Foreign Exchange Reserves Increase, New Regulation of Microloans – Belarus Economy Digest
For the first time over the last six months, in June Belarus saw an increase in its foreign exchange reserves.
This growth was due to the issuance of a bridge loan by Russian VTB Bank.
At the same time, the overall amount of foreign exchange reserves remains relatively low, a problem which has been influenced by an increase in foreign debt repayments this year.
In order to maintain a high level of profitability on ruble deposits versus those done in a foreign currency, the National Bank did not change the refinancing rate in June 2014.
Accelerated price growth in May made it impossible to utilise this monetary instrument then. In July, the refinancing rate dropped 1 percent point.
In late June, the President signed a decree which aims to regulate the activity of microfinancing institutions. According to the document, these companies will be limited to giving loans to the general population strictly for consumer purposes.
Foreign Exchange Reserves Make Gains
In 2013 and at the beginning of 2014, Belarus' foreign-exchange reserves gradually declined. In 2013-2014 repayments on external debts increased significantly. This year, for example, external debt servicing will cost Belarus more than $3bn .
Ensuring positive dynamics continue with a nation's foreign reserves is quite difficult in the context of a pervasive negative trade balance in goods and an absence of a significant inflow of foreign direct investment on a net basis. Both of these factors have, naturally, negatively influenced state reserves.
At the same time, in June 2014, the country's international reserve assets increased by more than $1bn and now totals $6.43bn. A bridge loan from Russian VTB Bank to the Belarusian government for $2bn to replenish its foreign exchange reserves is the main culprit behind this sudden increase. Foreign currency bonds issued by the Ministry of Finance also provided a positive impact on the growth of its reserves.
The government and the National Bank have been carrying out a number of projects aimed at maintaining their foreign currency reserves at a more or less stable level through utilising both internal and external sources.
The Ministry of Finance, for example, issues foreign currency bonds for individuals and legal entities on the domestic market. Over the first five months of 2014, they have issued foreign currency bonds designated for individuals for a total of $34.2m and separate bonds for legal entities for $145.7m and €30m .
In addition, the Government has been attracting foreign government loans from the International Bank for Reconstruction and Development, the European Bank for Reconstruction and Development and several Chinese banks.
Over the first five months $315.6m was drawn from foreign markets. Taking into account the credit received from Russian VTB Bank in June, from the beginning of the year external borrowing increased by more than $2.3bn.
In 2013, external borrowing reached a total to $2.4bn, just slightly more than what Belarus has acquired in under 6 months in 2014.
Still, Belarus is struggling to augment its international exchange reserves. According to all the available data, at the end of June Belarus had about 2 months worth of reserves to cover its imports (or at least a minimum of 3 months).
In the long term, the volume of the country's reserves can contribute to attracting more foreign direct investment, including funds received from privatisation.
Refinancing Rate Remains Unchanged
The National Bank maintained its June 2014 refinancing rate throughout the month of July. This decision made as a result of accelerated inflation rates in June. Prices for consumer goods and services have already increased by more than 10 per cent over the past six months.
Growing prices in January-June 2014 imply an unconditional excising of the projected inflation figures for the end of the year. Taking into account actual price movements, the National Bank announced that by the end of the year the refinancing rate may drop as far as 18-20 per cent.
This forecast built on the assumption that there will be hikes in consumer prices of about 16-17 per cent in 2014.
The refinancing rate affects the dynamics of other rates in the banking sector. By reducing the value of this rate, it helps to bring down the costs of bank loans and, therefore, the cost of ruble deposits.
A rapid decline of interest rates on deposits in Belarusian rubles, when compared to price dynamics, in reality means there will be a reduction in their overall profitability. This situation may lead to a decrease in ruble deposits, which may negatively impact the banking system.
In this regard, the National Bank gradually has been reducing the refinancing rate, taking into account a policy of maintaining higher returns on ruble deposits than those done in foreign currencies. Staying true to their strategy, in July the refinancing rate decreased to 20.5 per cent due to reduced inflation in May.
Regulation of Microfinance Organisations
In late June, Lukashenka signed Decree № 325, which restricted the kinds of activities that microfinance institutions were able to take part in.
According to the document, beginning next year Belarusians will be able to get loans only to satisfy their consumer needs in what are the equivalent of pawnshops in Belarus.
All the remaining microfinance institutions will make loans to the population only for business purposes. The decree also limited the activities of microfinance institutions to bring in money from the public.
The decree was apparently designed to streamline and improve the performance of microfinance institutions. Previously, however, there were no special regulations governing the activities of financial institutions that were not banks. As a result of this loophole, many "get cash before you get your salary" shops popped up all over the country.
For these kinds of fast cash shops a passport is enough to put some money in your pocket. However, as is all to common elsewhere, the actual expense of borrowing money from these kinds of institutions usually far exceeds the cost of a bank loan for a similar amount. In some cases, the repayment rate, through various tricks and schemes, could be as high as 1,000 per cent per year.
In addition, some microfinance institutions have been able to get the public to place deposits at super-high interest rates. These kinds of operations, while very tempting, are quite risky, as there is no strict set of regulations for microfinance institutions in contrast to banks.
Furthermore, in Belarus the state guarantees 100 per cent refund on all bank deposits regardless of if there were made in a foreign or national currency.
This guarantee, of course, does not apply to microfinance institutions. In the end, this new presidential decree is intended to deal precisely with some of the issues that arise around these unregulated microfinance institutions.
Such changes will stimulate the development of more organised financial market and reduce risks for the general public.
