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On Loans and Promises in Belarus

March 23, 2012 - Michał Potocki - Bez kategorii

34162686_Chubrik_website.JPG

34162686_Chubrik_website.JPG

An Interview with Alexander Chubrik, Director IPM Centre in Belarus, Economist and Fellow with CASE – Centre for Social and Economic Research. Interviewer: Michał Potocki.

NEW EASTERN EUROPE:  For how long can Belarus benefit from the loans it obtained from Russia last year and not go bankrupt?

ALEXANDER CHUBRIK: There is no risk that Belarus will go bankrupt this year, even if the government does nothing to heal the current situation. However, I still have hope that this money will be used to convince others to start trusting our currency and the policy of the National Bank of the Republic of Belarus (NBRB). I also hope that our government will use these funds to eliminate the economic imbalance. If these expectations are not met, they will at least prolong our ability to survive.

Can we say that as of today the initiatives that you are talking about are being undertaken?

For the moment, yes. However, the situation is quite specific because the first quarter of the year is always a time of a decreased economic activity with a simultaneously high indicator of export of gas-related products. Until Russia increased the prices on energy resources, the first quarter would always end with a trade surplus. As of today, the profits from exports are higher than currency purchases for imports.  The Belarus rouble is stable, although speculative motives for the currency trade are at a relatively high level. Right now, the NBRB is buying the currency, which results in a strengthening of the rouble against the dollar, also in the nominal sense.  In this situation it is difficult to hurt the economy. 

The question is, what will the NBRB do when the interest rates keep going down and the situation in foreign trade gets worse (and this is unavoidable, considering the seasonal context). Will it be trying to keep – at all cost – the price of the rouble, or not? If the bank allows the rouble for some relatively uncontrollable changes, which will mean a slow devaluation, this could be seen by the markets as a bad and dangerous sign. If the currency level is maintained, the markets can also regard this situation as bad because of the dwindling down of the reserves. This is a difficult situation and it is difficult to say how it will end.

Russia by joining the World Trade Organisation is making a commitment to expand its obligations towards the WTO but also to other countries of the Customs Union, meaning to Kazakhstan and Belarus. What influence will these changes have on Belarus’s economy?

The main problem is that this will force Belarus to change customs tariffs, but at the same time, it won’t give Belarus the privileges that come with the membership in the WTO. For example, it cannot complain about other countries’ dumping practices or other means of national interests’ protection. We do not get much positive out of this, actually we lose.

In January of this year, the government again announced the need to accelerate privatisation. What is the difference between the current programme and the previous ones, which did not end up so successfully?

Based on the requirements which we accepted while obtaining a loan from the Anti-Crisis Fund of the Eurasian Economic Community, we are obliged to sell state property in the amount of 2.5 billion US dollars a year. For the government it is a factor which motivates it to act – although not as strong of a motivation as was the case with the International Monetary Fund (IMF). The loan that we obtained from the Eurasian Economic Community was more of a political decision. From the state’s perspective it would be logical to complement it with one more loan from the IMF, also in exchange for privatisation promises. However, at the moment, the talks with the IMF are at the very early stages; we don’t even know the conditions based on which the Fund would want to give us a loan.

The stabilisation programme from the IMF would motivate our government much more than the privatisation of state property.  And this could only happen if some changes in the law are made, as today’s decision procedures do not allow active privatisation. The way it works right now is that people who today make decisions in these regards risk having problems in the future. This is the main barrier to privatisation.

The government is again bringing up the promise of 500 US dollar salaries, something which, before the devaluation, was one of the causes of the crisis. Can we talk about the return of populism?

Increasing salaries was only a small element of the 2011 crisis. For the moment, the promises of raises are not discussed in reference to a specific amount, but rather in the context of a return to the pre-crisis salary levels, which after the current crisis would be around 4 million roubles (the current salary in Belarus today is 2.9 million roubles – editor’s note).

The question is how to finance it? There are two ways: either by administrative means (at the costs of the enterprises) or by issuing more money. Each of these options has its own consequences for the economy. For the moment these are only promises and discussion. No steps in this direction have been made so far. In addition, with the renewed talks with the IMF, the issue of salaries is also being considered. For sure, the IMF would not be happy with the implementation of such promises. 

And what about attracting foreign investments?

Let’s look at the year 2011. It was full of problems. Initially, the government’s policy worsened them. The government is limited in its human and time resources. The easiest way to get money is to sell Beltransgaz (Belarusian gas and transport company – editor’s note) and take a loan from the Russians.  And this is what they did. This was a quick and effective way of getting money. The privatisation of an enterprise, especially when foreign investors are involved, is a complicated, and difficult process. In 2011 there was no time to do it. This year, there will be more time, hence probably there will be better results.

You seem to have quite a lot of optimism….

I would not call this optimism. There is a certain logic of events. Last year, there was only one task: find money fast. Privatisation does not offer that. Now, the government has more free time and room.  This, however, also brings some risks because free time does not mean that there could be some surprising moves.  

I just hope that in the near future some concrete steps towards economic reforms will become much more visible.

***

Alexander Chubrik is a Belarusian economist and the Director at the IPM Research Center, Belarus.

Michał Potocki is a Polish journalist with Polish daily newspaper Dziennik Gazeta Prawna. He mainly covers economic issues and Eastern Europe, sepcialising in Belarus, Russia and Ukrainian as well as the European debt crisis.

Translated by Iwona Reichardt

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