Belarus to adjust the Belarusian rouble exchange rate to match the existing market environment. This is a first step towards implementation of the anti-crisis strategy elaborated by the Government and the National Bank
Experts have praised the move, noting that stabilisation on the currency market should allow businesses, investors and the public to entertain more confidence in the future and that economic processes will enjoy greater clarity.
On announcing the new strategy, President Alexander Lukashenko stressed that it is based exclusively on objective, market laws. Difficult times lie ahead economically, necessitating the reconsideration of previous approaches and the reduction of money emission. Moreover, companies’ efficiency must be enhanced. Moreover, economic recovery is accompanied by the sharp devaluation of the national currency which brings less spending power to the public. According to Mr. Lukashenko, unity is vital to avoid the country’s destabilisation. Speaking to teachers in late August, he asserted that representatives of other political forces of Belarus are welcome to share a round table with him to discuss the strategy. “As Head of State, I invite all reasonable people who love their country — regardless of their political camp — to join me in a round table discussion. We can look into each other’s eyes, learning each other’s worth, and really decide what can be done to effectively improve the situation,” he emphasised. The President also invited the European Union, Russia and international structures to send representatives to such a round table discussion.
Over the past five years, Belarus has seen its GDP grow dramatically: 8-10 percent up annually. Such dynamics were achieved largely by the state financing of various programmes — particularly in industry and agriculture. Salaries were raised significantly, outstripping labour productivity, while the volume of money printed by the National Bank grew, creating enhanced demand for foreign currency and import growth. During an August meeting to discuss social-economic issues, Mr. Lukashenko noted, “Any positive result is achieved at a price. In 2010, the deficiency of foreign trade in goods and services totalled 14 percent of GDP. In other words, we consumed more than we produced or sold.”
Serious economic problems became apparent this spring, when our chronic misbalance in foreign trade and reduced volumes of foreign loans led to a lack of currency. The Belarusian rouble’s devaluation was necessary; in May, the National Bank’s official rate rose from Br3,100 to Br5,000 per dollar. However, black market currency exchange stood at Br7,000-8,000 or more.
Speaking of the launch of the anti-crisis programme in August, Mr. Lukashenko noted that the situation facing Belarus is also typical elsewhere. Other states had to settle similar problems and anti-crisis recipes already exist. The primary task is to stabilise the currency market and achieve a single exchange rate, so that businesses, investors and citizens have a clear picture of their future. In the past, Belarus has placed strict parameters for foreign currency fluctuations, with the National Bank’s interventions ensuring a fixed rate. However, it’s now too costly for the economy to artificially support the rate; it must begin to obey the laws of supply and demand, governed by the market.
Simultaneously, the state plans to restrain money flow into the economy in its efforts to stabilise the currency market. The President has prohibited the Government and the National Bank from introducing new emissions. Naturally, those employed by state-run enterprises will receive adequate support, as will pensioners and those on small incomes. However, subsidised production and privileged interest rates on loans for building homes need to be suspended (the major target of emission flow in past years).
Belarusian and foreign experts have praised the anti-crisis plan. The IMF Permanent Representative in Belarus, Natalia Kolyadina, notes, “We welcome the authorities’ decision to announce their strategy for macroeconomic stabilisation; the partial liberalisation of foreign currency trading is the correct step and we’re satisfied with their intention to refrain from unjustified monetary-credit expansion. Like the authorities, we’re worried that inflation is devaluing people’s incomes. The most vulnerable groups must be protected through targeted social assistance measures.”
The Dean of the Belarusian State Economic University’s Economic Department, Mikhail Kovalev, believes that the state is taking appropriate steps. However, he notes that extreme decisiveness is needed to create economic stability, with emissions ending completely. “In late 2010, public earnings comprised 66 percent of GDP; by the end of June 2011, this had dropped to 52 percent. These are hard times but we must all knuckle down. Salaries should not be raised and no new money should be printed, since this would only aggravate the situation on the financial market,” he asserts.
Alexander Gotovsky, the Deputy Director of the Centre for System Analysis and Strategic Studies at the National Academy of Sciences, notes, “Sadly, the recovery of the economy is taking place via a sharp decrease in people’s level of consumption and in their standard of living.” However, he admits that some positive trends are already evident: direct and indirect imports are falling in the wake of the devaluation. “The economy is gaining its own balance, with the necessary mechanisms launched,” he stresses.
The Administrative Director of the Belarusian Economic Research and Outreach Centre, Pavel Daneyko, also notes the positive influence of the devaluation, stating that, this year, ‘we’ll have to pay for our past mistakes’. In 2012, the Belarusian economy is expected to begin growing, owing to rising exports. According to statistical data, this summer, Belarus began improving its foreign trade balance, with exports of goods exceeding imports by $167m in July — the best figure registered so far. Foreign trade misbalances are gradually levelling. Mr. Daneyko also forecasts a rise in investment, explaining, “The assets of our enterprises — nominated in roubles — are now cheaper if calculated in foreign currency. Meanwhile, Belarus now has a cheaper labour force than that of neighbouring states, making it more profitable for investors to set up production and participate in the privatisation of existing enterprises.”
The Government and the National Bank plan to actively sell state property to replenish our country’s gold and currency reserves, while enhancing our economic efficiency. By late 2011, at least $5bn is to be attracted from strategic investors, including $2.5bn from Russian Gazprom’s purchase of Beltransgas’ controlling stock.
In August, it was announced that, from 2012, Russian gas will be pumped to Belarus under a decreasing pricing coefficient, aiding Belarusian export attractiveness; the agreement was achieved by prime ministers Mikhail Myasnikovich and Vladimir Putin.
At present, the Government and the National Bank understand that privileged energy prices and foreign loans are not enough to sustain a stable economy; the key to the anti-crisis plan is for Belarusian goods to be competitive and for local companies to be efficient.
By Vitaly Volyanyuk
[b]Belarus to adjust the Belarusian rouble exchange rate to match the existing market environment. This is a first step towards implementation of the anti-crisis strategy elaborated by the Government and the National Bank [/b]Experts have praised the move, noting that stabilisation on the currency market should allow businesses, investors and the public to entertain more confidence in the future and that economic processes will enjoy greater clarity.