23 June 2021, Wednesday, 12:52
Sim Sim, Charter 97!

US Sanctions in Action: Foreign Banks Try Not to Get Involved With Belarusian Enterprises

US Sanctions in Action: Foreign Banks Try Not to Get Involved With Belarusian Enterprises

Is the Venezuelan scenario going to happen to the economy?

After the US decided to renew economic sanctions against Naftan and other Belneftekhim enterprises, several European banks refused to finance transactions for the sale of Belarusian oil products. Charter97.org spoke with economist Leu Marholin about how the sanctions will affect the export of oil products by Belarus and the industry within the country:

- At the moment, it is still too early to draw any far-reaching conclusions because it will depend on several points. First, if Russia does not want to take advantage of the favorable opportunity to try to put the squeeze on Lukashenka in matters of further integration, then, in a couple of weeks, maybe a month, gasket firms will be created. Through these firms, Russian oil-producing "monsters" will be able to supply oil to Belarusian enterprises without fear of consequences. If Russia wants to take advantage of this, then we will see it. We can observe that there are certain supply cuts in May. If the situation evens out in June, then the issue has been resolved, but if supplies are reduced, this will mean that Russia also wants to extract some dividends.

Second, the American sanctions do not allow paying in dollars for supplied petroleum products since all dollar payments are made through correspondent accounts in the United States. Today, it is still possible to pay in euros. If the 4th package of EU sanctions, which is expected in June, also envisages restrictions against enterprises, then they will not be able to carry out settlements in euros. This is a rather serious thing. We will see concrete results in about a month.

- Many experts talk about the "secondary effect" of the US sanctions due to the high toxicity of the subjects falling under them. How else can American sanctions affect the Belarusian economy?

- Despite the seeming "toothlessness," American or European sanctions still have a certain effect on Belarusian enterprises. This is precisely an indirect influence since even those banks and financial markets that are not under the threat of the US sanctions feel the toxicity of Belarusian enterprises and try not to get involved with them. After all, Belarusian enterprises are not the only pebble on the beach.

I'm not even talking about oil refining, because our enterprises there generally make up a miserable percentage of the European market. Even if you take a metallurgical plant, which supplies half of the market in Western Europe, if necessary, it is quite easy to spot it with minimal losses. This plant and its products will not be on the market, which means that other enterprises will increase production and only say thank you, maybe the cost of the corresponding products will increase by 1-2% but not critically.

The indirect impact of sanctions is always greater than the direct impact. When a person has committed a crime, then he can be convicted - these are direct sanctions, and indirect ones - all his entourage will try again not to approach him, not to give a hand, not to visit, children will be told not to communicate with his children and so forth. This is exactly what will happen with Belarusian enterprises.

- Some traders expect that the European Union may soon restrict payments in euros to Belarusian enterprises. How will this affect the foreign exchange earnings of enterprises and the country's financial sector?

- If this happens, it will be in a limited form, in the form of sanctions against specific Belarusian enterprises. Nobody will simply close all correspondent accounts of banks. This is not fatal, although, of course, it will significantly complicate the life of Belarusian enterprises, which are significant suppliers of foreign currency to financial institutions of Belarus.

- What funds will the Belarusian authorities use to pay interest on the huge external debt if foreign exchange earnings are sharply reduced?

- You know, foreign exchange earnings can decrease only in one case: when the export of products is reduced. If the export continues through some other options and methods, then, accordingly, the receipt of foreign exchange earnings may be delayed, not by two days but two weeks, by roundabout ways; however, this will not lead to its physical decrease.

For the supply of physical currency to decrease, exports must decrease. This makes a scenario likely in which the current government will declare a full or partial default.

- There are reports that the Czech Republic may refuse to purchase MAZ equipment. What can the refusal of European companies and governments to cooperate with Belarus lead to? Will the effect grow like an avalanche?

- You see, MAZ is not so important in the world economy for someone to notice. This is a purely symbolic act. MAZ itself has reduced production compared to what it was 10 years ago, not to mention the Soviet period. First of all, MAZ supplies equipment to Russia and the countries of the former Soviet Union. Of course, this will not be pleasant for the enterprise because deliveries to other European countries are foreign exchange earnings.

For the Czech Republic and other countries, this is absolutely imperceptible because the freight transport market is very competitive, and the Czech Republic itself produces trucks, that is, it is not a problem for them. This is more a question of a moral plan: we support a free Belarus, therefore, we refuse MAZ.

- Over the past five years, Venezuela's economy has fallen by 30% amid the collapse of a key industry that makes the country involved in world trade - the production of crude oil. Could something similar happen to Belarus?

- In theory, it can, although, it is practically unlikely. There are two nuances here. Venezuela's economy officially fell by 30%, which was really based on the extraction and processing of oil products, but the country also has a shadow economy. In many ways, the country's economy is based on the production and sale of drugs. This is all overseen by certain drug cartels, so, these 30% of the population were not affected as much as they should have been.

As for Belarus, 70% of everything depends on the Russian Federation. Will there be support, will Russia hold on to Lukashenka and strive to pull him out at any cost? The economy is generally such an inert thing: when we record a fall, it happens by 1-2% per year, and if it's by 3-4%, then it is already a serious fall, which is associated with natural disasters, the global crisis, and so on.

So it will slowly decline because the markets for us are shrinking, and not only because of sanctions, but as a result of natural selection. If, for example, in the West, the Czechs refused our MAZ, then no one refused it in Russia for some political reasons, but our enterprise is simply unable to compete with modern products. There is a natural, let's say, dying because MAZ does not receive the necessary investments and build global chains, neither technological, nor sales, and so on. I think that all this will happen but not at such a fast pace.