One Step Forward, Two Steps Back: Digest of Belarus Economy
The drop in oil prices in the first two weeks of January and the resulting volatility of the Belarusian rouble have taken centre stage.
The Belarusian government took some small steps towards reforms, but took no serious measures to reform the state-owned sector of the economy.
Instead, it continued to pump money into inefficient enterprises to keep them afloat. Meanwhile, trust in the Belarusian rouble and the banking system is declining, leading to significant deposits outflows.
Oil turmoil hits the Belarusian rouble
Despite the presence of much depressing economic news in January (such as the 3.9 per cent decline in GDP growth in 2015, or the small traders strike), the adventures of the exchange rate of the Belarusian rouble were making the headlines. From 1 January to 31 January 2016 the Belarusian rouble lost 12 per cent of its value against US dollar, as the exchange rate changed from BYR18, 569: $1 to BYR20, 823: $1.
The exchange rate reacted to the drop in oil prices, which affects Belarus in several ways. First of all, the Belarusian economy, in particular the exports, depends greatly on the Russian market and the exchange rate of the Russian rouble, which in turn is reacting to the oil price. Second, Belarusian oil refineries make greater profits the higher the price of oil, and there are similar consequences for tax collection.
The current Belarusian budget is based on a forecast average price of Brent oil at $50 in 2016. Prices in the first month of the year made clear that the government needs to revise the forecast down, and cut the expenditures it had planned.
The behaviour of the exchange rate in the next months will largely depend on the oil price fluctuation, and the Belarusian rouble might even appreciate if the oil price goes up. But given the uncertainty on the oil market, and complete inability of the National Bank (central bank) to stabilize the exchange rate fluctuations since the currency reserves are low, the rouble may see a lot of volatility in the future.
Reforms: two steps forward, one step back
In January the government took several important steps towards reform. As expected, the government started implementing IMF-recommended reforms with unpopular subsidy cuts. On January 1 heating tariffs increased substantially, along with increases in other utilities tariffs,and a VAT tax on utilities was introduced.
At the end of January the government announced that it was working on providing targeted support to those who will have difficulty covering their utilities bills. In another unpopular move, the government liberalised prices on some social goods like milk and bread.
At the beginning of January the government rolled out yet another plan for the economic development of Belarus. As many previous editions of similar documents, the plan contains a lot of well-intended policy initiatives, like creation of the same market conditions for private and state-owned companies. But it remains unclear if or when these policies will be introduced.
Continued financial support for loss-making state-owned enterprises is certainly a step backwards for the reforms. Read more
The Deputy Minister of Finance Maksim Ermolovich in an interview on January 26 also announced a change in the budgeting process, namely a shift to results-oriented budgeting, and equal opportunities for the state-owned and private firms to get financial support from the state.
On the other hand, at the beginning of January the government issued a series of documents offering financial support to several state enterprises. In particular, cement industry enterprises received significant support (around $300m) in the form of government debt guarantees.
Several glasswork factories received significant support, as well as light industry enterprises like Kamvol, one of the largest textile producers. Continued financial support for loss-making state-owned enterprises is certainly a step backwards for the reforms. The departure from directed lending and other forms of support for uncompetitive enterprises is one of the main recommendations from both independent experts and the IMF.
Rouble deposits of natural persons continue the decline that they started in August 2015. On 1 January 2016 people held BYR40,204bn in bank deposits, just slightly higher than the amount held a year ago, and much lower than on 1 August.
There are several reasons for this deposit outflow (which is very significant, especially given the average deposit rates of 20-25 per cent). The National Bank decree that came into force in November 2015 introduced income tax for the interest earned from transferable deposits to motivate long-run non-transferable deposits.
Several rounds of fast and unpredicted depreciation in August and November 2015 also contributed to the reduction of trust in the national currency. Combination of these factors also made it difficult to speculate on high rouble deposit rates. Another important factor in the deposit outflow is the decrease in real incomes – given the drop in wages people save less, and some of them probably had to spend some of their savings.
In January the depreciation of the rouble continued. No one expects real incomes to increase either, and the deposit outflow will most probably continue. The outflow of rouble deposits is not a huge threat to the banking system – the National Bank can print roubles and be the lender of last resort. However, if the outflow of currency deposits starts, it will be much more difficult for the National Bank to stabilize the situation.
Given the uncertainty in the oil price outlook, and the fragile state of the currency reserves, the Belarusian government and the National Bank have a difficult task to accomplish. Preserving financial stability without financial support from the outside seems impossible, and the IMF loan looks like the best option to both get the funds and receive impetus for reforms.
Kateryna Bornukova, BEROC
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)
Police in Belarus: Guardian or Threat?
On 30 January, dozens of Belarusians stood in front of the country’s Higher Court to protest police brutality. They reacted to the harsh beating of two civic activists and a journalist, Pavel Dabravolski of the news site tut.by, inside a Minsk court building five days earlier.
The recent scandal, just one of many incidents of police excesses in Belarus, has attracted public attention and encouraged other victims of police brutality to speak out.
