Leanid Zlotnikau: Authorities would have to start printing press for new money

The government has adopted a decision to increase statutory funds of the four largest state banks by 2 trillion rubles.

This measure is to increase liquidity of bank system. As the government does not have such money available, experts believe that the state would have to switch on printing press, which in its turn would provoke inflation hike in the country, “Belorusskiye Novosti” informs.

As we have informed, in the end of November Alyaksandr Lukashenka authorized increase of statutory funds of state banks for a sum of about 1.5 billion dollars, at the expense of the state to increase their stability and capitalization. Technically increase of state banks’ statutory funds looks as following. As Interfax-West informs, with a reference to the Decree of the president No. 687 of December 17, long-term government securities (for 10 years) are to be issued. They are to be sold by banks “with the money received to become money deposits in their statutory funds”.

In this way “Belarusbank” statutory fund is planned to be increased by 650 billion rubles (by 39.7%, up to 2,288.8 billion rubles), “Belagroprombank” by 950 billion rubles (by 50.6%, to 2,828.6 billion rubles), “Belinvestbank” by 200 billion rubles (2.1 times as much) to 382.1 billion rubles, “BPS-bank” (“Belpromstrojbank”) by 200 billion rubles (2.03 times as much) up to 394.1 billion rubles.

According to the former head of the National Bank Stanislau Bahdankevich, it is not completely clear why the state would sell governmental securities to banks: “A bank can issue and sell its papers, receiving real money, in order to channel it for increasing statutory fund. Then it would be worth-while.”

Economist Leanid Zlotnikau believes that the state would be forced to start printing press for new money, which would cause considerable escalation of inflation. “It is simply inflationary pumping up money. There is nothing behind it,” he said to “Belorusskiye Novosti”.

The state does not have almost about billion dollars, in order to take them and give to state banks, the expert said. If the state sells bonds to banks, takes money and immediately returns this money, in fact it gives them simply a paper. And banks are to receive from the National Bank real money for this paper. “It means pure loan issue for the National Bank. I do not see a different variant,” Leanid Zlotnikau said. According to his estimates, as a result of such operations of the government, money supply in the country could grow by 7-8 trillion rubles. And in its turn it is to cause upsurge in inflation in the country.

The National Bank can give out money from currency reserve. However, the state is unlikely to dare to reduce reserves for almost one billion dollars. The IMF mission that works in Minsk now and is to issue verdict on granting 2 billion loan, won’t understand that.

For October 1, 2008 the aggregate statutory fund of Belarusian banks was equal to 5.4 trillion rubles (2.5 billion dollars), having increased by 20% since the beginning of the year. After implementation of the government’s decisions for increase of statutory fund of banks its total number is to grow by more than 55%, up to 3.8 billion dollars. As compared to the beginning of the year 2008 the total statutory fund of Belarusian banks is to grow 1.9 times as much.