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W. R.
10-20-2011, 03:54 PM
Belarus Is Heading to Default

by Anders Aslund, Institute for International Economics

Belarus is heading to default. This country of 10 million people is running out of international currency reserves.

Officially, they were down to $2.2 billion on October 1, which is a month’s worth of imports. But when reserves are so small the question always arises whether they are really usable. Meanwhile inflation surged and it hit 80 percent in September. On October 17, a mission from the International Monetary Fund (IMF) left the country, denying it any financial aid. Belarus can be forced to stop its international payments any day.

President Alexander Lukashenko is experiencing his most serious crisis during his 17 years in power. It may be terminal. His missteps in economic policy last fall have caused this virulent financial crisis.

Belarus is the last Soviet economy in Europe. Its state-owned enterprises still produce 70 percent of gross domestic product, and the state regulates production and the main prices. It is only a slight exaggeration to say that Belarus has lived on refining subsidized Russian oil and gas for the West, while exporting the finest Soviet appliances to the Russian provinces. This model worked for a surprisingly long time, but the Kremlin harbors no love for Lukashenko, and the basic cause of the crisis is that Russia has cut its energy subsidies from 15 percent of Belarus GDP to 7 percent this year. Meanwhile the Russian provinces have become too sophisticated to purchase any Soviet products.

Lukashenko’s crucial mistake was to hike public salaries by 50 percent last November, before the December 19 presidential elections. As a consequence, the country’s average real wage rose by 25 percent last year, or to $500 a month, which the president promised to maintain through an overvalued exchange rate fixed to the US dollar. The overvalued Belarusian ruble caused a gaping current account deficit of 15.5 percent of GDP or $8.5 billion in 2010.

Even so, Lukashenko did so poorly in the presidential elections that official observer reports suggest that he stole them, using considerable violence and sentencing most of his competitors to years in jail. The United States and the European Union responded in unison with sanctions against certain officials and enterprises, demanding the release of 40 political prisoners, but many remain imprisoned.

Rather than undertake necessary reforms when he still had time, President Lukashenko has been scrambling to raise money wherever he can. International currency reserves this year have been hovering around $3 billion to $4 billion, while the country needs about $6 billion of financing this year alone. In spite of certain vague statements from the European Union and the IMF, Western financing is out of question. The same is true of market financing. By spring 2011, Belarus’ financial crisis had become rampant, provoking minor popular protests.

One of Lukashenko’s problems is that he has no friends. Admittedly, China has delivered $1 billion in a yuan loan, and Iran has provided $400 million, but that is insufficient. While the Kremlin strongly dislikes President Lukashenko, it is interested in political stability in its backyard. Russia is demanding approximately the same reforms as the IMF: a floating exchange rate, price liberalization, stricter monetary policy—and especially substantial privatization, which would benefit Russian enterprises. In late May, Lukashenko saw no other way out than to accept its demands. Reluctantly, the Russian government committed $1 billion a year for three years from the Eurasian anti-crisis fund, mainly financed by Russia, in return for devaluation and privatization of enterprises for a total of $7.5 billion during three years. But these sums can only cover half Belarus’ financing needs.

Consequently, Belarus devalued by 36 percent on May 24, but Lukashenko did not let the currency float. As a result, the country ended up in the worst of all worlds, like the Soviet Union in 1991, with shortages of everything. Belarusians cash their bank deposits to buy any goods or currencies available. Free prices surge, while shortages arise for price-regulated goods, which Belarusians buy and export to neighboring countries.

In September, another depreciation followed, and the free market exchange rate is now one third of the official rate in early May. Moreover, different exchange rates apply to different transactions, and enterprises struggle to find inputs. Monetary policy remains loose, contributing to the annualized inflation rate of 80 percent in September. Belarus has ended up in a depreciation-inflation cycle reminiscent of the Soviet economy when it collapsed in 1991. The average dollar wage of $500 a month has fallen to less than $300 a month. At the end of 2010, Belarus’ total external debt amounted to 52 percent of GDP, but as the debt mounts and dollar GDP plummets, the debt-to-GDP ratio is surging.

