Trajectory of sustainable development

[b]On September 14th, Belarus witnessed an event awaited equally by national businesses, foreign investors and the public: the Foreign and Currency Stock Exchange launched an additional session for trading in foreign currencies, aiming to determine a market rate for the Belarusian Rouble[/b]The additional session closed at a level of Br8,600 per dollar while the main session saw the level set at Br5,355 per dollar (for foreign currency need to buy critical imports such as energy and medicine). In the days that followed, the rate at the additional session fell, while rising slightly at the main session. As a result, the market rate and the official rate have come closer.
On September 14th, Belarus witnessed an event awaited equally by national businesses, foreign investors and the public: the Foreign and Currency Stock Exchange launched an additional session for trading in foreign currencies, aiming to determine a market rate for the Belarusian Rouble
The additional session closed at a level of Br8,600 per dollar while the main session saw the level set at Br5,355 per dollar (for foreign currency need to buy critical imports such as energy and medicine). In the days that followed, the rate at the additional session fell, while rising slightly at the main session. As a result, the market rate and the official rate have come closer. A week after the additional session’s launch, Deputy Prime Minister Sergei Rumas and the Deputy Chairman of the National Bank’s Board, Taras Nadolny, announced, “If everything goes to plan, we’ll put an end to the multiplicity of exchange rates.”
Experts note that a unified, balanced exchange rate would be a serious step towards economic ‘recuperation’; enterprises, entrepreneurs and foreign investors would gain a clear focus for their future activity. At the same time, economists stress that external financing will also be necessary to stabilise the Belarusian foreign currency market. Its major resources include income earned from privatisation and International Monetary Fund loans. In addition, experts believe that the state needs to toughen its monetary-credit policy, cutting financing for state programmes and rejecting rouble emission (to ensure balanced economic development). The Government and the National Bank are already working on this issue.

Positive signals
The significant devaluation of the Belarusian rouble this year has affected people’s standard of living. However, from a macroeconomic point of view, it has yielded positive results.
In May, the official rate of the Belarusian national currency fell from Br3,100 to Br5,000 per dollar. Trade figures from the first seven months of 2011 show that the Belarusian economy has become more balanced. According to the National Statistical Committee, from January-July, exports to the EU rose 2.2-fold, to reach $8.6bn, while the positive trade balance with the EU stood at $3.8bn.
Our trade with Russia has a negative balance of minus $5.9bn but the pace of Belarusian export growth to Russia (up $43.1 percent from January-July) is approaching the pace of import growth (up 42.4 percent).
July data is indicative, as the positive foreign trade balance reached $380m — the best to date in the history of sovereign Belarus. Experts note that, in July, we exported 65 percent of our total manufactures (up from 45-46 percent previously). Meanwhile, our imports were estimated at 66 percent. In recent years, Belarus has witnessed a negative foreign trade balance, buying more than it has sold. However, the drastic devaluation of the rouble has led to our exports and imports becoming more balanced.
Experts expect the single balanced exchange rate for the national currency to rest at Br6,000-7,000 per dollar by the end of the year. In addition, the Economy Ministry hopes that Belarusian exports will continue to rise, outstripping imports.
The Deputy Economy Minister, Alexander Yaroshenko, also notes that devaluation has somewhat closed the gap between production and consumption. In January, the pace of growth of real salaries in Belarus outstripped labour efficiency by 20 percent. However, from January-July, this gap was cut to 2.9 percent. In dollar equivalent, salaries fell, better reflecting labour efficiency.

Dealing with mistakes
Alexander Gotovsky, the Deputy Director of the Centre for System Analysis and Strategic Studies at the National Academy of Sciences, believes that we must temper domestic demand while expanding exports. This should balance the situation on the foreign currency market. He stresses that domestic demand fell following the devaluation but that additional measures are still needed to ensure economic revival.
“In recent years, we’ve stimulated GDP growth via domestic demand; this has been a major reason for the currency deficit. From 2009-2010, external markets demonstrated less demand for our products, due to the global crisis. To keep pace with existing production volumes and maintain GDP, our state stimulated domestic sales via emission,” explains Mr. Gotovsky. This enabled agricultural companies to raise their purchase of Belarusian tractors, combines and cargo trucks, renewing their fleets — which was no bad thing. However, as a result, we almost exhausted our foreign currency buying metals, components and energy from abroad — as the machinery was bought internally rather than exported.
Mr. Gotovsky asserts that the Government now needs to ‘stop stimulating domestic demand, pushing producers to sell more actively abroad’. “The state shall, probably, have to re-consider its investment portfolio, postponing some programmes, projects and construction sites. Some will have to be permanently put aside, since this is the only way to radically cut emissions,” Mr. Gotovsky notes.
The Economy Ministry agrees, as Mr. Yaroshenko notes. He explains that the state will do all it can to avoid expanding domestic demand via budgetary and credit emission, while inspiring exports. In turn, enterprises’ increased foreign currency revenue should bring stability to the monetary market. Belarus hopes to receive foreign loans and direct foreign investments, which will encourage an affordable rate for the Belarusian rouble and sustainable and balanced work for the national economy.

