Leu Marholin: Lukashenka Will Drive the Belarusian Economy to Default

An outbreak of popular indignation is inevitable.

Experts note our economy is on the verge of the worst crisis in the history of Belarus. According to the head of the Strategy analytical center, Leanid Zaika, the GDP decline of 10-15% is no longer the worst scenario for the Belarusian authorities.

Has the Belarusian model run dry? Should we wait for the ruble downfall? Will the printing press be turned on again? Economist Leu Marholin answers these questions in an interview with Charter97.org.

- Lukashenka got down to the political campaign having a lot of serious economic problems. What are the main three problems you would note?

- First of all, it's the drop in GDP, the decline in industrial production and the fall in budget revenues. I will also note that it bears the reduction of exports and imports, problems with the repayment and servicing of external borrowings, the reduction of salaries of workers. It bears the chain of repercussions.

- What are the reasons for such a large-scale crisis? Has the so-called Belarusian economic model run dry?

- I would say it was barely alive 20 years ago. The model was viable only in the late 90s, when it was possible to launch the economy, primarily industry, by administrative methods. Since the early 2000s, the parasitism on Russian subsidies began. If there had been no foreign subsidies, this model would have decayed a long time ago.

- How seriously did the coronavirus epidemic hit the Belarusian economy?

- This factor is as significant as the absence of Russian subsidies and the oil price decline.

The coronavirus has had the greatest impact on small and medium business, on the service sector, and the transport sector.

Again, the point is that Belarus, unlike other countries, faces a complex crisis, which relates not only to the coronavirus.

Accordingly, other components of the crisis hit the remaining industries. Cheap oil has damaged our refineries and exports.

As for the reduction of Russian subsidies, it hits the budget and the state's ability to perform its social duties and functions. In particular, the Belarusian ruble has dropped sharply since early this year. I believe that this is also a result of these phenomena.

- Inflationary expectations of Belarusians are also growing and people line up to exchange offices. Will the Belarusian ruble collapse?

- Most economists believe that our fairly tight monetary policy line is likely to fail. The fact is that no investment can be expected, they've decreased throughout the world. Our investment climate does not contribute to any investments in the near future. Another factor is that Lukashenka wants to control state-owned enterprises.

If state-owned enterprises receive no injection, the ruble should fall by another 15-20%.

- What is the probability that the printing press is turned on?

- It's quite high. Just recall the year 2011, now the conditions are worse.

It's good that Prakapovich does not run the National Bank today, but a specialist who knows what it can lead to. I think that Lukashenka has learned bitter experience. However, there will be pressure on the National Bank. The authorities will likely turn on the printing press.

- If earlier it was possible to patch up holes with foreign loans, this year no one wants to lend to the Belarusian authorities. What can it bear?

- Borrowing capacity is always available, while the interest rate is a matter. The countries with a sustainable economy can borrow at a very low interest rate, thus compensating for the lack of investment, Belarus has no chance for it.

The political repression has resulted in lesser borrowing capacity. It will only be possible to borrow on market terms, which is more than 10% per annum.

All this means that loans to enterprises will cost 12-13% per annum. This is a very high percentage, especially for industrial production. New loans will not save the Belarusian economy. Given the previous question, the authorities are likely to solve the problem, not by borrowing, but launching a printing press.

There will be an attempt to distribute the load on all the people. Everyone, tentatively speaking, will become 10% poorer.

- What is the role of the economy in the protest activity of Belarusians this year?

- It's great, Belarusians see that Lukashenka has nothing to offer, he is unable to retrain, carry out reforms. Lukashenka plays on repeat: "We are taking the right path, we only need to improve the performing discipline", etc.

Probably, everyone realised that the pandemic would hit the economy/ however, there is an experience of other countries. Even Russia, though it did not pay much, somehow helped people. I am not talking about the U.S. and European countries, which, in the words of Lukashenka, "almost scattered money from a helicopter".

Belarusians have had a grouch against the authorities for not taking COVID-19 into account. People get sick and die and the economy dropped.

If it was only about the absence of quarantine, but there are deliberate things. There was a parade, other events, etc. It must be considered as the intentional destruction of people.

Of course, the return of migrant workers contributed to the situation. Migration used to smooth the situation a little: if a person had nothing to eat, he would go either to the East, West or North. Thus, Belarusians could support themselves and their families. Now the borders are closed for many people, which increases the degree of social tension.

- What does the Belarusian economy await in the near future?

- Lukashenka will drive the Belarusian economy to default. One can somehow grind inflation and distribute among all the residents of Belarus. But we can't service foreign loans.

The authorities won't be able both to pay off and even cover the interest on these debts. What will it result in? I guess it will result in public outrage. The system that Lukashenka has been nurturing and cherishing for a quarter of a century is no good.

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