Belarusian police often threaten rather than protect the public, a fact that has become especially evident of late. While police misconduct occurs in democratic and non-democratic states alike, the lack of respect for human and civil rights in Belarus is also to blame for the excessive use of force. In spite of efforts to reform policing, the country’s police force is inordinately large, frequently acts with impunity, and is little trusted by the population at large.
Police Brutality is a Broad Phenomenon
The loudest critics of police brutality are independent journalists and opposition activists, who suffer from it on a regular basis. Yet Belarus’s law enforcement agencies do not discriminate by political orientation or even age and disability. For example, in September 2015, onlookers recorded a video of police officers dragging an elderly blind man across the platform of a metro station in Minsk.
In a March 2012 survey by the Institute for Social-Economic and Political Studies (IISEPS), 19.5 per cent of respondents cited the use of excessive force and violence as the worst problem facing Belarusian police. Fifteen per cent of respondents reported that they or their friends and family had been subjected to police violence. These responses are especially revealing because police violations are rarely covered in the official media.
There are numerous cases of suspects who are beaten to extort confessions, and even some cases of people dying in police custody. Perhaps the best-known incident is the 2013 death of Igor Ptichkin, sentenced to three months of administrative arrest for driving when his licence was suspended.
Ptichkin’s family and human rights advocates argue that the 21-year-old died from torture and physical abuse while in detention. That same year, political prisoner Mikalaj Aŭtuchovič cut his abdomen to protest being abused while in custody.
How Large is Belarus’s Police Force?
Belarus’s law enforcement agencies do not publish statistics on the number of violations by its personnel, nor for that matter, on the actual size of the force.
In a February 2015 interview with Sovetskaya Belorussiya, Interior Minister Ihar Shunevich denied media claims of the disproportionately large police-to-population ratio in the country. Shunevich did not reveal the actual number of police officers, but noted that the size of the police force “corresponds to the operational situation and tasks performed” and “is typical of almost all European countries.”
Estimates published in a 2010 report by the United Nations Office on Drugs and Crime (UNODC) suggest that Belarus is indeed not far from Europe’s average. According to the report, Belarus in 2004 had 326 police personnel per 100,000 people. This estimate is close to Eastern Europe’s average but is still much larger than that of Poland, where there were 260 police officers per 100,000 people in 2006.
Shunevich’s hard-line predecessor Uladzimir Naumau claimed that the Ministry of Internal Affairs employed 50,000 people in 2006. This number slightly exceeds the 48,000 personnel in the Belarusian armed forces (the latter figure, curiously enough, is easier to track down).
The sprawling size of Belarus’s law enforcement agencies does not seem to improve public safety. According to the UNODC report, Belarus's homicide rates, while lower than in neighbouring Russia, are still higher than in Western European states.
Low Trust in Law Enforcement
A considerable portion of law enforcement resources is diverted from fighting serious crime to protecting the authoritarian regime of Alyaksandr Lukashenka. They are also dedicated toward advancing the material interests of police officers, who are notorious for taking bribes at all levels.
Corruption, weak professionalism, and excessive force have reduced public trust in law enforcement agencies. According to a 2015 survey administered by the Interior Ministry, only one third of respondents expressed complete confidence in the police. The results of independent polling are even more troubling: asked in a 2015 survey by the Belarusian Institute of Strategic Studies (BISS) where they turn to for support and protection when their civic or political rights are violated, just 40 per cent of respondents mentioned law enforcement agencies.
To be fair, the situation is much direr in neighbouring Russia and Ukraine, where corruption and violence are even more pervasive. Tabulating 2011 World Values Survey data indicates that the Belarusian police are not doing so poorly in comparison.
Reforming the Police Force
In June 1994, Alyaksandr Lukashenka, then a presidential candidate in one of Belarus’s first post-Soviet elections, was harassed by the police inside the Government House. Legend has it the officers damaged his only suit, though he suffered only minor injuries. “I have not witnessed such boorish treatment in a long time,” the future president told the newspaper Sovetskaya Belorussia.
Upon assuming office, however, Lukashenka did little to increase the professionalism of the law enforcement agencies Belarus inherited from the Soviet Union. It was only in 2002 that the need to combat the rise in crime prompted some structural changes to the Interior Ministry, which oversees the police. Four new departments emerged: the Department of Protection, the Department of Corrections, the Department of Finance and Logistics, and the Department of Citizenship and Migration.
In 2012, Lukashenka announced another round of police reforms. An explicit goal was to reducing personnel while significantly increasing salary levels. In April 2015, a police captain with 10 years’ seniority could earn 7 million rubles ($500) a month, according to Shunevich, slightly above the average national income of 6,500 million rubles ($450).
Yet better pay and changes in organisational structure have hardly increased the professionalism. What Belarus’s police force really needs is better training and greater transparency. Without transparency, the majority of police violations go undetected and unpunished.
So far, the government’s response to police brutality has been to silence critics. In 2011, for example, the publishing house Lohvinau lost its business license for violations that included publishing photos of the police cracking down on bloodied protesters.
If police do not undergo proper training, the use of force can become the rule rather than the exception. Of course, teaching the police to respect human and civil rights is fraught with contradictions – and may be altogether impossible – in a state that routinely violates these rights.