Belarusian External Debt: State Gains, People Pay
There are less than three months left until 2013, the year when Belarus will have to pay out $3.1bn of its external debt. Whether the government will manage to handle this challenge is still unclear.
The Belarusian economy has not yet recovered from the last year’s economic crisis. This year’s GDP growth, mostly attained thanks to export of solvents, is slowing down due to Russia's accusations of this business' illegality. The Belarusian rouble continues to fall.
Aware of the insignificant chances of covering the debt with Belarus' own assets, the authorities hope to refinance a considerable part of it. In any case, the Belarusian National Bank has Belarusians i.e. the everlasting source of assets, and a well-tested mechanism for the assets’ attraction i.e. devaluation of Belarusian rouble.
For years, low external debt was a peculiarity of the Belarusian economy. Before 2007 it never made up more than $7bn or 27 per cent of the country’s GDP. People mainly ignored economists’ claims that the main reason for the success was cheap Russian energy resources. They continued to live in a dream of Belarusian economic wonder.
In 2007 prices for gas imported from Russia increased two times and trouble started. As the realistic minority of experts had predicted, the country’s trade balance became negative.
By 2008, external debt had almost doubled and continued to grow afterwards. The huge borrowed assets, however, appeared to be insufficient for stabilisation of the Belarusian economy: the National Bank resorted to its citizens’ funds. The Belarusian rouble devaluated by 20 per cent.
Apparently, the government liked both means of solving economic difficulties. What is the point of holding economic reforms and waiting for their long-term dividends? Debts and devaluation work much more easily! Why attract foreign capital?
After the 2011 economic crisis, Belarus experienced such government preferences in full: about $34bn of external debt and almost 200 per cent devaluation of the Belarusian rouble. The state stepped over the safe threshold of a 60 per cent ratio between external debt and GDP, as well as over its people’s trust.
Scylla and Charybdis of Debts’ Refinancing
The bad side of external debt is already appearing in front of Belarusian decision-makers. They need payments. With interest. According to a recent statement from the Belarus Minister of Finance Andrei Harkovets, "next year Belarus enters into the period of culmination repayments of its e external debt".
He added that the state is going to refinance half of the debt. Clearly, he did not add that this was because the government did not manage to use the loans properly.
In 2013 the state will have to pay out $3.1bn. Harkovets hopes to get $0.9bn from the Anticrisis Fund of the Eurasian Economic Community and issue Eurobonds once again. In the current situation, both options are quite alarming. The first is loaded with more dependence on Russia, the second with a heavier debt burden.
Cordial Russian Welcome
In June 2011 Belarus entered into a Loan Agreement with the Eurasian Development Bank, being the Anticrisis Fund’s managing institution. It is now counting on receipt of three resting loan’s instalments of $440m: one in 2012 and two in 2013.
Their transfer is, however, subject to a set of preconditions. Inter alia, the Belarusian authorities have undertaken that in 2012 they will carry out privatisation of state property for up to $2.5bn. Up to now, they have not made any serious attempts to sell state assets.
In the circumstances of noncompliance with its contractual obligations, Belarus hopes that the Anticrisis Fund will support its economy. Actually, that means Belarus counts on Russia. The big eastern neighbour’s share in the Anticrisis Fund’s capital is 75 per cent and it has the same amount of votes in the Fund’s Council.
Whether Russia will provide support to Belarus just because it is Russia's loyal ally is no longer up for question. It will not. The only remaining question is how much of Belarus' independence will live through the consequences of such support.
Mind the Rates
Eurobonds is an instrument which does not depend directly on third countries’ political will. But raising money through Eurobonds is very expensive. The yearly interest Belarus is to pay under Eurobonds is up to 9 per cent annually, while, e.g., the loans from the International Monetary Fund imply paying at the rate of only 2-4 per cent per year.
Some bonds with lower interests Belarus will to place within its borders. In the near future, they will become available to Belarusian companies; by the end of the year to individuals. Their supposed interest rate is going to be about 6-7 per cent annually.
So, Belarus will repay cheap International Monetary Fund’s loans with new ones, which are almost two times more expensive. Yet again: this money is not going to boost the Belarusian economy. It is just to cover earlier debts. They will say the people “have eaten this money”. But most Belarusians do not remember any luxury dishes on their tables.
Stuck between the threats of falling into bigger debt and dependence on Russia, Belarus should feel nostalgic about International Monetary Fund’s loans. However, in March 2012 the World Bank’s institution refused to refinance Belarus’ debts. The main reason was lack of economic reforms in the country. Is the opinion biased? Probably not. A prudent creditor would never finance a debtor who makes no use of borrowed money.
In fact, however, the government may still postpone deep worries about the money – it still has a 9.5m population. They cannot and will not say no to a new devaluation.
BATE Borisov Made the World Talk about Belarus
Belarusian football is now experiencing extraordinary historic moments.
