Kiryl Rudy Wants To Attract Emigrants Back to Belarus
On 5 February, Lukashenka’s economic advisor Kiryl Rudy published his ideas in the National Strategy of Sustainable Social and Economic Development until the year 2030.
A young economist with an academic background and experience working in China is supposed to transmit the Chinese experience of economic development to the gradually declining Belarusian model.
His ideas indeed appeared to be fresh for Belarus, although they are also widely used by other governments and have been for some time. For example, he suggested to focus on the high-tech sector of the economy, and boost the potential of the Belarusian workforce by educating Belarusians in the best universities in the world and attracting internationally successful compatriots to invest in Belarus.
However, experts and the general public received these ideas with a fair amount of scepticism. They agree that no external factors can change the Belarusian model unless the inner system of government itself changes.
A good example of this occurred recently when Lukashenka accepted that the Belarusian government failed in properly developing the Belarusian-Chinese Industrial Park, seen as a strategic project for the economy.
The Young Chinese Hope
On 10 June 2013, 35-year old Kiryl Rudy was appointed Lukashenka’s economic advisor. He replaced Siarhiej Tkačoŭ, who often spoke of Stalin's economic model as an example for economic development. Rudy presents has had a rather unusual career path for a Belarusian official. He does not come from the Soviet nomenclatura or security services.
A successful young scholar, Rudy received his candidate of science degree (a near equivalent of a western Ph.D) at age 23 and the more advanced doctoral degree at 33, specialising in finance and loans. Moreover, Rudy was on a Fulbright fellowship at the University of Chicago. He became the youngest person occupying a senior position in the Belarusian government, and in fact the only one, who has studied in the US.
Rudy was on a Fulbright fellowship at the University of Chicago Read more
Former Head of National Bank and oppositional United Civic Party member Stanislaŭ Bahdankievič remembers him as a smart, modern, hard-working student who successfully defended his thesis. It would be great if the government lends an ear to what he has to say. Such people should be involved in the government,” Bahdankievič said about Rudy.
In recent years Rudy worked as economic adviser at the Belarusian embassy in China. He also participated in the elaboration of the Belarusian-Chinese Industrial Park project. Later, he worked on a Chinese business project in Belarus as the deputy director for the Bel Huawei Technologies company.
During Rudy’s appointment Lukashenka pointed out that Belarus is interested in taking the Chinese path for its economy and could learn much from its experience of economic development. Therefore, his appointment can be considered an attempt to extend relations with China and introduce Chinese experience to the steadily declining Belarusian economic model.
Belarusians, Please Come Back Home
In December 2013, the government established a working group to develop a National Strategy of Sustainable Social and Economic Development until the year 2030. Kiryl Rudy became one of the leaders of the group. On 5 February, he published his ideas for the strategy in the largest official newspaper Sovetskaya Belorussia (Soviet Belarus).
Rudy thinks that Belarus can take the Global competitiveness index as a benchmark and set a goal to get into the top 30 of the index by 2030. According to Rudy, this can be achieved by focusing on a few key sectors of the economy that can benefit Belarus the most.
Among them he names four – first, services (construction, transport, trade), traditionally the sector of small and medium private businesses. Second, energy, and particularly nuclear power plants and related projects. Third, the high-tech sector, which is supposed to be developing through the Belarusian-Chinese Industrial Park project. And fourth, informational technologies, where Belarus has a good educational infrastructure, as evidenced by the success of the Belarusian Silicon Valley.
Rudy proposed to develop local personnel through a program of government-financed training for Belarusian specialists abroad Read more
To raise the competitiveness of the Belarusian economy, Rudy thinks that the government should invest in education. Many Belarusians, who have left the country in search of work, had a strong educational background, one which they received in Belarus. Another method would be to develop local personnel through a program of government-financed training for Belarusian specialists abroad. Rudy provided examples from China and Kazakhstan as countries that are employing these very practises.
"Imagine if a graduate of ours returns from a top-tier university, say Cambridge, and he is appointed the head of a department in the Minsk City Executive Committee. He would create a serious imbalance in the internal forces there, yet he would make people look at themselves and the world around from a different perspective,” Rudy said in an interview to Belarus 1 TV channel.
