(infographic: Darek Gąszczyk)
The ideological basis of Lukashenko’s rule is the maintenance of stability – according to Lukashenko’s administration, this means the maintenance of the socialist economy, in which three quarters of the GDP is generated by state-owned companies. Belarus has an economic system inherited from the Soviet Union thanks to the supply of cheap Russian natural resources, Russian loans and access to the non-demanding Russian market. As recently admitted by the Belarusian Minister of Economy Nikolai Snopkov, the country’s economic growth is 50% dependent on its eastern neighbour.
However, this fragile stability is called into question once again. The negative tendencies can be seen not only in subsequent reports of international credit rating agencies or global financial institutions, but also in the public companies that are running into difficulties. Already in the previous year 29 out of the 30 biggest companies have laid off workers. State-owned employers are defending themselves against the crisis by reducing the length of the working week, or suspending the payment of salaries en masse. The reason: lack of market demand. In the first two months of 2015 exports and imports fell by approx. 30%.
Shortage of dollars – money changers and media to blame
Belarus involuntarily became a victim of Russia’s problems caused by the decline in oil prices, the devaluation of the rouble by 45% and the sanctions imposed by the West. The first signs of economic trouble appeared at the end of 2014, when dollars suddenly disappeared from Belarusian currency exchange offices. The National Bank of Belarus decided to act in accordance with its usual modus operandi by introducing a 30% tax on the purchase of foreign currencies. Meanwhile, the authorities have introduced a new law against money changers and blocked the websites of independent media for several days, so they “wouldn’t spread panic”. As a result, the Belarusian currency was quietly devalued by 25%.
The crisis that Belarus is entering affects not only the industrial sector, but also finance. In April, Moody’s rating agency reduced the foreign currency deposits’ ratings of the five largest Belarusian banks from very risky CAA1 to extremely risky – CAA2. Further downgrades would mean that they are threatened with insolvency. According to Vadim Jusub, analyst from the investment company “Alpari”, this is directly connected with the general state of the Belarusian economy. “The situation is deteriorating, the number of loss-making enterprises is growing and these losses may be transferred to the banking sector,” he said in an interview with TV Belsat.
The Belarusian banks are still rescued from a final crash by the unlimited state guarantees for the deposits of natural persons. However, Moody’s has also downgraded Belarus’s credit rating to the CAA1 junk level. Jusub stresses that without loans from the Anti-crisis Fund of the Eurasian Economic Community (in October 2014 the member states signed a document on the dissolution of the Eurasian Economic Community and its transformation into the Eurasian Economic Union. Soon the Anti-Crisis Fund is to be transformed into the Eurasian Stabilization and Development Fund) and the IMF, Belarus will not be able to help its banks in the event of a mass withdrawal of deposits.
Moody’s dirty trick
Moody’s report is a blow to the plans of the Belarusian Ministry of Finance concerning the issue of new Eurobonds – without this, at the end of July Belarus will be forced to deplete its dwindling foreign currency reserves (which amounted to approx. USD 5 billion as of 1st of April) by one billion dollars in order to pay off the previous tranche of Eurobonds. The most important Belarusian economic newspaper, “Belorusy i rynok”, called Moody’s report “a dirty trick” against the Belarusian authorities, as blocking the possibility of further borrowing would put the country in a very difficult position. In total, this year Belarus will have to pay back USD 4 billion worth of loans, which amounts to approx. 5.2% of the country’s GDP.
The Belarusian authorities launched a protest against Moody’s assessment and noted that Standard and Poor’s did not lower its rating and left it at “very risky”. The analysts of the American company believe that Belarus will receive loans from Russia this year, as announced by the Russian Prime Minister Medvedev at the end of March. However, foreign investors see the weakness of the Belarusian economy – at the news of signs of recession the value of Belarusian bonds fell by more than 4 percent.
Decline in GDP and high inflation
Not only Western institutions recognize Belarus’s problems. The Eurasian Development Bank controlled by Russia and Kazakhstan predicted a 1-2 percent decrease in Belarusian GDP. The World Bank believes that the decrease will amount to 3 percent. According to World Bank analysts, growth in Belarus will return only in 2017, provided a structural transformation is carried out, i.e. the state sector is reduced and the private sector is stimulated, the internal market is liberalized, the price controls are abolished (Raiffeisen Bank estimates that in 2015 inflation will reach as much as 23%) and the normal functioning of the labour market is ensured.
This concerns a change of the existing policy which de facto punishes the unemployed. The official unemployment rate is only approx. 1%; however, most of the unemployed people are “hiding” – they are working illegally or do not register for fear that they would be forced to take up low-paid jobs or public works. The Belarusian authorities have no intention of changing their strategy. In order to increase budget revenues the government has targeted the grey economy. President Lukashenko signed a decree imposing special fees or arrest for tax evasion. The Belarusians are comparing the new decree to a law on combating so-called “freeloaders” once in force in the USSR.
The Belarusian President has unlimited possibilities for administrative actions, which he will use to maintain at least the semblance of economic stability. Unlike the leaders of the democratic countries, he can simply terrorize the society dissatisfied with the economic situation, as he did in 2010 following the presidential election. Today Belarus is in a much worse position, because its largest lender – Russia – is also experiencing economic problems. Lukashenko, however, has gained a new argument – anyone dissatisfied with the economic situation will be accused of trying to pull the country into a Ukrainian scenario.