Belarus’ leadership tries to avoid responsibility for upcoming devaluation

On September 28th, Lukashenko said that the problem with the Belarusian ruble completely depends on businesses and the people.

Due to irresponsible economic policies, Belarus has no resources to demonstrate positive developmental trends by 2015, when the presidential election kicks off. If state property is not sold, the situation will not improve. Therefore, the country’s leaders are looking for culprits to blame for the imminent problems with the national currency exchange rate.

Belarus’ economy is in the doldrums. From January to August 2013, GDP growth was as low as 1.1 %, including certain methodological manipulations. Without methodological adjustments, the GDP would have been below 2012 results. In August 2013, the foreign grade balance was the worst in 2013, showing a deficit of USD 651.6 million. Businesses are experiencing a chronic shortage of funds for ongoing operations and are forced to take loans at interest rates 50% per annum and higher.

Mismanagement is to blame. The sharp rise in wages has led to higher production costs, greater pressure on the foreign exchange market, and a loss of competitiveness in foreign markets. The mechanism for redistributing resources in the economy has resulted in dependency, modernization projects have not been planned in terms of economic efficiency, and profitable companies have to contribute substantial resources to support weaker industries, thereby limiting their own incentives and funds for further development.

The economic cycle in Belarus is closely linked to the presidential elections. To demonstrate success the authorities must demonstrate certain economic results, such as size and growth rate of GDP, wage growth, and the level of international reserves. The authorities also have to demonstrate how they overcame the global crisis under the incumbent president’s guidance.

Today, salaries exceed the maximum level achieved in the previous five-year period. In August 2013 salaries were over USD 610, higher than the level of projected wages for December 2013 (USD 600). The maximum level of wages in the previous election cycle was reached in December 2010, and was about USD 530. The level of international reserves on September 1st, 2013 was USD 7.7 billion, outstripping the highest value in the previous five-year period - USD 6.1 billion in April 2010. GDP in 2012 was USD 63.2 billion, which is higher than in 2008 - USD 60.8 billion.

But while the authorities can demonstrate certain achievements today, it will be difficult to maintain them until 2015.

The foreign trade balance situation is beginning to resemble the situation in 2010, which resulted in a triple devaluation in the following year. Wage growth has already resulted in decreased net business proceeds. Higher incomes have led to greater demand for foreign currency and the problems with exporting potash fertilizers have negatively affected the currency market situation. The actual volume of the international reserves is adjusted using a variety of borrowings. Meanwhile, the banking system already owes more than USD 5 billion to various foreign creditors and debt continues to mount.

To alleviate the situation, the economy needs a significant inflow of foreign currency. This cannot be provided by domestic enterprises. The authorities have a very negative attitude towards state property privatization. In addition, the authorities need to find a scapegoat for the forthcoming adjustment in the national currency exchange rate, most likely, the population who rush to buy foreign currency for their savings.

The government’s economic policies have proven faulty once again, but it is unwilling to bear responsibility for its own failures. The government will blame everything on various external and domestic factors for the weakening of the national currency, but it will not audit its own mistakes. This points to the likelihood of another economic crisis.