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Belarus in Focus
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Belarus in Focus 2011

15 Nov

Michał Potocki, Dziennik Gazeta Prawna (Poland)

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Lukashenka's regime in utter ruins, Belarus clutched by crisis

The Belarus' economic golden age ended along with the devaluation of the rouble and the implosion of the currency reserves. Alyaksandar Lukashenka has finally proven that he is clearly unfit to ruling a country. Many faulty decisions led to the point of no return and now the country is forced to choose between the bad and the worse. Just over a year ago there was nothing that would suggest such a course of events to unfold. Between 2008 and 2009 Minsk introduced several liberal reforms, aimed to support investors. Five turnover taxes were taken down, the new company's registration process was shortened to a day and a 12% flat tax rate was introduced for the businesses.

The outlook was pretty good

The government began the search for investors. ‘We are following a mixture of the Polish model, aimed at changes in the economic law, and the Turkish one, with its potential investors selection process and bilateral talks.’, said in the ‘DGP’ interview Viktar Kavalyenka, the head of the National Investment Agency. Belarus also managed to impress the World Bank itself. After just two years of reforms it climbed from the 115th to the 58th place in the Doing Business ranking, taking over Poland. Minsk remained an economic green island even in 2009, noting 0.2% increase in GDP. The next ranking advances were thought to be just a matter of time. Even more so after the 2010 elections that, despite the violent repressions of protest movements, reinforced the reform wing of the government.
Deputy prime minister Uladzimyer Syamashka, the man behind the energy politics of the country, and the head of the presidential administration, Uladzimyer Makyey, were joined by new figures. Resurrected from the political void Mikhail Myas’nikovich, an economic progress scientist, became the prime minister. The ambassador to China, Anatol’ Tozik was recalled to country after becoming familiar with the local non-democratic version of capitalism and was supposed to apply it in the country from the position of the deputy prime minister.
‘Unfortunately, our government has come to a conclusion that the people were driven to the streets as a result of not only political, but also economic liberalisation. Therefore the decision was made to abandon a path compliant with the IMF expectations and to tighten the screws.’, says Alyes’ Alyakhnovich, an economist from the CASE Belarus institute.
And those new solutions were supposed to modernise the country, with the relative well-being of the Belarus citizens intact. ‘Our economy has very long-range goals. We don't have any foreign debt, our inflation is low and our people tend to work hard.’, said Lukashenka in an interview with the German newspaper ‘Die Welt’ in 2007. Four years later, none of the presidential claims, maybe excluding the diligence of Belarusian citizens, remains true.
The story behind the roots of today's Belarus' problems sounds like a butterfly effect anecdote, in which flapping of its wings in Canada springs up twisters in Texas. In 2006, before the previous elections, during the 4th All-Belarus People's Assembly, that is the body behind the creation of the new 5-year plans, it was promised that in 2011 the Belarusian earnings will reach 500 dollars.
The promise has been made, but for a long time the wages have been rising slowly and in a year before the elections they barely reached the level of 1.1m roubles, that it about 384 dollars. The problem has been risen to attention again in 2010. It could not come to that the key presidential promise would remain unfulfilled. It was not long before the results could be observed, even in today's official statistics. In 2009 the average wage has grown in real terms by 0.1% and retirement payments by 0.2%, which equals the general economic growth. In 2010, the year of election, the growth equalled respectively 14.9% and as much as 23.9%, with GDP rising by 7.6%. The minimal wage was also risen by half. Of course this rise in wages in no way reflected the real performance of the Belarusian economy, but Lukashenka got what he wanted: in December the average wage was over 1.5m roubles, what equalled exactly 532 dollars.
Those raises were paid for by – directly and indirectly – businesses. In August 2010 the government raised their electricity payments by 21%, along with 13% increase in gas bills. The government printed more currency. The pressures were also made to raise the worker wages. In October 2010 the deputy mayor of Minsk, Hanna Matsyel’skaya, sent official notifications to the private businessmen, demanding to ‘secure wages at the 500 dollars level or equivalent’. Otherwise – this time unofficially – one could expect an inspection, which, in the Belarusian conditions, may well lead to closing of the business.
Citizens do not buy the promises
Belarusians have spent their raises on their own investments, predicting that such a situation may not last for long. They started investing in dollar, euro and gold. Used cars became popular, as June 1st 2011 will most likely bring a multiple raise in the customs rate for the western cars, as a result of a Customs Union of Belarus, Russia and Kazakhstan. The quicker, the better – the first gossip about the expected currency devaluation started already in fall.
Of course the authorities have denied any of this. The bank representatives assured ‘DGP’ in August 2010 that the export, which covers 70% of Belarusian GDP, has bounced back from the collapse and another (the first one was introduced in 2009, saving the economic growth) devaluation is not deemed necessary. ‘As long as I am the head of the central bank, there shall be no devaluation’, added Pyotar Prakapovich in October 2010.
However, the situation quickly slipped out of control. What helped was the fact that the pre-election social spending, not uncommon in the post-Soviet countries, was amplified by the gradual withdrawal of Russian from the supporting of the Belarusian economy. Moscow has once again raised the resource pricing, which made the January imports value to grow by 36%.
‘This is a structural problem, with its roots reaching 2007 and the worsening of the relations with Russia, which in turn led to gradual raises. As a result, Minsk now pays more for importing oil, so after refining process it sells it to the West also at steadily rising prices. This is how the economy loses its competitiveness and the exports begin to drop’, says Alyes’ Alyakhnovich.
