Suspended oil revenues resulted in problems on the currency market
In September, the National Bank’s gold reserves held out at the target level: over USD 8 billion. However, a significant deterioration in external trade and Belarusians’ expectations that the BYR will devalue will force the National Bank either to abandon the international reserves target level, or the BYR exchange rate for 2012.
On September 5th, the National Bank published a foreign exchange market in January-September 2012 report.
At the end of September 2012 the population, which was a currency net seller for eight months of 2012, became a currency net buyer. On a net basis the population bought USD 365.6 million in September.
On a net basis non-residents bought USD 75.6 million. Until August, legal entities were the major currency sellers. Excess of currency supply over demand enabled the National Bank to fulfill its internal and external obligations without dipping in the gold reserves. Belarus’ external debt due to successful foreign trade in the first half of 2012 has reduced by USD 882.1 million.
In August 2012 the situation changed substantially. Suspension of supplies for solvent’s exports and problems with biodiesel supply significantly curtailed Belarusian exports. Planned engineering works at “Naftan” have reduced volumes of crude oil refining. As a result of these unfavorable factors, August was the first month this year with a negative foreign trade balance.
In September 2012, the situation continued to deteriorate. Biodiesel supply has been suspended almost entirely. Solvents were not exported. Export volumes of lubricants reduced significantly. As a result, Belarus lost revenues from solvents and lubricants exports. This was bound to affect the currency supply at the Belarusian Currency and Stock Exchange, which sank to the February 2012 level.
Concerned about downbeat economic news, the population resorted to the proven scheme: started accumulating currency for the sake of saving. There are no internal available sources to replenish the country’s foreign currency reserves. Therefore the National Bank forces banks to sell foreign currency by increasing contributions to the reserve fund, applicable to raised foreign currency, not leaving anything for market liquidity. In addition, most probably the National Bank borrowed currency from non-residents for a short time in order to hold up the international reserves’ level.
In the meanwhile, improvements in the foreign trade are not feasible. The National Bank will either has to weaken the BYR at a faster pace than in September, which may have an adverse affect on the volume of deposits in foreign currency in the banks, or to resort to gold reserves’ spending due to the unavailability of substantial loans in the near future.
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.