About a thousand Belarusains received a cryptic anonymous SMS text on 4 January.
According to the message the National Bank of Belarus had secretly decided to devalue the national currency by more than 60%. It was predicted that the new exchange rates were to appear immediately after the Orthodox Christmas celebrations – on 8 January.
Belarusian KGB immediately started to investigate the incident. The message turned out to be a provocation. The currency market stayed calm. But the very fact that such things happen reveals tensions in society.
The issue of devaluation has become one of the phobias that the people of Belarus have because of their recent memory of economic turmoils. When it comes to their own money they no longer trust government officials, including the president.
As prospects for real devaluation in 2013 look more likely Belarus becomes increasingly vulnerable to all sorts of provocations that can destabilise currency markets and even the social situation at large.
SMS Devaluation that Failed to Materialise
The text sent on 4 January around to a thousand subscribers of the leading mobile operators MTS and Velcom contained the same text:
"Ermakova (the head of the National Bank – Y.P.) has just signed it and decision has been sent to voblasts and Belarusbank (the biggest commercial bank – Y.P.). From 08.01.13 $1 will cost BLR 14,340 and ˆ1 – BLR 18,116. Urgently withdraw your deposits and exchange the money."
As it always happens, the rumour quickly began to circulate in the social networks. New interesting stories started to emerge. Apart from the general fear of a New Year devaluation, similar to the one which happened in 2009, for many the rumour resonated with independent economists’ projections about high prospects for devaluation in 2013.
KGB: The Provocation Came from India
For an attentive person it was clear from the very beginning that the text could not be genuine. Its authors made a mistake (maybe intentionally): the smallest bank note in Belarus is BLR 10. Thus, ˆ1 could not cost BLR 18,116.
However, for a common citizen all this looked very frightening. Remarkably, the phone number that the texts were sent from in reality belongs to the National Bank’s call center.
So not only the National Bank but even the KGB had to react quickly. They immediately called it "nonsense and a provocation" and said that its perpetrators would be severely punished.
A bit later the KGB categorised the case as "hacking" and said that the messages came from a server located in India. Further investigation is underway.
The press-secretary of the National Bank stated that there were absolutely no reasons to devaluate the rouble and promised its stability.
Indeed, the rumour did not materialise. On 8 January the rate of one US dollar was BLR 8,630 and of one Euro 11,230 - much lower compared to what the SMS had predicted.
The New Year Tradition – Expectation of Devaluation
In fact, in recent years devaluation has become one of the most popular topics which Belarusians often discuss at New Year's celebration.
In 2009 the authorities made an extremely unpleasant New Year gift for the whole nation. Without any prior announcement they devalued the rouble by roughly 20% on 2 January of that year. The government chose very tricky timing: the people were still celebrating and did not pay much attention to what was going on around. But when they recovered, millions realised that they had lost thousands of US dollars because of the government’s decision.
Belarusian economist Leonid Zaiko calculated that overall the citizens lost about $1 billion from that devaluation.
Needless to say that for many Belarusians that was huge money. The government’s act left a deep psychological scar. And in 2011 the scar became even deeper.
Amidst the raging economic crisis in 2011, the authorities devalued the national currency first in May and then in September. As a result, the value of the national currency went down by almost three times. The losses suffered by people were very painful.
Importantly, in the previous cases the National Bank and the government never even tried to prepare the citizens for their harsh decisions. On the contrary, they made official promises that no need for devaluation existed and that people could relax.
Not surprising, therefore, that today the Belarusians have little trust in what officials say about money. Many even tend to listen to what the head of the National Bank, Prime Minister or A. Lukashenka say and do the opposite.
Since the devaluation of 2009 each year at the end of December long queues form in front of currency exchange offices. Having the government’s dishonesty in mind, thousands of people prefer to exchange some extra Belarusian roubles for hard currencies before another New Year arrives. They do it just in case.
Is Devaluation Likely in 2013?
At the moment the authorities do not see much point in devaluating the rouble. Even though the last months of 2012 turned out bad for the country’s foreign trade, overall last year was comparatively good for the current account balance.
The National Bank has slightly more than $8 billion in gold and foreign exchange reserves (by the IMF standards). This sum cannot pay for three months of imports and, therefore, is low. But it is still enough to make some tactical currency interventions.
Moreover, the liquidity (Belarusian roubles) is concentrated in the reserves of commercial banks. So the currency market does not feel the pressure of the additional 40% Belarusian roubles that the National Bank issued in 2012.
However, future problems are looming large. Many factors point to a probability of devaluation throughout the year.
First, the country is again facing foreign trade deficit and it is hard to say what can become its foreign trade locomotive (like solvents were in 2012). Second, Belarus has to pay the record sum of $3.1 billion in its foreign debt. Finally, the problems with exports might necessitate a devaluation to help exporters.
In the light of these factors the SMS case seems highly symptomatic. Bad economic policies make Belarus vulnerable to all sorts of shocks and provocations. One day they may destabilise not only the financial market but even the social situation in the country.
Yauheni Preiherman, is a Policy Director of the Discussion and Analytical Society Liberal Club in Minsk.