27 November 2020, Friday, 16:39
Sim Sim, Charter 97!

Default May Come, Economist Says

Default May Come, Economist Says

A pitcher goes often to the well...

The national debt of Belarus will grow by about 20% in 2020 and reach Br54.4 billion, as the Russian loan for the BelNPP construction will be taken into account.

Thus, the size of the national debt will hit the record high for the country.

How can this affect the economy?

Leanid Zlotnikau, the economist, answers questions of Charter97.org.

- Some economists believe that the service of the record-high public debt will cause an increased demand for foreign currency and weakening of the Belarusian ruble. Is such a scenario reliable?

- Now many Belarusian enterprises are going bankrupt. It may happen that there will be no money to repay the debts and one will have to negotiate with the creditors.

It's hard to say whether it's possible to get out of this situation at all and what it will cause. I asked such questions in some auditoriums with very qualified people. And I got no direct answer.

But one thing is clear that a pitcher goes often to the well, but is broken at last. For too long, the Belarusian economy has not increased its efficiency, its debts have been growing for too long.

Therefore, the conclusion is as follows: default is likely to come.

It is possible for the country, and not only for the enterprises that cannot repay their debts and will go bankrupt. And it will differ from one for enterprises. If a company can be sold because of debts, default is a more serious problem for the country.

So the situation is generally critical. This is true, and I will not refute it.

- The default... How will it affect the key indicators of the standard of living for ordinary citizens - the ruble exchange rate, wages, etc.?

- Naturally, it will lead to lower living standards. And it depends on the agreement between the government and creditors how much we feel it.

And the situation is getting worse. I always point at the following indicative phenomenon: companies borrow from banks to issue salaries. And when it comes to the repayment, they do it not at the expense of profit or some income, but the expense of new bank funds. That is, they do not have any turnover.

And there are a lot of such enterprises now, and they are moving towards default. Both the state and enterprises are at parting.

It is hard to predict now, but it is a fact that we are moving towards a bad condition. It remains to determine where and when it ends. Indeed, if Russia now demands to repay a billion dollars for a nuclear power plant within 10 years, there will be nothing to hope for. Those who took these debts are facing the default.

- Well... But apart from restructuring the loan for the NPP, Russia still does not want to agree on possible compensation for the oil tax manoeuvre...

- You know, there's a caveat - why should it compensate?

After all, when we have revenues from oil, we take these revenues from Russia, this export duty, you know? We didn't earn it. This is Russian duty.

It turns out that our authorities cannot provide for themselves and demand from a foreign state: "Support us!"

Here we need to pose a question differently. Why can't the country live without handouts? Other countries do not have oil, and they live like, for example, Japan.

They have almost no resources. At the same time, there are countries like Venezuela that cannot live. Belarus cannot live under this power. After a while, we will conclude that we cannot live without handouts.

But we should make our economy effective. It really can be. But other, more complex problems require solution and different management of the country. The current management system can only ensure the inability to pay off debts.

This power makes us drown slowly.

It happened that Russia has supported us for the last 25 years. It was the same in the USSR when we got raw materials at prices that were two times lower than market ones and sold finished products at doubled price in the market.

Russia played a terrible role, because, as they say, it boiled a frog. You know, if the country had been without Russia's support right after gaining independence, maybe some reforms had been carried out. But were a frog, which is boiling slowly. When it gets really hot, it is impossible to jump out.

- I cannot but agree with you... You mentioned these loss-making state enterprises, which are almost facing the default...

- I mean not only loss-making but also low-profitable. There are about 60% of such enterprises now. Do you understand? They cannot develop. They eat out everything they can.

I mean that the situation will only worsen. Let's take a look at mechanical engineering. This is the main thing we had. These large enterprises have been gradually reducing production over the last 5 years. They lose everything. That is, we are taking the wrong direction and we need to stop and come to our senses.

- It is increasingly doubtful that the authorities, in particular, Lukashenka, will take public sector reforms. Experts note that these state-owned enterprises are a "sacred cow" Lukashenka does not want to touch. What can this lead to? Won't this "sacred cow" hurt the whole economy?

Lukashenka is a determined communist. He thinks that, as in the Soviet Union, the state should be in charge: "These businessmen should not steal everything". He is a violent supporter of socialism.

But that is not all that matters. He realizes that only a market economy can be effective. This is both theory and practice. In this case, he should not bother the economy, not have real power, but be like the Queen of England: to welcome guests, ambassadors, etc. He will never agree to that. Never. Therefore, as long as Lukashenka is in power, there will be no way out.

- Lukashenka said that 2020 would be the year of mayhem, referring to the political component - presidential elections. May it happen that the economy will bring surprises and the year 2020 will become the year of economic mess?

- What other surprises? It has already demonstrated everything: enterprises produce less than they consume. There are 60% of such enterprises.

What does the profitability of these enterprises not exceeding 5% mean? They cannot increase salaries, renew their funds; their technologies and equipment are going outdated, and they are losing their competitiveness on the world market. Do you see? And we are a small country, an open one. To survive, we should both consume and supply a lot. Like any small country. We cannot exist normally today, to say nothing of tomorrow. We live off debts and patch our holes.

- That is, we have already reached the "bright tomorrow" of Lukashenka's economy?

- Yes. The budget deficit is huge. Now our authorities get not enough credits. Even the Chinese refuse.

The authorities rely on Chinese credit this year. But it is said that China will not give us much.

When discussing next year's budget, the authorities focus on loans. These are loans in the debt bond market. They will also borrow a little from their population, about 10%, because 90% will be borrowed from the foreign market.

Here comes the vicious circle: the country will keep borrowing. Of course, the Ministry of Finance said that after 2020 we should reduce our loans. But this is probably just a statement. How can we reduce interest rates on loans by about 7.5%, while the profitability of enterprises is less than 7%?

This means that the majority of state-owned enterprises will eat out loans.

- The picture is clear. It there any positive moment? What can be a way out of this situation?

- Well, the economy cannot be ruined, no matter how hard the authorities try. Anyway, people will raise potatoes, collect mushrooms, and earn money somewhere abroad: in Poland, in Russia. There are more and more such people every year. People will be will earn money somehow.

We still have industries that work - chemical and mineral fertilizers. There will be large enterprises and entire industries, which the authorities will sell for scrap. Scrap metal is expensive. We will hold out.