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The Government and National Bank hope to see 2012 become a year of balanced development for the Belarusian economy. The mistakes which resulted in the devaluation of the Belarusian Rouble and hyper-inflation should be corrected. Now, the priority is to slow consumer price growth and achieve a positive payment balance. To achieve this, the state plans to cut monetary emission as far as possible, while reconsidering budget expenses and toughening criteria for state support.
The Government and National Bank hope to see 2012 become a year of balanced development for the Belarusian economy. The mistakes which resulted in the devaluation of the Belarusian Rouble and hyper-inflation should be corrected. Now, the priority is to slow consumer price growth and achieve a positive payment balance. To achieve this, the state plans to cut monetary emission as far as possible, while reconsidering budget expenses and toughening criteria for state support. These steps are hoped to keep inflation within a corridor of 19-22 percent this year.
To stimulate exports, privatisation and enhanced efficiency of property management, the Government and the National Bank plan to reach positive figures in foreign trade. In 2012, the attraction of direct foreign investments will come under focus; these are clearly an important source of funding to improve exports and, thereby, the balance of payments. A strategy has been adopted to attract direct foreign investments until 2015, envisaging serious tax and institutional reform. As a result, Belarus should become an extremely attractive venue for business activity in the Single Economic Space.

Stage of revival
Experts believe that, in the first half of 2012, Belarus’ economy will develop modestly. According to the IPM Research Centre’s forecast, GDP may fall by 1.9-2.4 percent from January-February (against the same period of 2011). From March-April, it will ‘reach its cyclical bottom’, before shifting ‘from a stage of recession to one of revival’. The Institute has drawn its conclusions from several leading indicators: dynamics of cargo transportation, ready made products’ stocks, bank loans, selling of construction materials in the retail network and some other internal figures. External factors are the Russian PTC index and prices for ‘Ural’ oil, since these affect the potential buying power of Russian consumers for Belarusian products (Russia remains the major importer of Belarus-made high-tech products). 
The Research Centre notes that inflation — which rose by 108 percent in 2011 in Belarus — has been slowing since early 2012. This should result in more accessible loans. In January, the National Bank’s refinancing rate stood at 45 percent per annum. Although this is much lower than the 2011 index of consumer prices, credits have become almost inaccessible to many Belarusian enterprises. As the Belarusian share market is not yet as developed as that of Russia, bank loans are the most important source of funds into basic capital (reaching 33.9 percent of the total — against 8.6 percent in Russia). Experts note that the accessibility of credit has been a key factor in Belarusian GDP growth for the past five years. 
The reduction of interest rates in 2012 should ‘warm up’ economic activity, while increasing investments and domestic demand. The First Deputy Chairman of the National Bank’s Board, Nikolai Luzgin, announced plans in January to gradually reduce the refinancing rate. The National Bank hopes that, by late 2012, it will stand at 22-23 percent.
The Deputy Director of the National Academy of Sciences’ Centre of System Analysis and Strategic Research, Alexander Gotovsky, views these plans as realistic. “Growth in the consumer price index has begun to slow, so inflation like that of 2011 is not expected,” he stresses. According to Mr. Gotovsky, prices for meat, fish, sugar, sunflower oil and other foods have actually altered with the Rouble devaluation, so there is no more room for them to grow. As regards prices fixed by the Government — for petrol, diesel fuel, and housing-and-communal services — only a gradual increase is possible. “With this in mind, I believe that, on seeing the results of January-February and the reduced pace of inflation, the National Bank will decide to reduce the refinancing rate. Loans could become more accessible from March,” he notes.

Stable rate
A stable rate for the Belarusian Rouble against foreign currencies will act as ‘an anchor’ for inflation. The National Bank emphasises that the Rouble won’t be supported administratively; previously, a corridor for the national currency’s fluctuations was set against a basket of foreign currencies (the Dollar, Euro and Russian Rouble). In 2011, this stood at plus/minus 8 percent but, this year, the National Bank plans to follow market pricing — as recommended by the International Monetary Fund.
The Belarusian Rouble’s exchange rate will be formed with minimal participation from the National Bank, proceeding from supply and demand for foreign currency (influenced by fundamental macroeconomic factors). The bank does plan to conduct foreign currency interventions on a limited scale, in order to restrain sharp fluctuations in the cost of the Rouble in the basket of foreign currencies. All these approaches are fixed by a monetary-credit policy approved by the President for 2012. 
The Chair of the National Bank’s Board, Nadezhda Yermakova, specifies that only sums available from the National Bank’s ‘surplus of gold and currency reserves’ will be used to support the Rouble’s exchange rate. Taking into account new foreign currency inflow and payment obligations (in 2012, Belarus will pay $1.6bn of foreign debt), the country’s gold and currency reserves should stand at $6.1-7bn by the end of 2012 (under international methods). 
Experts note that Belarus has begun 2012 with a record amount of gold and currency reserves: $8bn. However, loans from the National Bank and the Government account for most of the sum, in addition to income generated from privatisation of the gas-transport system. In late 2011, Russian Gazprom purchased 100 percent of Beltransgas shares, having previously owned half. Belarus earned $2.5bn from the sale of the remaining 50 percent.
Mr. Gotovsky notes that it’s difficult to forecast the Belarusian Rouble’s rate until the end of the year. However, it will remain stable at least in the first half of 2012. The economy has every chance to balance itself. “This will happen if the external market situation doesn’t worsen for Belarusian manufacturers, making the National Bank bring in a tough monetary policy,” he explains. In previous years, policy was soft, with monetary reserves growing at an accelerated speed, allowing the financing of a large volume of state programmes, major projects and constructions (which often failed to prove economically viable). Non-proportional expenses led to a significant growth in imports, while creating pressure on the foreign currency market; this was one of the reasons for the Belarusian Rouble’s devaluation and high inflation. 
Experts note that the problem is rooted not only in the scale of state support for the economy but in a lack of efficiency. Many financed projects are unprofitable, failing to generate enough foreign currency. With this in mind, in 2012, the Government and the National Bank are changing their view on the provision of state support for the private sector. Its volume will be cut while conditions will become tougher, reflecting the market.
The Development Bank (a new specialised establishment) shall act as an agent of the Government, providing credit for state programmes. Its funds will be formed on the account of the Finance Ministry’s deposits (the sums will be stipulated by the budget) and repaid budget loans. The bank shall allocate money on conditions ‘of promptness, ability to pay and return’. A qualitative business plan will be needed to receive a state loan and funds will only be granted ‘on condition of economic feasibility and financial efficiency’. 
The attitude towards risk is also changing: borrowers will either need to place a guaranteed deposit with the bank or issue guarantees ‘enough to fully repay the loan’. 
Economists from the Research Centre of the Institute for Entrepreneurship and Management believe that, from 2012, the approach to state programme financing will become stricter. Borrowers’ discipline should improve as a result, positively influencing the financial sector and the economy in general. 

