Belarus Economy in 2012: Low Growth and Fragile Stability
The currency crisis of 2011 has revealed the limits of the Belarusian economic model. On the one hand, it became obvious even to the most conservative government officials that changes in economic policy are required.
On the other hand, the resurgence of oil exports in the first half of 2012 allowed the government to avoid necessary reforms. The economy finishes this year with a low output growth rate, but fragile macroeconomic stability is achieved.
The prospects for 2013, however, do not offer much optimism, at least in terms of growth performance.
Drivers of economic growth
In 2012, economic growth has slowed down despite rising real incomes of the households. In the second half of the year, this factor superseded net exports as a key driver of GDP growth during the first half. The political promise to increase monthly average wages to $500 lifted real wages – both in national and foreign currency – from spring 2012 on. Real wage growth surpassed the corresponding dynamics of labour productivity.
In order to stifle inflation, the National Bank increased real interest rates, while the government continued stringent fiscal policy.Although poverty dropped to 5.3 per cent (with regional rates about 6.3 per cent), households are hardly above the level of 2007. Yet, average household still spent more than forty per cent of their incomes on food, despite low food inflation in 2012.
Privatisation and investment
Facing a problem of weak growth, authorities announced plans to set up ‘highly productive’ enterprises, but no meaningful steps have been made. In similar fashion, privatisation has not been moved beyond discussions. Authorities seek to maximise privatisation revenues by looking for the most generous bidders, both at home and abroad.
However, re-nationalisation of two major confectionery factories made foreign investors very cautious in entering the Belarusian market.The Investment Forum held in November 2012 has resulted in twelve ‘intensions protocols’ only.
The inflow of foreign direct investment reached the planned figure of $ 1.2 billion before the end of the year. Industry attracted about eleven per cent of that modest amount. This is a low rate to contribute to modernization of the national industry.
China and Russia are two major foreign investors. As for China, it is more concerned with promoting its own exports rather than investing. Russia has helped Belarus to obtain a third instalment of a loan from the Eurasian Economic Community, while the provision of the fourth instalment was negotiated successfully.
Authorities have not abandoned its stringent fiscal policies, though wage increases in the public sector contributed to rising expenditures on healthcare and education. Restrained fiscal policies have been determined by the need to contain inflation, particularly against the background of high inflationary expectations.
It could realistically be expected that the 2012 budget would be at least balanced or turned into a small surplus (below one per cent of GDP). This is due to a relatively modest foreign public debt burden, which is to increase from 2013 onwards.
This increased burden could lead to a budget deficit, given that the structure of revenues and expenditures would remain unchanged, including financing of investment programs. Although the government has substantially cut subsidization of industry and agriculture in 2012, it is likely to remain at the level of 3.5–4 per cent of GDP.
Limits of monetary policy
To a large extent, economic growth has been suffocated by a policy of high interest rates. This policy is adopted to combat high and volatile inflationary expectations, resulting from the 2011 currency crisis. This policy was necessary to stabilise exchange rate, particularly in the first half of the year. However, inflationary expectations have not been reduced as people retain memories of devaluation and accelerated inflation.
Throughout 2012, the majority of banks have been recapitalised to cover the real losses of regulatory capital incurred after the devaluation-fuelled inflation of 2011. Given high interest rates policy, banks have been unwilling to expand credit supply, and to take additional credit risks.
In the environment of credit shortage, only banks with access to cheap capital – particularly subsidiaries of Russian banks – were able to expand their credit portfolios and to increase their shares at the domestic market. The mix of borrowers has also changed towards larger shares of export-oriented companies and households. Both categories of lenders can bear the burden of increased interest rates.
It appears that monetary policy is constrained. On the other hand, the National Bank has to stabilise exchange rate in order to make inflationary expectations less volatile. On the other hand, fluctuating exchange rate helps to balance the current account. In this situation, interest rates policy remains the only efficient tool available to the National Bank, but this policy does not address the problem of inflationary expectations.
