Belarus Finally Reforms Its Economy?
On 26 September in New York, Alexander Lukashenka met with IMF chief Christine Lagarde. They discussed prospects for an IMF-supported programme.
According to the IMF statement “Lagarde welcomed some recent progress in strengthening the policy framework in Belarus, but emphasised that a more comprehensive reorientation of policies, consistently supported at the highest level, is needed to restore stability and sustainable growth”.
In fact, in the current presidential campaign Lukashenka is distancing himself from populism. Moreover, since the beginning of 2015 the Minsk's authorities have consciously conducted a conservative economic policy and slowly introduced structural reforms, despite the recession.
On 27 December 2014 Lukashenka appointed a new government and central bank chief. These new appointments consisted of several moderate reformers with rather liberal views. In contrast to Russia, the Belarusian president took advantage of the current difficult economic situation to change government and economic policy.
Russia’s recession and low energy prices, limit Belarusian exports, as well as energy subsidies from imports of cheap Russian natural resources. Without them the quasi-socialist Belarusian economy does not generate growth. Adverse external conditions will hardly improve in the coming years, and that is why Minsk has no alternatives but to carry out structural reforms.
Conservative monetary policy
The new Belarusian policymakers have been successfully fighting inflation. The National Bank of Belarus (NBB) immediately tightened monetary policy and introduced monetary targeting to curb inflation. The real interest rate, which explains how much the nominal interest rate exceeds annual inflation, is already over 13%. For comparison, in Poland it is currently at around 2 percent. This completely suffices to eliminate any price growth.
The inflation’s slowdown is clear on a monthly basis. In July and August, prices increased by 0.2% per month. Extrapolating such a pace of inflation for the whole year, the annual inflation rate will amount to only 2.5%.
In addition, the NBB successfully liberalised the exchange rate regime. As a result, transparent market conditions have formed the current currency rate, while the regulator has virtually withdrawn from intervening in the market. Finally, the exchange rate has served as an automatic stabiliser for internal and external shocks.
The strong depreciation of the national currency has balanced the country's current account. Since the beginning of 2015 the dollar exchange rate in Belarusian roubles has increased by 50%. As a result, in the second quarter of 2015 the NBB recorded a current account surplus of 4.3% of quarterly GDP, which is highest since the first quarter of 2005. By contrast in the fourth quarter of 2014 the deficit was 9.5% of GDP. The new currency policy automatically avoids high current account deficits which led in 2011 to the worst currency crisis in Belarus in the past 20 years.
Conservative fiscal policy
The current presidential campaign is the first during which the authorities have pursued a conservative fiscal policy. In January-August 2015 the public sector surplus debt amounted to $1 bn (2.7% of GDP) which facilitated servicing the public debt.
The government maintains a simple principle: wage growth should not exceed labour productivity growth. In January-August 2015 real salaries fell by over 3% or 0.5 p.p. more than productivity. Thus, unit labour costs declined and became an anti-inflationary factor.
Since 2012 Minsk has managed to control its growing foreign debt. In relation to GDP external debt fell from 58% at the end of 2011 to 55% on 1 July 2015. Last year debt decreased also in absolute terms, by around $3 bn. This is a fundamental change compared to 2007-2010 when the government stimulated economic growth by foreign loans.
Structural Reforms Implemented
Besides stabilising the economy, simultaneously the government conducts structural reforms, including restructuring state-owned industrial enterprises. Despite the elections, employment in the largest industrial factories decreased by around 10 percent.
For example, Minsk Automobile Plant “MAZ” and Minsk Tractor Works “MTZ”, the two biggest employers, employed over 2 thousand (10%) and 2.7 thousand (14%) people less in the first quarter of 2015 than a year before. Even the potash factory “Belaruskali”, the third largest employer and the most profitable company, fired 1.5 thousand (8%) of its employees. In fact, the authorities recommend or at least allow management boards to downsize industrial enterprises quicker than the whole economy.
Some state-owned companies plan to accelerate the privatisation of redundant assets. Currently, the State Property Committee offers more than one thousand properties for sale. Auctions for some of them are assigned for the coming weeks. However, despite the private sector’s demand for free commercial space, asset privatisation has not been carried out on a broad scale and is currently very slow.
The authorities occasionally decide to liquidate unprofitable industrial enterprises. For example, in August 2015 a court ordered the liquidation of a hosiery factory called “KIM”. Only two years ago the company, founded in 1931, employed more than 900 people.
Besides restructuring enterprises, the government has limited direct lending to the produce sector and planned to depart from future planning initatives. According to the independent news agency BelaPAN, the resolution’s draft, approving the prognostic parameters for 2016 departs from the compulsory nature of the forecasts and grants them only an indicative character. In other words, the state will not interfere with a firms’ production and financial processes in order to “accomplish” forecasts.
Moreover, Minsk has announced ambitious plans for further reforms. Earlier this year Belarus developed with the World Bank “a road map of structural reforms”. In accordance with this, Minsk has already adopted a plan of radical increases in tariffs for household servicing.
The new economic policy in Belarus has been gaining recognition from international organisations. The last IMF mission to Minsk in the first half of July praised the conducted economic policy and plans for structural reforms. The IMF assured the regime that if such a policy is continued, negotiations on granting a new IMF loan may be successfully finished by year-end.
To conclude, since the beginning of 2015 the new Belarusian economic policymakers have been conducting a conservative economic policy. As a result, the economy regains balance, after being hit by external shocks in the second half of 2014 and the first half of 2015. In these circumstances, Minsk has taken unpopular reforms, such as firms’ downsizing, the sale of idle assets, and the liquidation of some enterprises.
