challenging too – negotiations about the last EurAsEC ACF tranche might be procrastinated, leaving no hopes for its allocation in October.
The National Bank has ‘impossible’ tasks: to fulfill its domestic and international commitments and to maintain the gold reserves’ current level without restricting access to foreign currency (because that would result in inevitable panic and a one-time devaluation of the national currency). The gradual devaluation strategy is probably a certain way out of the situation, but it requires more foreign currency than the National Bank has.
The Belarusian authorities regard the Catholic conference as yet another international event to promote Minsk as a global negotiating platform. Minsk’s proposal to organise a meeting between the Roman-Catholic Church and the Russian Orthodox Church is rather an image-making undertaking than a serious intention. However, the authorities could somewhat extend the opportunities for the Roman-Catholic Church in Belarus due to developing contacts with the Catholic world.
Minsk is attempting to lay out a mosaic from various international religious, political and sportive events to shape a positive image of Belarus for promoting the Helsinki 2.0 idea.
Belarus’ invitation to the head of the Holy See for a meeting with the Patriarch of the Russian Orthodox Church should be regarded as a continuation of her foreign policy efforts in shaping Minsk’s peacekeeping image and enhancing Belarus’ international weight. The Belarusian authorities are aware that their initiative is unlikely to find supporters among the leadership of the Russian Orthodox Church in Moscow. In Russia, isolationist sentiments prevail.
In addition, for domestic audiences, the authorities make up for the lack of tangible economic growth with demonstrations of growth in Minsk’s authority at international level through providing a platform for religious, sportive and other dialogues.