August 2 meeting of the Council of Ministers reviewed the outcomes of the socio-economic development in the first half of the year.
Following a brief introduction on the positive results and progress achieved in the first half of the year, the majority of top officials had a long and open discussion about the problems, new negative trends, threats and challenges. In other words, the Government criticized the Government. First Deputy Prime Minister Sergei Rumas was the most critical of the situation. He pointed out that the second half of the year will see the consumption decrease due to declining of real incomes. In case producers are unable to shift focus to foreign markets, they will suffer from growing stocks or decreasing production volumes. The issue of the size of external debt and its repayments in the coming years is yet another problem that threatens national security. Against the backdrop of growing GDP, the losses of enterprises grow too, today once the most profitable enterprises in the country are the leaders in losses: “Beltransgaz”, Belarusian Steel Works, “Belarusian Telecommunications Network” (“BeST”), Mozyr refinery. All together these enterprises account for 43% of the total losses incurred in the real sector in the past five months.
Economy Minister Nikolai Snopkov has not restricted himself to stating the major problem, i.e. the country’s down-spiraling into hyperinflation of “prices – wages”; he also tried to name the guilty one, i.e. the National Bank, which prints uncovered money intensively. In his view, to slow down the growth of prices it is necessary to restrict the growth of wages and bring them in line with the production growth.
Prime Minister Mikhail Myasnikovich criticized yet another building block of the Belarusian economic model, the concessional lending to inefficient farmers. He also touched upon the problem of debt repayment, as well as mechanisms of reorganization and bankruptcy which do not work. The PM said, in the first half of 2011, one in three borrowers had not repaid their debt to the budget.
Inability to reduce the negative trade balance and its financing through FDI, the inefficiency of the public sector, the problems in the foreign exchange market and the inability to solve them using administrative tools, as well as increased arrears – all these issues have long been anticipated by independent experts. However, de facto senior government officials diagnosed the inefficiency of the economic model in their open talks on these issues, which implies there is an acute crisis of governance and a conflict between the power and economic forces inside the government. In the meanwhile, the Government’s economic policy is mainly criticized by First Deputy PM Rumas, while the Prime Minister Myasnikovich remains behind the scenes. Mr. Rumas is an experienced banker. He stands in favour of market methods of economic regulation and it is very likely his views have not allowed him to become the Head of the National Bank of Belarus (though his nomination would have been the most appropriate).
It is obvious that the real state of the economy and of the major companies is so bad that media is allowed to talk about the problems and the need of painful reforms aimed at further compression of the demand. The remedy recipe has long been known (its interim results are recession, increasing poverty, etc.), however there is no political will in the Presidential Administration for its implementation.
It is unlikely that in the following two weeks any action will be undertaken.
In the second half of August an enlarged meeting of the Government, National Security and the President on important economic issues has been scheduled, which will need to take important policy decisions. It is unclear what they will be.
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.