Current account and exchange rates
Exchange rate fluctuations are welcome to balance the current account. Over January-July, it reached surplus due to the lasting effects of 2011 devaluation and sales of ‘solvents and thinners’ (oil products in disguise, exported without paying customs duties to the Russian budget).
But from August to October, current account turned to deficit. Apart from the effects of real exchange rate appreciation (as prices in Belarus rise faster than in major trading partners), exports of notorious ‘solvents and thinners’ were stopped, while one of the refineries began to operate at lower capacity due to the scheduled maintenance.
Moreover, deterioration of exports performance is related to slower economic growth.Situation at the foreign currency market mirrored the dynamics of net exports.While over the first half of the year, supply of foreign currency by households exceeded their demand, between June and October, demand exceeded supply.
However, by the end of the year, hoarding of foreign cash has become less attractive than national currency deposits. As for the enterprise segment of the currency market, similar dynamics was observed (with a surplus over the seven months and a deficit in August and September).
Implications of Russia’s membership in the WTO
A strong challenge comes from Russian membership in the WTO. Belarusian producers are likely to face more intense competition at home and abroad. WTO membership makes Belarus a de-facto member, due to the Customs Union with Russia. Heavy trucks production could be adversely affected in the short run, while production of refrigerators, TV-sets, and pharmaceuticals – over the medium to the long run.
Moreover, WTO rules demand to reduce support for agriculture, which is heavily subsidised. In response, Russian government may impose quotas on Belarusian agricultural products. In that case, dairy and meat production would be negatively affected.
The challenge of labour migration
Another important challenge is also related to the eastern neighbour: Russia becomes an increasingly attractive option for temporary labour migration. In 2012, formal employment continued to decrease, and released labour forcehas opted for temporary labour migration. Despite administratively-enforced wage increases, wage gap remains an important push factor of migration. Estimates vary from 400 to 700 thousand temporary labour migrants from Belarus per annum.
At home, a pilot labour force survey provides a very preliminary figure of unemployment, ranging from five to six per cent, which is rather similar to the figure recorded in the 2009 census.
The problem of ‘disappearing labour’ has also been recognised by the authorities. The President demanded to check job leavers at wood processing companies with modernization underway, while the Deputy Prime Minister proposed to charge non-contributors to the State pension fund for visiting hospitals.
Prospects for 2013
A forthcoming year is the time to prepare for repayment of accumulated foreign debts, as debt burden increases considerably in 2014–2015. Current account pressures are likely to remain strong, so depreciation of the national currency seems to be a feasible option. As the economy drifts away from the peak of the political business cycle, expansionary policy is no longer necessary. In this situation, economic growth is likely to be modest.
Belarusian Economic Research and Outreach Center
This article is a part of a new joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC) – a Minsk-based economic think tank.
Bilinguism in Belarus: Civil Society v the State
The Belarusian authorities trade the national identity of Belarusians in exchange for economic subsidies from Russia.
Constitutional guarantees of equal rights of the two official languages actually do not work. The majority of Belarusians react indifferently to that fact, as they do in most situations. But the civil society resists russification and tries to prove that Belarusian people have the right for their own identity and language.
After the collapse of USSR, Belarus established Belarusian language as the only official language, though most of population still used Russian. Shortly after his election in 1994, Aliaksandr Lukashenka started russification policy. In 1995, he initiated a referendum widely criticised as fraudulent which made Russian the second official language in Belarus. But in fact Russian has become the only official language despite continuous attempts of the Belarusian civil society to revive it.
Bilingualism only on paper
Since then, Belarusian language went through a major decline. Although the Constitution declares equal status of both languages, de facto Russian completely dominates in all spheres of life nowadays. All public bodies provide their services and do paper work in Russian. Law on Languages does not set clear rules on the use of both languages in state documentation, so public organisations and officials simply use Russian.
The number of schools with Belarusian language of teaching decreased dramatically and today in many towns Belarusian schools do not exist at all. According to the Society of the Belarusian language, in 2011 around 19% of all schoolchildren in 2011 studies in Bearusian. In Minsk the figure is just 1,5-2% and the proportion is declining.
Universities operate mostly in Russian too, though there are some departments where Belarusian dominates, such as Belarusian philology or history. There is not even one fully Belarusian-language university in the country.