His third idea for boosting domestic economy sparked the most comments on the Internet. Rudy suggested to attract emigrants back who left Belarus after the USSR's collapse. Many of them have become successful internationally, and could be interested in investing in Belarus, provided that favourable conditions are created here.
Nothings Will Change While the System Remains
Such public presentations of ideas for the country’s future appear all fine and dandy, as the government does not like any publicity when it comes to its own public policy making. However, experts consider them insufficient for the creation of a real strategy.
Ina Ramašeŭskaja, a research coordinator for the Belarusian Institute for Public Administration Reform and Transformation, says that Rudy's suggestions lack one essential point – a real analysis of the key problems. More precisely, what is wrong with the current personnel system, which competencies, knowledge and skills the new specialists should possess, and what specific goals they should set out to achieve.
As official discourse has proven, the government regularly fails to understand this problem and does not want to publicly analyse it. It thinks the problem lies somewhere outside of the current political system, and the solution should found elsewhere.
Ramašeŭskaja believes that some Belarusians who have achieved success abroad would indeed be interested in participating in Belarusian reforms, but no one is actually going to reform anything.
Meanwhile, commentators on the Internet appear to be more sceptical about Rudy's idea. People say that the situation which has arisen, one where the public administration lacks the necessary qualified personnel is a natural outcome of the existing system. Consider the fact that many bureaucrats have been imprisoned for minor offences and will never ever take a public office.
Many business managers have barely escaped abroad and in doing so have saved their businesses from pressure. The system excludes talented and people with initiative, but warmly welcomes loyal and passive servants. And nothing will change while the current system remains.
Belarus-China Industrial Park Fails?
Meanwhile, the first results of the building of the "Chinese dream" for Belarus seems to be crumbling. On 14 February Lukashenka held a council on the implementation of the Belarusian-Chinese Industrial Park project.
Lukashenka expressed his dissatisfaction with the work done thus far, and called it, “another disgrace by the government.” The countries signed an agreement on the creation of the Park in 2010, and now with four years having already passed, there has been no progress made.
“If the hotheads who initiated this project cooled down and think that we do not need the project anymore, just tell it straight to my face right now,” Lukashenka said. He warned the government that he will not let them finance the project from the state budget since it badly lacks the necessary funds.
Lukashenka said that this should be a purely commercial project without any politics and Belarus will not take Chinese credits at 5% interest, as their Chinese partners have apparently been offering.
The project was intended to attract investment, but it seems that foreign capital has been taking its time before daring to invest in it. Lukashenka threatened the officials in his famous style: “I guarantee you that if you fail at this job again, I will force you work in this park.”
The regime tries to engage new people in the government hoping that they will change the situation without changing the system, just by the very nature of having fresh perspectives around. But since the problem lies much deeper than this, young educated professionals will hardly make a breakthrough in a bureaucratised authoritarian environment. Belarus needs profound reforms in its government, and at the moment such reforms seem very unlikely.
Strict Monetary Policy to Solve Economic Problems – Belarus Economy Digest
According to official forecasts, an improved climate for foreign trade and accelerated economic growth await Belarus in 2014. The growth of the country's negative trade balance in 2013 created additional pressure on the foreign exchange market and the dynamics of its foreign reserves.
Improving the efficiency of the manufacturing sector remains one of the main objectives of economic policy. Officials plan on carrying out measures to stimulate the growth of industry and to reduce the stocks of manufactured goods.
In 2014 a strict monetary policy on the part of the National Bank will address the problems in the economy. The gradual decline in interest rates will occur by maintaining the profitability of ruble deposits. Changes in refinancing rates will depend on the rate at which prices grow. Furthermore, the National Bank will limit any rises in excessive financial lending.
Decline in foreign trade and growth of a negative balance
According to preliminary information of National Statistical Committee of the Republic of Belarus, foreign trade turnover was reduced by more than 13 per cent in 2013. Improvement in foreign trade is one of the priorities for the Belarusian economy. In 2013, positive trends in this field failed to achieve the results desired.