Promising strategy
The Government and the National Bank are relying on attracting direct foreign investments this year. The arrival of capital and the establishment of competitive export oriented facilities should improve the state balance. 
In January, the Government and the National Bank approved a strategy to attract direct foreign investments, running until 2015. It aims to stimulate inflow of foreign capital, advanced technologies, and managerial marketing expertise to ensure ‘facilitated development of exports’ while better ensuring repayment ability. The reduction of ‘non-rational imports’ is also envisaged. The state hopes to see the country establish production facilities with high added value, while raising the production of science-intense and high-tech products. This is especially topical as, in recent years, export diversity has fallen; it now mostly comprises raw material products — oil products and potash fertilisers. Meanwhile, quickly developing states have observed the opposite, with more high-added-value products sold.
The National Bank and the Government’s strategy defines the attraction of direct foreign investments towards high-tech avenues: pharmaceuticals, bio- and nano-technologies, new materials and information-communication technologies. 
Belarus also hopes to attract direct foreign investments into its traditional branches: chemical production, manufacturing of machinery and equipment, production of electronic and optical equipment, car building, construction, production of building materials, agriculture, processing and light industry.
The state hopes to build existing enterprises into networks of transnational corporations — especially car building (the largest sector of the Belarusian economy). To attract direct foreign investments, we need to establish joint enterprises with large foreign corporations, in addition to making international alliances for the manufacture of car components, cargo trucks and agricultural machinery. 
Experts note that, to realise the outlined plans, the state must simplify its taxation system and reduce the tax burden. Institutional aspects also need to change greatly. Minsk will need to rival Moscow and Astana, which are also working on improving their business conditions. So far, our Single Economic Space neighbours are at an advantage regarding direct foreign investments. Last year, these reached $1,063 per capita in Belarus — against $3,000 in Russia and over $5,000 in Kazakhstan. 
What measures are to be taken to make Belarus a more attractive venue for investment within the Single Economic Space?

Protection of investments and privatisation
In 2012, the Belarusian Government is focusing on the field of taxation, aiming to stimulate the attraction of investments. On January 1st, profit tax was reduced to 18 percent (from 24 percent) — becoming the lowest figure in the Single Economic Space; in Russia and Kazakhstan, the tax stands at 20 percent.
However, experts note that the overall tax burden on Belarusian enterprises remains higher than in other Single Economic Space countries — as explained by our differing economic structures. In Russia and Kazakhstan, oil and gas generate most budget revenue — primarily, through the extraction of mineral resources. Belarus, meanwhile, lacks hydrocarbon reserves with which to generate income.
Secondly, Belarusian enterprises are taxed heavily to pay for the great number of state programmes which fund such social measures as privileged loans for accommodation, free medicine and education. However, the accumulated imbalance of 2011, which resulted in three-time devaluation of the national currency, has inspired the National Bank and the Government to reconsider this approach. State expenses are to be cut, while raising the efficiency of how budgetary funds are applied. These measures should allow the tax burden on enterprises to be reduced.
The state also plans to simplify tax administration, while improving its position in the World Bank’s Doing Business report (under the criteria of tax payment). To attract direct foreign investments, international standards of financial accounting are also to be applied. 
The state also plans to significantly improve the institutional sphere, while protecting investors’ rights and aiding privatisation processes; this should create a more attractive business climate. 
The Government and the National Bank are eager to ensure transparency in state bodies’ functioning, following principles of competitiveness. Investors’ legal rights and property must be protected; the National Academy of Sciences’ Economic Institute notes that this is a priority for businesses operating in Belarus. Clear legislation, positive law practice and well established court mechanisms for property protection are to send an important signal to investors, contributing to the inflow of capital.
The facilitation of privatisation processes is another powerful way to attract investments. In Belarus, the state owns approximately 70-80 percent of all business — not only major strategic enterprises (such as Belaruskali, Belarusian Railways, Beltelecom electric communications and other key sites) but many from the consumer sector. Accordingly, private investors have a great deal of choice in Belarus; in Russia and Kazakhstan, most similar enterprises have already been privatised. 
The Belarusian Government has announced plans to cut the share of the state sector and privatise state property in coming years. Annual revenue from privatisation should reach at least $2.5bn, aiding the balance of payments for the country. Indirect profit will be raised by increasing the efficiency of property management and the production of export oriented products (with high added value). Salaries are also expected to rise.

By Vladimir Vasiliev
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