15 August 2020, Saturday, 19:27
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Economist: Prakapovich's Shadow Hovered Over Belarusian Money

Economist: Prakapovich's Shadow Hovered Over Belarusian Money

Some more "experiments" - and this power will not be able to retain.

On Friday, July 10, Lukashenka said he wanted to return Belarus to the planned economy, as it was in the USSR, and the state would now decide what salaries should be paid at private enterprises.

The strange statements of the ruler with the 3% rating are made while the financial system of Belarus is taking a hit and foreign investors are rapidly leaving the country after the raider seizure of Belgazprombank by the state.

How can all this affect the lives of Belarusians in the near future? Well-known economist Leanid Zlotnikau answers the questions of Charter97.org.

- Belarusians - both individuals and enterprises - have been buying foreign currency for 7 months in a row. What does this trend mean?

- Indeed, Belarusians have bought $121 million from banks over the past month, while in June 2019 they were net sellers of foreign currency in almost the same amount.

This situation in the domestic currency market is formed under the influence of many reasons. But there are two main factors in our country.

The first is coronavirus. The people had to stay in Belarus, not to buy tours and not to sell currency.

The second is the general situation in the economy, which is rapidly deteriorating in our country. The debt of state-owned enterprises on loans, bank borrowings, and to the suppliers is growing. This debt has increased by 9-10% compared to last year.

The debts of enterprises are growing rapidly: they have already exceeded 140 billion roubles, which is more than the country's GDP.

There are other signs of an impending crisis. For example, the last three years the nominal salary has been growing, according to the official statistics, and at the same time the GDP is practically not growing. You know that if people are given more money and the economy does not give more goods, then inflation and other unpleasant economic phenomena should be expected to follow.

The population is already seriously worried about the stability and safety of their finances - and is buying up currency.

- In May, the non-performing assets in Belarusian banks reached the historical maximum - almost Br3.7 billion. What can it lead to?

- Banks are approaching the line in the sand. The limit of bad debts, which are not repaid on time, is about 10%. According to state banks of Belarus, this figure is already over 9.5%. That is, our banks are already at the breaking point with regard to financing enterprises. It turns out that they have to finance more and more, but at the same time they are taking a hit themselves, too many bad debts.

This critical situation also affects the behavior of the population. They know that the banking system is under a lot of stress. There could be a malfunction at any moment.

It is quite possible that there will be a default of commercial banks. For the population it will lead to a lot of negative consequences: irregularity in paying wages, failures of the entire banking system, as it was in the 90s, when customers give banks a task to transfer some payment from their account, and banks delay it for a day or two and then for weeks.

Of course, the state will do its best not to allow the default to happen with its, state, banks. Therefore, the money is likely to be "drawn" for them. But it has its consequences: inflation and depreciation of the Belarusian ruble.

- Banks with foreign capital have recently started having problems in Belarus. Clients of Belgazprombank, where top managers and ex-head Viktar Babaryka were arrested, have taken out about a billion rubles from their accounts. It's recently become known that one of the richest Polish businessmen is going to sell the Belarusian Idea Bank and leave the Belarusian market. How will this affect the financial situation in the country?

- Firstly, all this has hit the reliability of the Belarusian banking system. The state now really needs loans: it's necessary to pay off the debts within the country and support the financial systems. This means the authorities need to raise the credit rating of Belarusian banks. It's currently 2.9 or 3. This is a very low rating. Therefore, the authorities take loans in the eurobonds market at very high interest rates, which are almost impossible for us to pay off in 5-10 years.

Foreign capital is very important for Belarus. About $20 billion is circulating in the entire banking system of the country. About $5.5 billion of it is the money of foreign banks and creditors.

Now, of course, the authorities have frightened all investors. There already was a financially and economically unstable situation in Belarus. And here comes that the bank can be easily closed down or the finances can be seized. This is very frightening to foreign investors. Of course, there is their dropoff.

- Economists have started talking about the first signs of large-scale devaluation in Belarus. This is confirmed by observations of common people, who report about the huge amount of fresh printed money. Could it be that the authorities have already switched on the printing press and Prakapovich's shadow is hovering over the country?

- Indeed, Prakapovich's shadow is hovering over the Belarusian money. There is a threat of inflation - and it is very big one. As an economist, I understand that the price rise is inevitable in Belarus.

For that matter, there can be no such a situation where the GDP is not growing and the accrued salaries are growing. This difference has been accumulating for three years - and now it is supposed to be absorbed by inflation, devaluation of money. At that, we should expect that inflation will be high.

Inflation means devaluation at the same time. If the prices for everything go up at the same time, then a very dangerous situation can arise. If the authorities decide to keep the dollar at the same level, and inflation is very high, then there will be a deep devaluation of the ruble.

The situation of 2011, when prices rose several times at once, may be repeated. Terrible things happened at that time, then, in 2012, the inflation was 169% and the dollar strengthened by 20 points. Then the turmoil started with the finances, when the refinancing rate reached 130-135%. The utter chaos in finances lasted a year.

It is possible that the situation with such abrupt falls of financial indicators may happen again.

The National Bank has been pursuing a tough monetary policy all this time. But on the eve of the election, it seems that everything has changed and the regulator is doing authorities' bidding. The refinancing rate has been lowered. At a time when the population is increasing the demand for foreign currency, the refinancing rate simply should not be lowered. So, the authorities are simply dictating to the National Bank what to do.

The situation is as follows: the authorities have no money to pay people's salaries. Large state-owned enterprises are working with a loss, their debts are growing. Suppose they have paid off the debt, then how to pay the new salary? Then they ask Lukashenka for money again. Is it possible to stop the Tractor Plant, MAZ and so on? No. Then Lukashenka turns on the printing press.

- What awaits the Belarusians, if there are no cardinal changes soon?

- What should we expect? Look at Cuba, Venezuela, North Korea. If the power does not change, we will soon find ourselves in this situation. Do you remember what was happening in Venezuela? The money was turning into wrappers and cost less than the paper that it was printed on. When the government dictates what should be built and produced, it ends up like Venezuela.

And now we have a chance to change the situation politically.

I just see that there have been good, qualitative changes in the elite part of society, that is, among the well-educated population, businessmen and cultural representatives. People have become more active, they know more, they are trying to have an impact on events in the country.

Besides, the economic situation is developing in such a way that common people, who have not been involved in politics before, understand why they have suddenly started to live worse. And if this is happening and the standard of life is falling, then the power cannot survive any longer.