The Regime Found Itself in a Vicious Circle

The social contract has been broken between the Belarusians and the authorities.

Prime Minister Raman Halouchanka, commenting on the package of sectoral sanctions against Belarus adopted by the European Union, said that the best response to them would be the lack of effect from the sanctions on the Belarusian economy. A wonderful aphorism, no worse than the alternative laws of physics! But aphorisms are rarely true, the "Belorusy and Rynok" website writes.

And, so far, everything looks like the Belarusian authorities in their domestic policy are really doing everything to maximize the effects of external sanctions. In the war for political stability, they cause irreparable damage to the economy.

Spells of stability

It is very convenient to testify stability on the TV. The TV will endure everything, but there is still no one to answer. You can pour in aphorisms and optimistic forecasts. You can talk about an unbending spirit, an iron will, and a GDP growth curve that is steadily striving for shining heights of economic prosperity. The current government, like no other before it, is active in creating an alternative economic reality in the virtual television space. If you listen to it, you might think that sanctions are exactly what the Belarusian economy has always lacked in the body.

And, in principle, there is a certain meaning in spells of stability: if it is not possible to build it, then you can at least talk about it in the hope that the illusion will somehow turn into reality.

But the economic reality, given in objective sensations and figures, is not yet inclined to maintain this illusion. In June, gold and foreign exchange reserves fell by $ 350 million, and this happened after the Belarusian Ministry of Finance received a $ 500 million loan from Russia at the beginning of last month. That is, it must be understood that the fall would have been even more impressive without a loan. The budget deficit, on the contrary, grew to a billion rubles, while inflation accelerated to 9.9%, not reaching the symbolic 0.1% to double-digit value.

It is difficult to blame all this on the machinations of hostile foreign forces. Although the government will certainly try. We have to explain why inflation shamelessly ignores the government decrees which categorically forbade it to grow.

But the most sensitive sanctions packages were introduced only at the end of the month. So in June, no external forces had had time to influence the Belarusian economy. Perhaps indirectly, creating negative economic expectations. But the Belarusian authorities are successfully coping with this on their own, without needing outside help.

Economic pessimism

The negative economic expectations that the authorities have been producing since last August are in fact a more serious challenge to the economy than all Western sanctions combined. It's just that the consequences of the sanctions are easier to calculate in specific dollar terms. The consequences of economic pessimism are not so noticeable, but they work more correctly because they can undermine economic stability at its most basic levels.

In early July, the National Bank published its own survey data on the level of inflationary expectations. In the second quarter, the expected inflation rose to 14.7% compared to 12.9% in the first one. And the number of optimists who think that prices will rise more slowly decreased from 21% to 13%. And, in the current situation, these polls speak not so much about what people expect from the economy, but about the level of their trust in the authorities and their confidence in the future.

Many times, it seemed that trust in the government could not be destroyed any further, simply because there was nothing left of it. But each time the authorities somehow managed to cope, undermining faith in a bright economic future along with trust in themselves.

Meanwhile, the economy grows when people believe in it. Then they invest their money, ideas, labor, and enthusiasm in this growth. And no state investment programs, no matter how many tens and hundreds of billions of rubles they may amount to, can replace this enthusiasm of market participants. Indeed, as long-term practice shows, state investment programs are not about the effectiveness of invested funds. They are mainly about how to spend budget money so that later people can competently report to the inspectors on what was spent.

But investing for the future is difficult when the present is filled with frightening omens. It only seems that a large-scale purge of radical elements has nothing to do with the economy. In fact, it does because its side effect is that no one can feel safe. And when no one feels safe, there is no faith in the future, and there is no place for economic optimism.

In fact, the story of the recent arrests is not only relevant for journalists and participants in various chat rooms. In fact, it concerns everyone: when the criteria for radicality are not clear, the interested party can interpret them arbitrarily and to its own advantage. Today a radical is the one who writes on topical political issues, but tomorrow he is the one who has an extra ruble in his pocket. Moreover, the stories about Yurkas, 21vek, and Green show that, in a situation when there is no time for laws, the principles of inviolability of private property also have very limited value.

By 2020, private companies employed 45.5% of those employed in the economy. They provided 60% of exports and produced at least half of the Belarusian GDP. And that was its better half. The half that earned money, so that the government had something to spend on its investment programs.

And, in conditions where not only property but also freedom is not guaranteed by anything, and the government is acting on the basis of the principles of revolutionary expediency, it makes no sense to expect the same enthusiasm from business, of course. Rather, anyone who has the opportunity will seek out safer habitats.

The further, the scarier

But it is not only a matter of curtailing business activity, lowering investment levels, or flight of business and capital from the country. The broken social contract, when the authorities not only refused to fulfill their main function of ensuring the safety of citizens but also turned into one of the main risk factors, undermines economic stability at the basic level. A witch hunt every day destroys a sense of stability, security, and faith in the future. Moreover, as the poll of the same National Bank shows, among the supporters of the current government, the share of economic optimists is not much greater than among opponents.

And, in economics, like in a fairy tale, what people believe in comes true. And if the overwhelming majority of people believe in the inevitability of a crisis, then it will be difficult to cope with it. Neither government decrees, nor spells of stability, nor currency interventions of the National Bank will help. In the best case, they will be able to delay its beginning for a while.

When people consider a crisis to be inevitable, their economic behavior changes. They withdraw deposits, buy dollars and make strategic stocks of buckwheat. And purchases of goods that are not necessary for survival in crisis conditions are postponed until uncertain better times. That is, the pressure on public finances and reserves is growing, while the inflow of money due to the decrease in business and purchasing activity, on the contrary, decreases.

And stability, undermined at such basic levels, is very difficult to restore. After all, first, you need to restore trust, and this takes time and purposeful, daily efforts. Moreover, it cannot be restored without abandoning the repressive policy. And this is precisely what the authorities are afraid of and cannot afford. And it turns out to be a vicious circle, when repressions lead to an increase in economic pessimism and discontent, a worsening of the economic situation, to which the authorities will habitually respond with new repressions.