Over the previous year exports declined at a faster rate than imports. A negative trade balance in goods amounted to -$5.6bn or 8.1 per cent of nation's GDP. A positive trend in 2013 was seen with the expansion of foodstuff exports. Due to an increase in external sales of meat and dairy products, exports in this commodity group grew in comparison to the previous year.
At the same time the trade balance in the group of non-food consumer goods deteriorated and was, in the end, negative. Rapid income growth, including imported consumer goods, stimulated the population's consumption. The cessation of exports of solvents and dilutents, a reduction of potash fertiliser exports and the growth of enterprises' operating costs contributed to the growth of Belarus' negative trade balance.
The main trading partners of Belarus were the Russian Federation and the EU. It is noteworthy that in 2013 there was an increase in Belarusian exports to Russia with a simultaneous growth in imports from the EU. Traditionally, Belarus buys machinery, equipment and consumer goods from the EU. This trend, however is not prevalent with Russia, as Belarusian enterprises from the manufacturing sector supply their own goods to the Russian market.
The total balance of goods and services may obtain a positive balance and could equal 0.1 per cent of Belarus' GDP in 2014. This growth will become possible if there is an increase in the volume of Belarusian exports and a more moderate growth in its imports. A supposed augmentation in the exporting of petroleum products, potash fertilisers and food products may play a positive role in helping the economy develop in this direction.
Any significant results in the foreign trade arena depend on developments with real incomes, as well as any fluctuations of the Belarusian ruble against the currencies of its major trading partners.
High stockpiles of goods and low production volumes
The issue of overstocking remains one of the main issues of the Belarusian economy. In 2013, while there were decreasing production volumes, stocks of finished goods piling up in warehouses exceeded norms. For the entire year industrial output fell by 4.8 per cent. The greatest decline occurred in the petrochemical industry, publishing industry, metallurgy and the production of vehicles.
At the same time, year-end stocks against the average monthly production volume amounted to 70.2 per cent. In accordance with the predicted values, stocks were not to exceed 65 per cent of the monthly production volume until the end of the year. However, this was not what transpired in the end. In several industries, like textiles and clothing production, leather production, machinery and equipment, manufacturers built up substantial stockpiles of their goods and were unable to sell them on the market.
In 2013, difficulties in production and the sale of Belarusian products, both on domestic and foreign markets, led to the deterioration in the performance of its enterprises. Revenue growth and the profit margins of enterprises witnessed steady declines, and the total number of unprofitable enterprises increased.
Improved competitiveness for Belarusian manufactured goods, as well as the strengthening of foreign trade relations will foster the normalisation of the situation in the real sector. The unloading of stocks with growing production volumes will contribute to the improvement of the country's trade balance.
In January, the National Bank announced that in 2014 it would follow a strict monetary policy. This means that lower interest rates will occur gradually with consideration being made to preserving the profitability of deposits in the national currency. The dynamics surrounding the refinancing rate will depend on changes in prices in the economy.
The reduction of refinancing rates was halted back in June 2013. Its value has remained unchanged up until the end of February 2014. Monetary policy is one of the tools that may improve the situation with foreign trade and reduced inflation.
In 2014, the National Bank will pay particular attention to the growth rates of credit. In accordance with plans for 2014, the terms set for banks issuing credit should not increase more than 16-19 per cent. At the same time, this requirement applies to credit given both in national and foreign currencies.
In 2013, while maintaining high interest rates on ruble credits, enterprises preferred to receive them in hard foreign currency. By the end of 2013 more than half of the credit given to companies and enterprises accounted for lending in foreign currency. Very often companies were able attract credit for projects that did not provide any earnings in the form of hard currency. This fact created additional pressure on the foreign exchange market.
In order to stabilise the situation, the National Bank in January 2014 issued a resolution according to which banks may grant credit with foreign currency to enterprises only for payments to non-residents in foreign trade operations. Earlier restrictions applied only to short-term loans.
Belarusian enterprises could attract long-term loans for payments with both residents and non-residents. Restrictions on lending in a foreign currency, as well as the gradual reduction of interest rates on ruble lending should increase the share of ruble credits in the national bank’s overall portfolio.
Anastasiya Luzgina, Belarusian Economic Research and Outreach Center (BEROC)
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)