President Lukashenko hoped that the IMF will bail him out once again. In January 2009, the IMF did so with a stand-by agreement of $3.6 billion that ended in March 2010, but Belarus never carried out the promised market reforms. The president has asked the IMF for $3.5 billion to $8 billion, but the IMF mission told him off in uncommonly stern language that before any negotiation of financing, "the authorities will need to demonstrate a clear commitment—including at the highest level—to stabilize and reform and reflect this commitment in their actions." But the IMF must say no because of Western sanctions and Lukashenko’s erratic record.

Lukashenko’s final lifeline is to sell the nation’s "family silver," a handful of valuable big state corporations—the potash company Belaruskali, the gas pipeline company Beltransgaz, the mobile phone company MTS Belarus, the Minsk Automotive Company, and Mozyr Oil Refinery. Russian and Chinese companies have been ready to purchase them, but this would amount to a fire sale that would only prolong the Belarusians’ suffering. However, in the midst of a rampant financial crisis, all enterprise purchases tend to come to a halt. Furthermore, the United States and the European Union have already sanctioned a substantial number of companies, and the United States can easily block these sales through embargo, as six prominent US senators have demanded.

President Lukashenko has proven himself until now to be an unpredictable yet savvy political tactician, but his economic mismanagement has finally thrown his Soviet-style economy on the ropes. At present, Belarus’ default appears inevitable and could be provoked by the next significant debt repayment.http://www.charter97.org/en/news/2011/10/20/43830/

Waidewut
10-20-2011, 04:23 PM
When Batyka's regime collapses, my strong advice to the people of Belarus is not to allow the formation of those post-soviet oligarchies. Its really hard to stop their influence in politics afterwards. Otherwise good luck.

W. R.
10-20-2011, 05:33 PM
When Batyka's regime collapses, my strong advice to the people of Belarus is not to allow the formation of those post-soviet oligarchies. Its really hard to stop their influence in politics afterwards. Otherwise good luck.It will be difficult to prevent, since democracy is not working here and the last comparatively honest elections took place decades ago.

If the Kremlin helps Łukašenka to collapse, then probably he will be replaced with someone of zeros that surround him now. I can't imagine an honest election in that case. "Family silver" will be sold to Russian oligarchs, our new oligarchy can get some bits too.

The cunning kolkhoznik has managed to keep his economy afloat for so many years, that's amazing, but it looks like he is not able to understand that we need changes. Jeez, our country is run by a mentally handicapped former politruk. I feel uneasy.

Belarusians had it coming to them. In year 1994 80 % of voters voted for him in the second round of the election, while any sane person back then could smell a poorly educated populist from 100 miles away.

Sahson
10-20-2011, 05:42 PM
CCCP didn't work before, is it a surprise belarus wouldn't? the government still owns 2/3 of the lands.

Albion
10-20-2011, 11:00 PM
Belarus will merge with Russia soon enough anyway, they'll save them.

Unurautare
10-20-2011, 11:07 PM
Belarus will merge with Russia soon enough anyway, they'll save them.

All is going according to plan isn't it? Keep sabotaging CSI states' politics and economies,or if not outright make war on them(Georgia), and then "save"/"liberate" them.

PS It's somewhat funny CSI is called Commonwealth of "Independent" States,it reminds me of how communist countries in Eastern Europe had "Democrat"/"Democratic" in their names.

http://upload.wikimedia.org/wikipedia/commons/d/df/Commonwealth_of_Independent_States.svg

Albion
10-20-2011, 11:11 PM
All is going according to plan isn't it? Keep sabotaging CSI states' politics and economies,or if not outright make war on them(Georgia), and then "save"/"liberate" them.

PS It's somewhat funny CSI is called Commonwealth of "Independent" States,it reminds me of how communist countries in Eastern Europe had "Democrat"/"Democratic" in their names.

http://upload.wikimedia.org/wikipedia/commons/d/df/Commonwealth_of_Independent_States.svg

Yes, Russia wishes the CIS was still its empire or at least "sphere of influence".