Anastasiya Luzgina, Belarusian Economic Research and Outreach Center
This article is a part of a joint project between Belarus Digest and the Belarusian Economic Research and Outreach Center (BEROC)
Russia Seeks to Preseve Its Media Influence, Belarus’ Own Anti-Missile System – Belarus Security Digest
Russia wants to maintain its control over the minds of the population of CIS countries.
Belarus develops its own anti-missile system, the Halberd. The Kremlin hopes that its allies will help it with supplying it military equipment that it is not longer able to directly access through Ukraine.
The UAV Grif learns to fly. The military and industrial sector is looking to make some more money, while the army has none to speak of. Another arrest in a high-profile corruption case is made in the Homiel region.
Russia seeks to preserve its information influence in the CIS. Moscow wants to retain one of its most important means of leverage over post-Soviet countries, its dominance in information dissemination. Through the Collective Security Treaty Organisation (CSTO), Russia reiterated the importance of a coordinated information policy between the Alliance's members.
This means preserving a single informational network, or to put it more plainly, Russia wants to keep CSTO member states in the fold of Russia's informational sphere of influence.
Moscow still seeks to infuse its anti-Western sentiments throughout the capitals of CSTO member states Read more
Meanwhile, Moscow still seeks to infuse its anti-Western sentiments throughout the capitals of CSTO member states by scaring local rulers with claims that "attempts to use the technology of 'colour revolutions' are being made" against the Alliance's member states.
A round table on the topic of information, social networks and security took place on 24 July 2014 at the CSTO Secretariat in order to develop this subject. The main objective of the event was to work out recommendations for countering destructive activities in mass media and social networks.
Some proposals, taking into account the implementation of such practises of countries in the post-Soviet space, are of openly repressive in nature (countering information and psychological pressure in the blogosphere and social networks directed against leaders of CSTO member states, permanent monitoring of social networks in order to block the dissemination of negative information in the CSTO).
Belarus plans to develop its own anti-missile defence system. Alexander Lukashenka stated the need to develop a national anti-missile system, which would be "not worse than the C‑300". The Belarusian military and industrial sector certainly has the necessarily technological means to create an air defence system. Yet, the lack of a domestically manufactured rockets and missiles remain problematic.
Due to political restrictions, only three countries, Ukraine, China and Russia, can supply missiles to any future domestic anti-missile system. Belarus already has experience with the short-range anti-missile sT-38 Stiletto system, a project implemented jointly with the Ukrainian military and industrial sector that makes use of a Ukrainian anti-aircraft missile. However, the supply of medium-range missiles will require a political decision.
This may "stimulate" Moscow to transfer its anti-missile defence equipment to Belarus on preferential or pro bono terms Read more
The existence of technological foundation in Belarus for the development of its own anti-missile system may "stimulate" Moscow to transfer its anti-missile defence equipment to Belarus on preferential or pro bono terms.
First of all, such a move would help to Belarus in the sphere of Russian military and technical influence. Second, a change in policy would be guided at "strangling" any potential competitor on the market of air-defence systems. If the national army does not buy the domestic air-defence systems, it would dramatically curtail the export prospects of the new weapons system.
Russia hopes to circumvent the arms embargo imposed by Kyiv with the help of CSTO member states. After Ukraine banned supplying military goods to Russia, Moscow, through the CSTO, is considering ending its military contracts with Ukrainian enterprises to start working with the member states of the Alliance. Russia hopes, with the help of its allies, to organise the manufacturing of components, weapons and military equipment, which it previously purchased from Ukrainian arms industry companies.
It is doubtful that this idea will prove to be successful: the Ukrainian military and industrial sector has a number of critical and unique technologies, the mastery of which would take years to develop — even with access to the necessary technical documentation. Primarily it is an issue of training of skilled manufacturing personnel and procuring the necessary manufacturing equipment.
Tests of the UAV with the 100 km range are near completion. There are plans to complete in the near future a series of tests of an unmanned aircraft-type vehicle Grif-1, manufactured by the 558th Aircraft Repair Plant. Before the end of the year, a decision should be made on whether or not the Belarusian army will adopt the equipment. And in a year, supplying equipment to the Belarusian ministry of defence may find footing and be launched.
It should be noted that in October 2012 we learned that the 558th Aircraft Repair Plant had received a preliminary order from the Belarusian ministry of defence for several dozens of UAVs. The first six units should have been delivered to the ministry before the end of 2013.
The Ministry of Defence and the military and industrial sector debate pricing policy for weapons. On 16 June 2014, a meeting was held in the State Military and Industrial Committee (SMIC) on the issues of the development and mass manufacturing of weapons, military and special equipment, increasing managerial responsibility for the execution of the state defence orders its pricing policy.
Major General Alieh Bielakonieu, Chief of the General Staff of the Armed Forces, representatives of the ministry of defence as well as heads of organisations included in the SMIC attended the meeting.
The participants raised again the issue of financing the development of a national military and industrial sector. The pricing mechanism for military goods remains a problem. Based upon published information, the solution could be lowering manufacturing costs rather than increasing prices. The latter is caused by the limited financial resources of security agencies.
Investigation of a high-profile corruption case in the Homiel region is under way. A number of senior officials from the KGB and local police, a judge and officials were arraigned on criminal charges recently. Apparently, the list thus far is inconclusive. Information about the detention of a deputy head of the police department of the Homiel region was released. His name, however, was not made public was not communicated.
This suggests that the KGB got the go-ahead to carry out a 'cleansing' of the regional elite. Siarhiej Tsierabau, the new head of the Homiel department of the KGB, is a new man in the region and he is not connected in any way with the regional elites. Thus, he has no commitments towards them.
Andrei is the head of the “Belarus Security Blog” analytical project.