Stanislau Bahdankevich: Banking Crisis Is Possible

In 2017 stagnation will continue, the standard of living will not rise, and the banking system is likely to be crisis stricken.

Former head of the National Bank Stanislau Bahdankevich summes up in an interview with the EuroBelarus Information Service the economic results of the expiring year and outlined prospects for 2017.

– The presence in the market most of the necessary goods and services can be regarded as success, of course. But the gross domestic product has fallen, cash incomes and living standards have decreased, the labor productivity has declined, the export decreased. The health care system does not work properly – it’s even a problem to make an appointment to see a doctor.

The administrative model of economic management has shown its ineffectiveness, and there are actually no reforms. There are a lot of professional, thoughtful people among the mid-level government officials, which seems to be a bright spot. Recently the International Monetary Fund held a round table, and the position of First Deputy Minister of Finance, Economy, Chairman of the National Bank is close to me. But they are unable to promote their views above their positions and develop an optimal program of changes of the economic model or conduct any reforms.

There are no prospects for next year either. It is necessary to reduce taxes to revive the economy – but it is not likely to happen. It is necessary to change the management structure of state-owned companies, it is necessary to change the incentives for companies (efficiency, profitability, even without carrying out reforms, must be put at the forefront), the abuse of administrative power, when an official from Lukashenka's administration or government is appointed at the operating company in addition to the directorate, has to be stopped. All the unusable economic management system is being maintained. Therefore, I believe that next year will pass under a negative sign: the stagnation will continue, the standard of living will not rise. And considering the problem of bad loans repayment, which reaches 80-100 percent of state-owned companies’ working capital, problems in the banking system are likely to arise.

– Is the banking system at the edge of systemic crisis?

– The crisis is possible, if the authorities do not take any actions, if they continue to maintain the current status quo. And the crisis can be prevented. If to give authority to a modern-minded officials and clerks, it is possible to prevent this collapse. But even if the economic leadership is governed by common sense, the recession will still continue, and only at the end of 2017, taking into account the cyclical nature of economic development, we could expect some raise.

– Appointing Vasil Zharko as Deputy Prime Minister, Lukashenka once again reminded of the need to raise the average salary up to $ 500 in 2017. How will the realization of this idea affect the economy?

– I can advise Lukashenka to consider not the 500 dollars, but the program of achieving this salary, achieving productivity, how to stop manufacturing products that cannot be sold at a price above the prime cost, how to prevent losses, how to stop covering MAZ, MTZ, machine-tool industry losses at the expense of potash sales... The mere articulation of $ 500 is absurd, and the goal is unattainable, because there is no program for economic reforms.

For a few months the salary can be raised up to 500 dollars due to emission, by increasing the money stock. But it will be immediately followed by a collapse. I think Lukashenka realized the cause of hyperinflation and currency collapses in two or three at a time, so he will not agree upon unreasonable emission. And if they start printing blank money – the collapse is inevitable.