Resuming Foreign Currency Loans - Confrontation Line between Government and National Bank
On February 13th, Prime Minister Myasnikovich advised about resuming foreign currency lending to private persons for housing construction.
Housing construction industry and the Government, which is interested in GDP growth, will benefit from lifting a ban on currency loans for housing construction however this step bears risks for the stability of the financial system. The outcome of the confrontation between the government and the National Bank on this issue will affect the country’s 2013 monetary policy.
National Bank’s Decree No 105 of July 14th, 2009 suspended lending to private persons. A complete ban on foreign currency lending was introduced on December 17th, 2010. The ban was introduced to stave off economy’s dollarization and to reduce risks for the banks and the population. The decision was made by then National Bank Head Mr. Prokopovich. Since then the National Bank’s attitude about the issue has not changed, regardless of appeals from banks and the Architecture and Construction Ministry.
It is proposed to lift the ban on foreign currency lending in the housing construction only. Justification for the lift is that housing construction requires substantial funding and that population has to bear the principal share in these costs. The population does not have sufficient funds and national currency loans are costly. Foreign currency loans’ interest rates were around 10-11%, which could encourage the population to borrow for housing construction. This is the way the government is planning to address the issue of the increased housing construction plan in 2013 (up to 6.5 million sq.m.) and the sufficiency of the population’s funds to pay for it.
The Government is aiming at GDP growth at the cost of the construction industry, bearing in mind low comparative base in 2012. Construction industry will receive the necessary funds and greater demand for housing construction, which could result in higher revenues for the construction companies. Construction is one of the few potential sources of GDP growth in 2013. However, the proposal contradicts the National Bank’s policy envisaging not allowing for economy’s dollarization. This step will not reduce currency risks, while foreign debt payments in 2013 are considerable. Under these circumstances, it seems unreasonable to spend scarce foreign exchange resources on improving the construction industry’s dynamics.
Thus, the National Bank is being rational and has a strong counter-argument against the Government. The Government aims to fulfill the projected GDP growth and lobbies its interests via Mr. Prokopovich, appointed Government’s representative in the National Bank. If Government wins, the National Bank’s position concerning tight monetary policy will weaken. If the National Bank manages to defend its views on the currency lending resumption, its influence and capabilities to carry out the necessary policies regardless of the Government’s position will increase.
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.