Updated 2009 solution to 2013 growing stocks problem

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April 22, 2016 18:31

On May 24th the country’s leadership ordered to sell stocks of agricultural machinery at a significant discount.

The problem with growing stocks is due to wrong managerial decisions in the deteriorated international market situation. Recent governmental decision has enabled the state enterprises heads to use market mechanisms to sell illiquid products. It can be noted that the government failed to learn its lesson from the analogous situation in 2009.

In January – April 2013 stocks’ growth was BYR 11.2 trillion and on May 1st, 2013 the total volume of unsold products at industrial enterprises was BYR 33.3 trillion, equivalent to USD 3 860 million. The stocks’ growth was due to government demands to meet the set performance targets in industrial production, regardless of the changes in the international market situation. The sharp drop in demand for Belarus’ products against the preservation of production volumes resulted in stocks’ growth, working capital outflow and companies’ financial situation deterioration.

Private enterprises have the flexibility to respond to sales crisis by reducing the staff, reorienting the production or temporary suspending the production. Sometimes they cut prices to sell the accumulated products. State enterprises are limited in their means because of possible charges by the inspection bodies: for instance, sales discounts might be regarded as damaging the state on a large scale and may result in criminal charges against an enterprise’s head. Recent regulation gives certain freedom to state enterprises’ managers to use market mechanisms to respond to market situations, but also sets certain limits on the discounts’ size and by product.

Government’s measures in 2013 implemented to address the growing stocks issue, exactly reproduce the post-crisis situation in 2009, when in order to preserve the production rate growth (against the background of international decline in industrial production) export credits were broadly issued, interest rates were offset to foreign buyers of domestic products, housing construction volumes were increasing and government programmes were adopted to stimulate demand for domestic equipment by supplying it to agricultural enterprises on credit. Four years later, Belarus’ leadership uses exactly the same means to solve the existing problems, instead of trying to eliminate the causes, namely, the limited powers of state enterprises managers to respond to the crisis in foreign markets.

Thus, on the governmental level, there was no in-depth analysis of the 2009 events. Belarusian economy repeated all its mistakes from 2009 and drew no conclusions, which, in turn, resulted in similar problems and consequences. Alternatively, the government can devalue the national currency, but as practice shows, this measure is temporary and only fixes problems in the short-term, without affecting the state management system, where the problems are rooted.

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