Single Belarusian rouble exchange rate opens new chapter for economy. Previously, foreign currency trading took place at two exchange sessions, with that at the main session sold to pay for major imports: gas, electricity and medicine. The official exchange rate of the National Bank was established following the results of such trading. The US dollar, Euro and Russian rouble for other purposes were sold at the second, additional session. Since October 20th, the two sessions have been united, with a single Belarusian rouble exchange rate following demand and supply. The interference of the National Bank in this process is minimal, with intervention limited to balancing acute fluctuations in demand and supply.
This complicated but necessary step has been approved by experts at the International Monetary Fund, the World Bank and the Eurasian Development Bank. At the same time, they admit that, having moved to a market exchange rate mechanism, some steps will be needed to stabilise the economic situation and achieve balanced development. These assessments coincide with those of the Government and the National Bank.
‘The country remains financially reliable’
A regular session of the International Monetary Fund was held in Minsk for two weeks in October, aiming to assess the economic situation in Belarus and formulate a new country programme.
During the IFM visit this October, the current financial demands placed upon Belarus were discussed thoroughly, as was its ability to make repayments on loans. The macro-economic measures of the Government and the National Bank were analysed and IMF Mission Head Chris Jarvis discussed the situation with Prime Minister Mikhail Myasnikovich, with the Chair of the National Bank, Nadezhda Yermakova, and with Deputy Prime Minister Sergey Rumas. Chairs of leading ministries and banks and Belarusian experts joined the meetings. The IMF representatives admitted ‘the sincere character of the discussions’ with the representatives of state authorities.
Mr. Jarvis made an important announcement following the session, saying, “I’m quite sure of Belarus’ ability to pay.” It was a positive sign for foreign investors and creditors. He also added, “Governmental policy towards the crisis has been correctly oriented.” He admitted that the floating exchange rate for the Belarusian Rouble was ‘an important step forward’ and noted, “The Government has taken steps to tighten its monetary management, leading a careful budget policy.”
At the same time, the IMF Mission underlined the need for further steps to improve the financial and economic situation.
The primary task is to reduce inflation
The main problem drawing the attention of the Government and international experts is the high level of inflation: over 80 percent since the beginning of the year, according to data from the National Statistical Committee.
“We should lower inflation, as it results in a lower standard of living for people, while feeding expectations of devaluation,” the IMF Mission recommended.
Its experts state that the Belarusian rouble’s devaluation earlier this year has improved trade and reduced the balance of payments deficit. A lower national currency exchange rate has made Belarusian exports more affordable, raising sales. Meanwhile, imports have fallen.
“However, this progress could be lost under the influence of high inflation,” stresses the IMF.
According to the Economy Ministry, rising prices are forcing exporting companies to spend more of their foreign currency earnings on domestic market costs; in this case, inflation could negate the advantages of devaluation. The Government is focusing on curbing inflation, with Deputy Prime Minister Sergey Rumas supervising the macro-economic situation. He notes, “The current level of inflation is a cause of embarrassment for the Government.”
Anti-inflationary measures have been set for this year and next, with the accent on lowering emissions of currency. The Government and the National Bank have used currency issue in recent years to stimulate domestic consumption and investments and inspire high rates of economic growth but this has led to inflation. They now realise that the economy should be more balanced, with GDP allowed to grow more slowly (it has been rising 9-10 percent annually). The approach has the approval of the IMF.
Following the results of the October session in Minsk, the IMF has recommended slowing further emission lending while raising interest rates, which are set lower than the level of inflation over all. The Chair of the National Bank, Nadezhda Yermakova, admits that the National Bank is considering raising rates but notes that the rate set in October (35 percent per annum) is restraining demand for loans, helping ‘cool’ the economy.
The IMF also advises Belarus to slow down salary growth: a sensitive social issue. The Government is less certain of this path but underlines that salaries must be earned and shouldn’t outstrip labour productivity, as they were prone to do in past years. Privatisation is another way of improving enterprises’ efficiency and expanding of gold-and-currency reserves. In the nearest time, Belarus plans to accelerate privatisation processes. It plans to sell major holdings such as Beltransgas, Minsk Automobile Plant and MTS mobile operator.
Summarising the results of the October mission, the IMF admits, “In 2012, the Government and the National Bank’s economic policy will be directed at providing macro and micro economic stability. We have hopes that this will bring a positive outcome, differing sufficiently from earlier policy.”
Progress is obvious
The most recent actions of the Government and the National Bank have been praised by other international institutes. In particular, Martin Raiser, the World Bank’s Country Director for Ukraine, Belarus and Moldova, announced in October that the World Bank approves of the Belarusian Government’s actions to stabilise the Belarusian rouble.
The Eurasian Development Bank (EDB) also recognises ‘progress regarding a number of reforms’ and views these ‘with satisfaction’. The EDB operates the EurAsEC Anti-Crisis Fund, from which Belarus expects to receive $3bn. The first tranche — $800m — was delivered this summer, with the second — $440m — expected to arrive by late 2011. The loan brings with it certain macro-economic obligations, as Sergei Shatalov, Managing Director of the EurAsEC Anti-Crisis Fund, notes. Happily, he explains that ‘progress in fulfilling a number of conditions for the second tranche is obvious’. The foremost of these has been the assumption of a single national currency exchange rate.
“We approve the Government’s plans for 2012, which provide for a balanced state budget and less lending, until the negative balance of payments has been redressed.”
After the negotiations in Minsk, Mr. Shatalov admitted that ‘in the interests of the country’s long-term development, it is very important to continue with reforms which provide for macro-economic stabilisation. “The EurAsEC Anti-Crisis Fund will continue its close co-operation with Belarusian ministries and authorities, aiming to reach this important goal,” he assures us.
Belarus is also interested in constructive co-operation with international organisations, to achieve a balanced economy and stable development.
By Vitaliy Vasiliev
Important steps forward
Single Belarusian rouble exchange rate opens new chapter for economy. Previously, foreign currency trading took place at two exchange sessions, with that at the main session sold to pay for major imports: gas, electricity and medicine. The official exchange rate of the National Bank was established following the results of such trading. The US dollar, Euro and Russian rouble for other purposes were sold at the second, additional session.