The dictator, the National Bank and the Council of Ministers have already started to shift the blame on each other’s shoulders.
The heads of the Council of Ministers and the National Bank are preparing for bankruptcy of their “economic policy.”
Lukashenka has given account of his considerations concerning Andrei Kabiakou and Pavel Kalaur’s plans on June 22 in his speech at the 5th “All-Belarusian People’s Assembly.” The dictator said then: “I do not know what for, but recently everyone from the vertical of power is trying to report something to me. As far as I understand, they want to receive blessing, so that in the case of failure I would be responsible for all that, don’t they?”
As stressed by Lukashenka, in the case of failure they are to answer: “Don’t even think to stop the economy! Then per cents and loans to be scored up against you.”
But finger pointing is a secondary thing. What is more important is Lukashenka’s observation that Andrei Kabiakou and Pavel Kalaur seem to decline all responsibility for a possible bankruptcy of the economic policy conducted by them.
It’s not a secret that the situation in the Belarusian economy is on the downgrade, and it is not excluded that a crisis could take place, statistics is eloquent of that. But statistics is one thing, and actions of officials who are preparing for a collapse are the other. It is a sign of serious troubles ahead.
A tight monetary and credit policy could cause GDP fall
The reasons of a possible crisis are understandable. At the moment the National Bank and the Council of Ministers are pursuing a quite tight monetary and credit policy. Loans in Belarusian rubles are rather expensive, salaries do not grow, but decrease in real terms, the National Bank does not give money, and so on. It has resulted in slowdown in inflation, and even the exchange rate of the Belarusian ruble is relatively stable.
However the country pays a high price for the financial stabilization. Reduction in household income (in real terms) has resulted in the state when Belarusian enterprises, having problems with sales of products in external markets, face decline or stagnation of demand in home market as well. As a result, the number of loss-making enterprises is growing, while others face sharp profits reduction.
Things are in a bad way even for those enterprises which previously were the country’s economy backbones. In particular, in the Q1 of this year the net income of Belaruskali was 0.67 BYR, while in 2015 it was 11.3 trillion BYR. And the Belarusian metallurgic plant, which had losses of 4.6 trillion BYR in 2015, has had losses of 2.2 trillion BYR just over the Q1 of this year.
Financial problems are gradually approaching banks. This year bad loan debts of Belarusian commercial banks (without the Development bank) has grown by 12.1% (by 1.6 trillion BYR) and reached 14.4 trillion BYR. It is 2.1 times higher than the indebtedness as of June 1, 2015.
However bad bank assets have grown by just 370.4 billion BYR in May, that is by 0.7%, and reached 51.5 trillion in June 1. And the share of bad assets in the assets prone to credit risks has grown to 12.44% in May. At the same time, the net profit of Belarusian commercial banks in May this year has dropped sharply: to 85.7 billion BYR from 375.3 billion in April.
Few months are left
Thus the financial condition of the Belarusian economy and bank system is deteriorating rapidly. And notably, judging by the dynamics of bank profits, the time when the red line is to be crossed, is near at hand.
It should be noted that until June the Belarusian economy had been supported by the population, which is eager to maintain the level of demand by selling foreign exchange (about $200 million a month). And consequently, as soon as this support becomes weaker, the economy is to collapse. And it could happen exactly this summer, as demand for foreign currency grows because of holiday season, and its supply drops.
And it is firstly to result in increased pressure on the exchange rate of the Belarusian ruble, and secondly, in decrease in demand for Belarusian goods in the home market. That is, a new decline of volume of production and the GDP are possible, as well as increase of bed assets and decrease of banks’ profits.
It is absolutely not clear what the National Bank and the Council of Ministers are going to do in this case. If they rescue enterprises and banks from bankruptcy, find money for them, it is to bring about a rise in inflation and a new devaluation. Besides, in this case the Eurasian Fund of Stabilization and Development could freeze granting new tranches of loans, which is to result in dwindling of gold and currency reserves, which are already scanty.
Programmes and plans for development of the economy are certainly passed in the country now, but years are needed for their implementation, and now every month counts. That is, a time gap between plans and reality exists.
But the National Bank seems to have an anti-crisis plan. At least, after the consultations held by Lukashenka with the Prime Minister and the chairman of the National Bank Board, Pavel Kalaur noted that some enterprises faced financial problems, and so banks had bad assets, and now the task is to keep these bad assets lower than some level, which would endanger the stability of the Belarusian bank system. What level would be considered a warning level, has not been informed by the head of the National Bank. It is not excluded that the bank is taking measures already: a ruble liquidity surplus has emerged in the bank system, and the National Bank is reducing the refinancing rate at high speed.
However the ability of the National Bank to cope with the imminent crisis causes doubts. And it’s not a problem with the National Bank, but it’s the fact that the leadership of Belarus has not realized yet, which factors had brought about the stagnation of the Belarusian economy, so they offered improper means for its solution. Moreover, even following recommendations of the Eurasian Fund For Stabilization and Development and the IMF would not solve problems of the Belarusian economy.
More fundamental reforms than securing a flexible exchange rate, stimulation of exports, increase of utility rates and other reforms of the kind are necessary. It could not be said in a few words which exactly. I have been writing about financial problems for 11 years already, and it seems to me I have understood which reforms should be implemented, and I have written about that in the book Nature and Roots of Russian Crises. A White Swan: Real Truth In Economic Theory.
The title is so complicated as it combines historical, psychological and economis issues. Modern economic theories are often unable to predict coming of important events in economy, and such improbable events were called “Black swans” by an American statistician Nassim Nicholas Taleb. The idea of my book is: taking into account some historical and psychological factors and phenomena of economic theory, such events could be predicted, that is, to turn them into “white swans.”
That is, human nature and reasons for this or that behaviour should be taken into account. The importance of that is illustrated by the abovementioned actions of the leadership of Belarus. The heads of the Council of Ministers and the National Bank addressed the president for him to approve their plans not only to shuffle off the responsibility for a possible failure on him, but probably as the existing problems need Lukashenka’s level of competence. The mandate of the National Bank and the Council of Ministers are rather limited. But Lukashenka didn’t use his wider power, in order not to take responsibility, and it means that the probability of a failure has grown. That is, Lukashenka didn’t agree to solve the problems of the economy, instead of that he has solved the problem of finding the one to blame for a possible failure. This is a case when a person’s character influences the economy.
The book is based upon Russian and world experience, however the conclusions in the book are completely applicable to Belarus. But so far actions of Belarusian officials are far from what should be done. So let’s get ready for a possible failure of the economic policy, like Lukashenka and the heads of the Council of Ministers and the National Bank, and let’s try not to miss this homegrown “black swan”, that is, to predict the occurrence time and depth of the crisis.
Uladzimir Tarasau, Belrynok