Leanid Zlotnikau: Inflation rate is 25% in 2015

A hard year is waiting for the Belarusians.

Yesterday it was known that Lukashenka adopted the plan on further Belarus development without any discussions. Did these plans seem to be extremely ambitious considering that economic experts repeatedly warned about minimal 20% inflation to come? Charter97.org had an interview with economist Leanid Zlotnikau both on this issue and the most possible economic problems for the Belarusians in 2015

-In case you think that the plan is based on some strict calculations then you are wrong. So this is why it is a prognosis not a plan. In practice, it is likely an approximate plan as there are no more methods of planning but input-and-output balance. The input-and-output balance is a hard instrument where variations within a few per cents do mean nothing, moreover the numbers after comma are just a view of something knowledgeable has been meant by it and nothing more.

-What may be a real face of inflation in Belarus if taking into account a present geopolitical situation?

Now it is easy to predict. Year on year the civil servants promise that the inflation will not overcome a 12% level, but in fact it is at least 20%. So now these repetitions can be extrapolated and it can be said that the inflation will be at least 20% this time too.

But nobody knows for sure what is going to happen next year. This is because, first of all, we observe unstable and incomprehensible situation in Russia. Besides, Belarusian products have considerably lost their competitive ability. Especially it is easy to see after the Russian ruble’s devaluation which has taken place in a few months this year. So it leads to decreasing level of exporting goods to Russia, our main partner, not considering the export of oil products.

-In case there is a decrease in export, continued decrease in oil price and the Russian ruble’s falling, so will it mean even greater inflation level than it could be in case of more favourable external conditions?

-It’s almost like there will be a GDP growth recession and even the privatization of two or three large enterprises will not be the way out. The inflation will overcome 20% level, likely it will make up 25% as before the presidential elections new money is printed and handed out to the citizens. This is the scenario for inflation: first of all money, not provided with goods, is printed and then handed out to the citizens as wages and other revenues. And then, when people spend their money and a new trade cycle starts it leads to goods and services price increase. But it is a late increase. Purchasing power increases along with wage growth, but it is for 2 months only, it may be three. And then a “flashback” is observed what means that the situation is getting even worse than it has been before. It causes the slowdown of wages. So, before presidential “elections” they may “flip” some money which will provoke inflation. So its level will be higher than because of “elections” this year.

-So in fact is the economic situation after the “elections” going to be even worse than it was in 2010?

In economic sense the situation is already worse than the same in the end of 2010.And it is much worse! You see, there are no factors we can rely on in order to say that everything is going to change for the better. We have no levers to change our position as well as our country is not to come into a fortune!

-- What threats may the Belarusians face?

-We should be ready for falling wages so it has been happening since August. It seems like it has been not a critical fall but according to our statistics it is still falling. In case nothing changes this tendency will remain as we have no resources to tackle the situation.

-Will the privatization be the way out?

-Our plants and enterprises have decreased their competitive ability so the situation is even worse than it has been before. Technological modernization of governmental enterprises does not work so they do not function in a better way and the quality of goods remains the same and as a result the competitive ability is decreasing. There are no proceedings from privatization and they are less than possible. It looks like our enterprises cost much and we may make money on them and keep the economics alive but in fact we have only few of them, such as captive production and oil refining companies. The others are not competitive.

-So we have only “Belaruskali”, Mozyr Oil Refinery, “Naftan” and “Grodno Azot”…

He has not accepted their privatization for many years so it won’t happen now. Lukashenka understands that he will have the same situation as it was with “Gazprom”: he will lose his power, money and won’t be able to place his people there or even to get a piece of information. Everyone knows that Lukashenka is afraid of losing his dominating position. So this is why I don’t see any reason why the situation should change for the better.

-But for the case of emergencies it is always possible to borrow money…The authorities must have a lot of friends in Arab states whom Lukashenka “gives away” the earth and pay visits to.

By the way, we can borrow less money now. We used to borrow and spend money then re-borrow it and pay old debts with a possibility to leave something to live on and it seemed like it went on getting easier. But in the last few years Ministers of Finances and Economic Affairs have visited South-Eastern Asia, Europe to find large banks which might spread authorities’ bonds and for the European stock exchange could lend a few billion dollars. But all these attempts have failed. So Russia is in such position now that instead of raising assistance it may reduce it. Besides, the Belarusian authorities will likely lose the export taxes they have wanted to leave for themselves and use them as additional way to raise the Belarusian budget. But oil prices downturns reduce to zero these export taxes. We suffer losses so we can see and predict them what cannot be said about country’s incomes… There is no source to take money from.