For common Belarusians, the language has never been a serious issue of concern. Since Soviet times, most Belarusians in urban areas use Russian in daily communication and do not bother themselves with problems of revival of the language of their fathers and grandfathers. Private sector orients on mass demand and therefore also uses primarily Russian language in its services.
On the other hand, most topographical signs, like names of the villages, rivers, streets in the cities are written in Belarusian. In public transport, in the capital at least, all announcements are also made in Belarusian. Therefore, there is no genuine bilingualism in Belarus. Russian dominates in most spheres of public communication, and Belarusian has a few very limited domains. The state does nothing to help the language which is struggling to survive.
Yet, civil society of Belarus attempts to change the situation and resists russification from the top. Two stories which happened this December good examples of this struggle.
Belarusians Must be Russian Patriots?
During a press conference on 19 December, Russian ambassador to Belarus Aleksandr Surikov made a speech that caused hot discussions among Belarus intellectuals. “In Russia, we are upset that a part of Belarusian intellectuals do not consider the 1812 war with Napoleon a Patriotic War”, he said. A Patriotic War is a term that was established in Russia for ideological reasons to create a narrative of genuinely mass involvement of Russian people in war with the enemy.
Apart from the war with Napoleon, this term is used for World War II in Russia and Belarus since Soviet times. In Belarus, Patriotic War mythology serves an important part of Belarusian official ideology. However, the fathers of the state Belarusian ideology paid little attention to war with Napoleon and the period of Russian empire as a whole.
Most Belarusian historians, on the contrary, consider the war of 1812 a civil war for Belarus. Belarusians fought on both sides, Russian and French, but the nobility overwhelmingly supported Napoleon. They hoped to restore Polish-Lithuanian Commonwealth which was divided among European empires in 18th century.
Some Belarusian official ideologists share the point of view of Russians, but most historians, including those affiliated with state institutions, reject this as an obviously ideological claim.
Belarus Society Resists Russification
On 21 December, Belarusian media reported that Minsktrans, Minsk public transport service, decided to change the language in which tickets are printed. The tickets were always printed in Belarusian, but from January 2013 Minsktrans announced turn to the Russian language.
This news travelled fast through social networks and caused a true outrage in Minsk. Immediately, a civil campaign started, that demanded to return Belarusian language on the tickets. People sent letters and called Minsktrans to express their deep concern and urge Minsktrans to cancel the decision.
the official document was issued in Russian, therefore the tickets must also be in Russian Read more
The behaviour of Minsktrans in this situation seemed rather strange. Initially, they stated that the introduction of Russian language was caused by a regulatory act that sets the tariffs on public transport costs. According to this strange logic, the official document was issued in Russian, therefore the tickets must also be in Russian.
After the outbreak of attention to the issue, however, the managers changed their mind and claimed that the change of language occurred due to a mistake. The organisation that printed them was blamed for the mistake and one of the officials was even punished.
Such fairly different interpretation of the decision uncovers the likely lie of the officials. It seems that there was no mistake in this decision and the authorities simply probed the reaction of citizens to russification initiatives.
Battle for Identity Continues
All cases mentioned here demonstrate two opposite trends. The Belarusian state headed by Lukashenka ignores national values and even encourages russifiction. The current state of affairs in relations with Russia, which has massive leverage on Belarus, presumes no signs of Belarusian nationalism. National values become another item of bargaining for cheap energy, credits, and open markets.
Due to these reasons, the government has never come up with any policy to support the Belarusian language. Moreover, it hindered a lot of initiatives to support the language even such initiatives involved no politics. As a result, the Belarusian language practically disappeared from official discourse as well as individual use in recent decade.
Within Belarus governing elite, there are no groups that openly support national values. Meanwhile, common Belarusians do not reflect on cultural matters and focus on more materialist problems. In such situation, the active part of civil society serves as the only defender of Belarusian culture and identity.
As the cases of Napoleonic War and transport tickets show, Belarus civil society is capable of defending its interests and can even influence the state policy which may at first seem impenetrable.