These reforms, in fact, are rudimentary and slow. Hence, they cannot bring immediate success. One hopes the reform will continue after the presidential campaign. Finally, Lukashenka reforms the economy not because he wants it, but rather because he has no choice. If external factors do not improve, perhaps at last the authorities will implement the changes that should have been implemented in the 1990s.
Belarus – Why Visit?
Belarus Digest starts a series of articles on tourism in Belarus prepared by Nigel Roberts, a a UK-based freelance travel writer specialising in Belarus.
I first visited this extraordinary and much misunderstood country in 2001. I have returned many times since then to explore widely, initially working on sustainable development projects with families in communities blighted by the Chernobyl catastrophe.
Then from 2005 I was also researching material for my travel guide to Belarus, first published by Bradt Travel Guides in 2008. The latest (and third) edition reached the bookshelves earlier this year.
The first two editions have sold well, as does the third. I receive regular correspondence from readers around the world. More and more online resources showcasing Belarus appear regularly. There is clearly growing interest in the country as a destination for travellers. So what can the first-time visitor expect to find? What are the treasures that await?
Minsk ‘Hero City’
For many (though not all), the jumping-off point is Minsk National Airport. Situated 40 kilometres east of the city on an extension of the M2 motorway, access to the capital via bus, cab and express train is good. The airport itself has recently undergone significant refurbishment, as befits its status as the point of arrival and departure for all international flights.
Minsk itself was almost completely destroyed by the Nazis in World War II and was honoured with official recognition as ‘Hero City of the Soviet Union’ in 1974. After the conflict, Stalin ordered it to be rebuilt in a manner that would stand testament to the might, resilience and ingenuity of Soviet communism. It remains one of the best examples of post-war Soviet Utopian urban planning, with cavernously wide boulevards, grandiose brutalist architecture and wide-open spaces, where the eye is always drawn up and to the horizon.
Amongst my favourite places are Pobyedy Park, now home to the splendid and recently relocated State Museum of the Great Patriotic War; Nyezalyezhnastsi Avenue, the city’s main thoroughfare, ideal for promenading and people-watching, where a number of major squares are also to be found; and the National Library, an eye-catching and most unusual building of unique geometric proportions.
Perhaps my favourite place of all is the Central Bookstore (Tsentralnaya Knigariya) at 19 Nyezalyezhnastsi Avenue, where a myriad of glossy pictorial guides, maps, postcards, posters and calendars make excellent souvenirs to take home. And for a taste of high culture, take in a glorious opera or ballet performance at the National Academic Bolshoi Opera and Ballet Theatre of the Republic of Belarus.
Outside Minsk: Palaces, Castles and Sombre Remembrance
For those with a yearning to see more of the country, a number of day trips from the capital are readily accessible. Around 90 kilometres south-west is the stunning 16th century Mir Fortress, former home of the ‘big baron’ Radzivili family, and one of the country’s four UNESCO World Heritage Sites. 30 minutes further south-west by road and 120 kilometres from the capital lies another, the delightful historic settlement of Njasvizh with its beautiful moated palace, also dating from the 16th century and also formerly in the ownership of the Radzivilis.
If you have stamina for a long day out, the 14th century castle ruins at Novogrudok, 40 kilometres north-west of Mir, are also worthy of a visit. Then for a significant clue to understanding the collective national psyche of the country today, visit the National Memorial Complex at Khatyn. Only 75 kilometres from Minsk, this deeply affecting and doleful memorial was constructed on the site of a former village that was razed to the ground in the spring of 1943 and its inhabitants brutally butchered. A visit here is a must-see.
Brest ‘Hero City’
Not all visitors will arrive by air of course, and for those who travel by train the most likely point of entry into the country will be in the south-western corner, at Brest. It’s a real border town of energetic hustle and bustle, as well as a significant staging post on the Berlin-Moscow railway line and the main intercontinental highway from east to west. The most important site of interest is the Hero-Fortress, a strategically crucial complex featuring extensively in a number of historical brutal conflicts, most notably under siege on the first day of Operation Barbarossa, Hitler’s invasion of the Soviet Union in 1941. Tales of heroism and privation abound here.
Brest is the location of my favourite restaurant in the whole of the country, Jules Verne on Gogolya Street. It is also the gateway to the wonderful Byelovezhskaya Puscha State National Park and Biosphere Reserve, another UNESCO World Heritage Site and home to several hundred European bison. It is also possible to visit Grandfather Frost in his own natural environment …
Situated in the north-western corner, Hrodna (also spelled as Grodno) is an elegant city of grace and charm. It has one of the largest concentrations of Roman Catholic worshippers in the country and is a centre of Polish culture. The region abuts Poland and the western border of the country has moved significantly east and west at times in history. Catholicism dominates much of the architectural heritage, but the striking Drama Theatre, which would not be out of place in a scene from Tolkien’s Middle Earth, is also worthy of note.
The lovely city of Vitebsk in the north-east is regarded by many as the cultural capital of the country. The much-loved Slavyansky Bazaar festival is held here every summer, and there are numerous sites of interest connected with favoured son Marc Chagall. The oldest town in all Belarus, Polotsk, is located within this region.
So Why Visit?
The sites mentioned here are a tiny taster of all there is to be seen and experienced. From my first visit 14 years ago, the single feature that has dominated all my time here continues to be the unconditional hospitality of ordinary people. Sometimes wary at first, with familiarity comes trust and a willingness to openly share. It’s the country’s greatest treasure. I invite you to see for yourselves.
Nigel is a UK-based freelance travel writer specialising in Belarus