Useful credit
Minsk hopes to receive $5-8bn from the International Monetary Fund to solve macroeconomic tasks. In September, on the eve of the arrival of an IMF mission to Belarus, PM Mikhail Myasnikovich noted that our country can solve its challenges even without IMF loans. The Government does not view this issue as critical but Mr. Myasnikovich added, “Talks are underway and Belarus has no plans to reject a new IMF programme.” Minsk is interested in the Fund’s financial support.
Experts say that this help will be useful. Doctor of Economic Sciences Alexander Luchenok tells us, “After devaluation, our export revenue has come closer to import expenditure. However, our foreign trade balance will remain negative even by the end of the year. Accordingly, we need additional foreign currency resources to meet our payment balance deficit. In addition, we need to meet our outstanding obligations.” Belarus’ foreign debt is estimated to reach $5.3bn this year, falling to $4.9bn next year. No doubt, IMF money will be useful. Moreover, as Mr. Luchenok says, the Fund allocates resources at profitable interest rates.
The Administrative Director of the Belarusian Economic Research and Outreach Centre, Pavel Daneyko, also views IMF loans as useful. He stresses, “It’s impossible to level out the economic misbalance within just a few months. Around three years will be needed to achieve balanced foreign trade. However, it won’t be a catastrophe if we fail to receive an IMF loan — even though it would help us through our transitory period.” He does note that receiving an IMF loan would send an important signal to investors, showing that our economy is reliable and that our economic policy is reasonable.
“To receive an IMF loan, several serious conditions must be met, such as restricting salary growth,” adds Mr. Luchenok. “From a macroeconomic point of view, this might be a wise decision, as it would restrain inflation. However, our people’s interests must also be taken into consideration. A compromise is needed. Moreover, Belarusian state policy is socially oriented.”
Mr. Daneyko believes that restraining salaries is reasonable. He explains, “If salaries rise as a result of export growth and inflow of foreign currency, this is natural and good. However, if we start raising salaries artificially — to compensate for rising prices — inflation may accelerate even faster. The volume of roubles in the national economy will continue growing, leading to increased pressure on the foreign currency market. Through these measures, we’ll simply speed up the inflation-devaluation spiral, which isn’t a good idea.” He asserts that salaries will gradually return to their previous levels, owing to economic factors. “At present, Belarusian seamstresses’ work is estimated to be worth around 3 cents per minute — less than in China. I expect that, in the near future, Belarusian light industry will receive more orders from abroad, in addition to direct foreign investments. This trend will be seen in other branches as well,” he notes.
The growth of exports and investments should create a healthy basis for raising salaries and restoring people’s standard of living. As Mr. Daneyko emphasises, we must step aside from artificially raising incomes.
The National Bank is paying attention to the IMF and experts’ recommendations. In September, its Chair — Nadezhda Yermakova — commented upon salaries, saying, “If the official exchange rate of the national currency changes significantly, we’ll need to raise salaries — taking into consideration inflation. However, this money must be earned. As regards those employed by state-run enterprises, additional tax payments should be in place. Salaries will only be raised when we have a deficiency-free budget.”

Issues of property become more acute
Minsk plans to use privatisation to pay off its foreign debts, increasing gold and currency reserves and enhancing economic efficiency. Back in August, President Alexander Lukashenko announced that, by the end of 2011, the country hopes to have received about $5bn from strategic investors. In September, the Chairman of Gazprom’s Board, Alexey Miller, came to Minsk, negotiating large privatisation projects.
On meeting the President, he said, “In recent months, our talks have been quite successful. I know that they’re being conducted under your direct control. We’re approaching a stage where a serious package of documents is ready. Among them is a new contract for gas supplies to Belarus — from January 1st, 2012. This is supported by an intergovernmental agreement on the principles of price and tariff formation, in addition to an intergovernmental agreement and a purchase-and-sale agreement for 50 percent of Beltransgas’ shares.”
Gazprom already owns 50 percent of the Belarusian gas transport system’s shares but the Russian company plans to gain 100 percent. The controlling package is estimated to be worth $2.5bn.
Mr. Lukashenko has invited Gazprom to participate in buying other Belarusian companies’ shares, saying, “There are plenty of proposals. If Gazprom agrees to Belarus’ conditions, there’s a package of issues available for study.”
Experts say that, in the near future, Gazprom’s purchase of Grodno-Azot (producing nitrogen fertilisers and using Russian gas as a major raw material) could be discussed. In addition, Gazprom’s participation in privatisation of Brestgazoapparat, JSC seems possible; the facility manufactures gas equipment. Large enterprises in the field of petro-chemistry and electricity could also become a focus of attention.
Minsk stresses that enterprises’ enhanced efficiency is the real goal, rather than the simple attraction of foreign currency. However, conditions for investors remain unchanged, as businesses must be socially oriented, with guarantees given that employees’ interests will be protected.

By Vitaly Vasiliev
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