The trade deficit was growing, which led to the draining of the currency reserves, additionally weakened by the frantic selling of roubles by common citizens. During the first quarter of the year the reserves' level dropped by 1/4. Not even emitting 800m Eurobonds helped.
‘The authorities led to this panic. When at the beginning of the year the foreign economists claimed that the 20% devaluation of rouble would be just enough, the possibility of such move was denied. And more often it was denied, the less people would believe in such claims.’, remarks Alyakhnovich. In March, when the devaluation seemed to be just a matter of time, Belarusians have collectively bought about 768m dollars. ‘Luckily I've managed to buy dollars before the wave of hysteria. The first people at exchanges were the young ones, who found out about the situation thanks to the independent web media. Later the news also reached the old ones.’, says Valyeryya, 23-year-old citizen of Minsk.
When the exchanges have been drenched of dollars, people started to take credits and to gather consumer goods: RTV equipment, sugar, cigarettes, creating another strong inflation stimulus after the wage raises. The basic articles prices' have been influenced most, with potatoes rising by 80% and the native radish becoming more expensive than African coconuts.
Finally, in May 24, the authorities announced their decision to introduce 54% devaluation of rouble, which would approximate the official exchange rate (4,900 roubles for a dollar) to the black market one (over 6,000). The highest devaluation of last 20 years was not very fruitful. Despite the fact that people have lost over the half of their dollar funds, the exchange situation did not normalize. On Wednesday ‘Nasha Niva’ claimed that the community list in Belarusbank on the Minsk railway station still contains 710 names. The limit for a single person is one thousand dollars, but during the whole day only three people came to sell hard currency. In one of the Minsk exchanges on Yesenin Street, people were buying dollars they've signed up for before the Easter. Even a kind of queue businesses sprouted, in a form of babushkas, selling homemade pies to the waiting.
Nobody's thinking about the 500 dollar wages now. While an average Belarusian still earns 1.5m roubles, right now they are worth no more than 300 dollars. Maybe even less, as the black market course of the rouble is still plummeting. That's why the foreign bills remain a real treasure for Belarusian citizens. Even some crisis-time humour appeared, like  in a following example: What are the three degrees of the Belarusian poverty? The 1st one, you have no money. The 2nd when there really is no money. And the 3rd one, when you have to sell your dollars.
Return of Andropovshchina
The crisis triggered a shift among the Lukashenka's advisor crowd. When endangered, the president prefers to implement methods taken straight from his kolkhoz management experiences. The manual control, never fully abandoned, now returns in full glory. The government reformers have lost their ability to contact the president, or they are simply ignored by him and his administration. This regress takes the country back to the era of Yuri Andropov and early Mikhail Gorbachev. The former had an idea in 1984 that hard work is all it takes to come out of the Brezhnev's economic stagnation. And the way to ensure diligence is an extended system of control and freeloader hunting. Gorbachev initially followed this notion, calling it uskorenie (Russian for speeding up).
Andropovshchina duo began with an attempt to control and manage the currency market. The authorities forbade importers from buying currency in amounts higher than 50,000 euro. Any forex transactions have to be followed by a 30-day notice. And last, but not least, the exporters were instructed to sell a portion of currency earned in the foreign trade by an official exchange rate, which at one point was half as high as the actual one. On the other hand, the battle to restore the efficiency and earnings of companies, severely damaged due to the energy costs increases. Still, instead simply extending the range of the free market, as should be advised by prime minister Myas’nikovich and his deputies, further controls and regulations were introduced. Militia and controllers visit the workplaces, checking on the employees, their punctuality and general tidiness of their surroundings and lockers. In case of irregularities, you are in for a fine. In Rechytsa militia controlled people in a grocery store, in the middle of the day.
‘The militiamen shut the door, taken info from everyone inside. They asked everybody if they are employed. Finally Lukashenka announced on the TV that independently of popularity of such methods, they will keep an eye on people's whereabouts.”, tells ‘Nasha Niva’ a local entrepreneur Alyeh Shabyetnik.
Such undertakings are not nearly enough to be a remedy. 52% of the public debt is not going to pay itself, and its management enforces another credits – and fast, because most of the debts reach their maturity dates between 2012 and 2014. After December 19 a loan from the west seems to be out of the question (however the authorities aim at trading the political prisoners). The only possibility is Russia – and it did provide a credit, with conditions including selling of the most profitable chunks of the national resources: Beltransgaz, a transportation company, MAZ, a recognized producer of tractors among the developing countries, a potassium potentate Belaruskali or both refineries.
This time, however, the sovereignty of Belarus is at stake. Lukashenka found himself between Scylla of selling out the Belarusian national resources and Charybdis of an immediate crash. While the first one may bring a relief, it will be only a short one, if the decisive reforms won't follow. In such case, however, Minsk will lose its ability to autonomically shape its own economic politics. Simultaneously Bats’ka will encounter an outrage from the influential technocratic faction – including directors of the companies that were preparing for the privatization of their assets. Nobody wants Russians to perform this process.
However, an immediate crash will leave nomenklatura with nothing to enfranchise. There are black clouds gathering
over the president, if you also mention the discontent in the army.
And only the national propaganda machine seems to be impervious to this drama. The next day after announcing the devaluation, the presidential paper ‘Belarus Segodnya’, instead of addressing the issues, stamped ‘The New Perspectives Arise’ title on the front page.
The article was actually about the president's visit in Kazakhstan.
‘Ah, to visit this Belarus that they show on TV!’, exclaims the old lady from a popular anecdote.


















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