W. R.
10-21-2011, 01:45 PM
Belarus will merge with Russia soon enough anyway
http://fc08.deviantart.net/fs71/f/2010/026/2/8/JUST_AS_PLANNED_by_Link_09.jpg

On the other hand we have watched the soap opera "The Integration" with Łukašenka as the main player since 1994. That's long enough to be careful with words like "soon".

Troll's Puzzle
10-22-2011, 04:57 PM
Yo WhiteRuthinian, could you read this article (http://www.theapricity.com/forum/showthread.php?t=32861) (or skim read it, I appreciate it's pretty long) and give an opinion? there's a lot of 'infowars' on the web understandably so it can be hard to know where the facts lie sometimes, I would be grateful if someone 'on the inside' could help clear things up, how much truth or not is in the article :)

W. R.
11-10-2011, 09:20 PM
Miasnikovich Called Four Problems of Belarusian Economy

November 8, Prime Minister of Belarus Mikhail Miasnikovich called four major problems of the economy at the meeting of the Council of Ministers. "These are a budget deficit, a balance of payments deficit, an unrealistic exchange rate and the absence of real sources to finance housing and other government programs," said the prime minister.

This statement is made by Prime Minister in response to criticism of socio-economic development of Belarus for 2012 by presidential aide Sergei Tkachev. In particular, the official opposed the government's decision to abandon the principle of the printing press, AFN (http://afn.by/).

Sergei Tkachev said that 1.5% GDP growth does not imply the development of the economy, which in turn does not allow companies to repay the internal and external loans, and does not ensure the growth of real incomes. According to him, this requires a higher growth rate by deploying the printing press.

The deputy minister said that the current situation in the economy is caused by the last year money issue, while the forecast of the government in the medium term will help to overcome high inflation. In turn, Mikhail Miasnikovich said that the economic crisis had been also triggered by the fact that "you, Sergei, have been so actively helping to shape all the programs" "over the past 10 or even 15 years."

"No financing is planned for construction of 7.5 million square meters of housing, dairy farms, pig farms and a number of other programs in 2011. No money at all! We used to be less fond of the emission loaning of the economy. But in 2010 we decided to try it, as well as in 2011. External along with our own homegrown problems have caused what we have now, as it was emphasized by the head of government," Prime Minister said.http://telegraf.by/en/2011/11/myasnikovich-nazval-chetire-problemi-belorusskoi-ekonomiki
Lukashenko Slams Government Plan to Stabilize Economy

By Aliaksandr Kudrytski

Nov. 10 (Bloomberg) -- Belarusian President Aleksandr Lukashenko called measures suggested by his government, and backed by the International Monetary Fund’s local representative, to stabilize the economy “unacceptable.”

For most citizens, shops will soon become museums where they can “take a look at the market economy of Myasnikovich and Roumas,” Belta cited Lukashenko as saying today at a meeting in the capital, Minsk, referring to Prime Minister Mikhail Myasnikovich and Deputy Prime Minister Sergei Roumas.

Belarus is struggling to contain a balance of payments crisis that has triggered a two-thirds decline in the ruble since January. The government suggested Nov. 8 tightening monetary and fiscal policy, boosting exports and damping domestic demand. The plan, which Lukashenko must approve before it can take effect, may keep 2012 inflation within 19 percent and result in economic growth of 1 percent to 1.5 percent.

Natalia Koliadina, the IMF’s representative in Belarus, said yesterday by phone from Minsk that she supported the government’s plan. Before talks over a new loan can begin, the authorities must “demonstrate a clear commitment to stability and reform and reflect this commitment in their actions,” she said today by e-mail.

Belarus last received a loan from the Washington-based lender in 2009 after demand for its exports fell.

Inflation Accelerates

The decline in the ruble has caused a surge in prices. Inflation accelerated to 92.3 percent from a year earlier in October, compared with 79.6 percent the previous month, the state statistics committee said today on its website.http://www.businessweek.com/news/2011-11-10/lukashenko-slams-government-plan-to-stabilize-economy.html