For the first time ever the Union of the European Football Associations (UEFA) named a club from Belarus as the best team of the week in Europe. This happened after BATE Borisov shocked all football fans and specialists by defeating the German champions Bayern Munich in the UEFA Champions League on 2 October.
Sports media across the whole world made much of BATE's glorious victory. This is one of those few occasions when Belarus features in international news without the tags of “dictatorship”, “economic crisis” or diplomatic rows. The team from Borisov has become Belarus's best envoy in the world arena. In spite of its tiny budget and little support from the state, the team is doing more to promote the good image of the country than the whole government put together.
European Team of the Week
The UEFA Champions League is the most prestigious intra-European football championship. Each autumn the best 32 European teams play in the so-called group stage where they are divided into quartets. The two winners of each group then continue competing for the cup in the knock out rounds in spring.
Being among the best 32 clubs on the continent is already a great achievement that few European football squads can boast of. And this is already the third time that BATE Borisov have reached this stage. But this time seems to be special.
On 2 October BATE celebrated a stunning victory against one of the strongest teams in Europe – Bayern Munich. The German club were last year’s Champions League finalists and are now widely considered to be leading favourites. But in Minsk this grand team only managed to score once while BATE troubled the German goalkeeper three times.
After this beautiful and unexpected victory UEFA awarded BATE the European team of the week, a title that before seemed completely beyond imagination for a football club from Belarus. The country’s place in football rankings is quite modest (currently 87 in the world) and its clubs rarely enjoy recognisable successes internationally.
This is why the European team of the week title is a real landmark for all Belarusian football.
BATE: From Rags to Riches
BATE's history is a spectacular example of how a well-organised and hardworking team with a constrained budget can achieve great successes both nationally and internationally.
The establishment of the club dates back to Soviet times. It was created as the team of Borisov Automobile and Tractor Electronics Works. The word "BATE" is an abbreviation for the Borisov Plant of Auto Crane Equipment.
The team played its first official match in 1973. And already in 1974 BATE won the championship of the then Belarusian Soviet Socialist Republic (BSSR). Between 1973 and 1981, when the team ceased to exist, it won the national championship three times.
In 1996 BATE was re-established. Successful businessman Anatoly Kapski became their main sponsor and also president. Several unofficial ratings rank him as one of the 50 most influential businessmen in the country. He is currently the CEO of the newly established holding Autocomponents that unites 12 companies that produce components for different categories of automobiles.
BATE began their glorious march to the Olympus of Belarusian football from the lowest league. It took the club just two years to get into the Supreme League where they immediately won silver medals in 1998 and gold in 1999.
Overall, BATE have so far won eight national champion titles, two Belarus Cups and two Supercups. This is an absolute record for any team in the country.
BATE have also given birth to many Belarusian football stars. The most renowned of them is Aleksandr Hleb. He started his beautiful career in Borisov in 1999 and then played in Stuttgart, Arsenal, Barcelona and Birmingham. He is currently back to his native club to help it in the 2012/2013 Champions League.
“The tractor boys did good”
BATE's outstanding result in this year's Champions League is still viewed by many as pure luck and coincidence. After the match on 2 October Bayern’s defender Holger Badstuber said: “I have no idea how this team scored three goals against us!”
This is no wonder. BATE’s overall budget is about the annual salary of Bayern’s star-players. The team’s financing mainly comes from the automobile and tractor electronics works that it represents as well as from a number of sponsors that are modest by European football standards.
And unlike the Belarusian ice-hockey giant Dinamo Minsk, BATE do not receive massive state support. Alexander Lukashenka likes ice-hockey better than football.
One would hardly expect such a poor team to outperform a German or French football giant. And even when such a surprise happens one will usually see it as an accident and comment on it in a sarcastic way, like a reader of the British Guardian did: “the tractor boys did good”.
However, football experts are now talking more and more about BATE’s great defence and skillful counter-attacking style. The names of BATE’s leading players, Andrei Gorbunov, Renan Bressan, Aleksandr Volodko, Vitali Rodionov, and Aleksandr Pavlov are becoming familiar in European football circles.
The team’s play is acquiring its own widely recognisable flavour. As another reader of the Guardian put it, BATE’s performance represents “good-old football, which is untouched by merchandising and heavily defined by metallic curtains”.
Through its fantastic performance on the football pitch BATE Borisov has become Belarus’ most successful diplomat in the international arena. After the games with LOSC Lille and especially Bayern, BATE were all over the sports news in outlets around the whole globe.
The world’s leading news agencies published materials with titles similar to that in the Indian daily The Hindu: “Belarusian side BATE Borisov caused one of the biggest shocks ever seen in the Champions League football”.
This is one of the extremely rare situations where the world media massively talk about Belarus. What is more important, they do it without any reference to Belarus’ notorious political realities and beyond the usual contexts of electoral fraud, human rights violations or diplomatic scandals.
Thanks to BATE Borisov the world can see that Belarus has much more to offer.
Yauheni is Policy Director at the PA Discussion and Analytical Society Liberal Club in Minsk