Belarusian Oligarch: Serious Destabilization Is Possible in the Country

Business recognizes severe situation in the economy of Belarus.

General Director of OOO "Serge-fashion" - producer of Serge underwear - Siarhei Atroshchanka published an article on Onliner.by.

Businessmen and directors of enterprises in the early 90s remember well what non-payment means, when non-cash money was replaced with promissory notes, barter, and sometimes with bags of cash money. First the Soviet government, then the young CIS countries tried to overcome inflation by limiting money supply and regulating prices using administrative means. The result was the increase of unemployment, the trade deficit, the black market and hyperinflation, as money had to be printed.

This historical example clearly shows what a latent (delayed) inflation means (accumulation of imbalances which requires printing of money) and why some measures of monetary policy are not effective without structural reforms.

That is why the National Bank of the Republic of Belarus, while maintaining control over the money supply, urges to structural changes in the economy.

Open inflation, which is measured by the National Statistical Committee currently equals to 7.8%. It is still hard to name the scale of latent inflation which is like a bubble blows up in the form of arrears in payments for energy and bad debts to banks (how much money is needed to additional capitalization?).

Many things will be clear after the audit of the banking system, which is currently being carried out.

Latent inflation growth occurs against a background of growth of relative indicators of the gross external debt, which exacerbates the situation. Since January 1 indicators of the gross external debt against GDP have increased from 69.6% to 73.6% as of April 2016 and have the potential to reach 80% by the end of the year (if nothing changes) as GDP in dollars is getting lower.

External debt service is a heavy burden for the economy of Belarus. All citizens and businesses can feel it. To understand how serious the situation is, one can pay attention to the following material: "The Central Bank of Russia reported on the instability of the external debt." Experts consider it instable when reaching 40%. In our country, this figure is close to 80%. It is impossible to compare the state of our external debt to one in developed countries (the indicator is even higher), because they have different access to financing, interest rate, market development, generation of income, debt service pressure on the budget.

The progressive part of the Belarusian state apparatus is well aware of challenges and solutions the country is facing now.

A good plan was adopted at the "All-Belarusian Assembly", however, it still mostly remains a declarative document. We see no active operations on small and medium-privatization, changes in legislation in terms of protection of property and many other points of the plan, which would contribute to investments and growth in business activity. After all, external investments bring new technologies, the demand increase for the national currency (it could be even more strengthen the ruble), which allows among other measures to find a solution to the problem of latent inflation.

The increase of business activity and the transition to the growth of GDP is the best solution on the issue of reduction of the relative indicator of external debt, improvement of incomes. In the meantime, we observe rather strange actions to reduce budget expenditures, for example, the reduction of construction of nursery schools in Minsk. Such decisions, not to mention the social side of the issue, reduce the aggregate demand along with the drop in real incomes and lead to preconditions for "decline in demand - production drop - drop of income."

Budget expenditures, of course, require reduction, but it should be directed at the state apparatus, support of public enterprises, equal conditions for fair competition. As a result, (it sounds strange) it is necessary to make the state administration bodies carry out the plan of the fifth "All-Belarusian Assembly".

Imbalances emerging in Belarus can be put under control, the National Bank notes, and this is true, if adequate measures are performed. Imbalances in the international financial system against the backdrop of quantitative lightening look more worrisome that is described in the authoritative business magazine Forbes. Anticipating options for further situation development in Belarus and considering the openness of our economy, it is necessary to evaluate the external factors. In many ways, our state of affairs much depends on the situation in the EU and Russia.

Speaking of investments, it should be noted that currently trillions (!) of dollars are instruments with a negative yield. Investors start to move towards emerging markets, and we have to win in the competition for investments. Macroeconomic stability depends on it.

Formed ruble corridor at the level of 1.9-2.1 per dollar remains the baseline scenario until the end of the year in case if the government and the National Bank demonstrate determination in actions with imbalances. I would like not to mention other scenarios, but if imbalances accumulate, it will be better for the National Bank to devalue the ruble and to maintain positive rate on deposits. Otherwise, there will be preconditions for the serious destabilization.