Leanid Zlotnikau: Keynesian economics does not work in Belarus

The Ministry of Commerce stands for the next wave of soft consumer crediting in Belarus. But what will it result in?

"To increase sales of domestic production, reduce imports of consumer goods and the social support, the Ministry of Commerce has developed a draft decree for soft consumer crediting in order provided for by Decree No. 371 from July 6, 2009," Iryna Markevich, Deputy Minister of Commerce, stated that at the press conference on July 21. In fact, it is proposed to stimulate people "to buy Belarusian products".

But is this mechanism really effective? To find out an answer Ezhednevnik asked economist Leanid Zlotnikau for comments.

- Such a measure makes sense when the crisis is based on deterioration in demand, the expert says. - As the result of annual production in the country equivalence of two quantities is formed: value of input goods equals to all revenues of economic agents. This is the rule. But Keynes noted that the population had tendency to make savings. It we have production valued at $1 billion with the equal income, but the population decides to have $100 millions for a rainy day, then the demand is $900 millions. The sense of Keynesian economics is that excessive savings result in decrease in demand. In other words, all that have been produced in the country will not be consumed. Otherwise, it will lead to goods glut. One of the main provisions of the Keynes's theory is that the demand should be artificially increased. It will lead to production recovery and consumers will acquire the goods produced. When all is sold out, then a new cycle of production begins. In other words, overproduction crisis will be overcome.

- But does Belarus suffer overproduction?

- The situation differs. It is not the pattern of Keynes's capitalist cyclically operating economy, when additional money may help. Our crisis is of a different nature. Such scenario is affective until the presidential elections. Moreover, we have an open economy. Our external turnover exceeds the GDP. It means that our production should be in demand abroad. But to produce something we need to procure import details. Then we need foreign currency. But soft crediting does not provide us with it. More simply, our crisis is the crisis of inefficient economy as a whole. Only increasing competitiveness of Belarusian production in foreign markets could be the way out. Keynesian economics does not work in Belarus. We need a new way out.