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.
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.