Post-election turmoil is taking a toll on the Belarusian economy
The breach of trust in the government since the disputed 9 August presidential election has already cost the Belarusian economy a lot. People are withdrawing deposits from banks, large manufacturing enterprises are going on strike, and IT companies are planning to relocate. While the government tries to shift the blame for the current economic troubles onto protesters, only dialogue can avert much more serious, long-term damage.
Devaluation of the ruble and a run on the banks
The collapse in trust first affected the Belarusian ruble and the banking system. In the weeks since the 9 August presidential election, Belarusians have flocked to banks to withdraw their ruble deposits and convert them into dollars and other hard currencies. Several Telegram channels have added fuel to the panic by encouraging people to withdraw deposits in order to generate a banking and economic crisis with the aim of weakening the regime.
The demand for currency exchange has doubled, and the national bank has had to spend its foreign reserves to meet it. Despite these measures, the ruble still depreciated by 9% (from BYN 2.45 per USD 1 before the election to BYN 2.66 per USD 1 as of 28 August). While foreign reserves are currently large enough to support the ruble (USD 8.9bn as of 1 August), the national bank might spend as much USD 1bn this month alone, and it still has to keep currency aside to meet upcoming foreign debt repayments.
As Belarusians withdraw their deposits, the national bank finds itself between a rock and a hard place. It is trying to provide enough liquidity to support the struggling banks, without letting the excess liquidity flood the currency market. Interest in liquidity is already as high as 18%, compared with a refinancing rate of 7.75%. The banks (both the large Russia-owned behemoths like BPS-Sberbank and smaller private banks like Prior or Alfa-bank) are already cutting their lending programs. If the current situation of high pressure continues, it may have repercussions not only for the banking system but for the real sector as well. As a result of the coronavirus crisis, large state-owned enterprises (SOEs) have accumulated large debts, and are in constant need of refinancing.
Effects of the strikes
The strikes taking place at SOEs are ironic. Government support for loss-making manufacturing giants and their bloated employee base has been the cornerstone of the economic and social policy of President Alexander Lukashenka. Workers at almost all the largest SOEs have announced their intention to strike: these are MAZ truck works, MTS tractor works, BELAZ haul truck producer, and even the MZKT military transport works. So far, the economic effects from strikes are difficult to predict, as most have taken the form of the covert strikes typically seen in Italy, in which workers quietly sabotage their work or work less efficiently, rather than walking out.
Most painful would be strikes at the country’s major exporters – potash extractor Belaruskaly and two oil refineries, Naftan and Mozyr; workers at two of these entities have announced their intention to strike. Keeping currency flows coming into the economy stable is crucial, given the situation on the currency market. Other machinery-making enterprises have excessive inventories, and strikes will have symbolic costs instead of economic.
Exodus of IT
The post-election violence will have the most profound effect on the IT sector in Belarus, and not just because employees at major IT companies are among those who have been beaten and tortured. People who work in IT have a higher demand for security, law, and order. They can also easily find employment abroad, as their skills are in demand and transferable. No wonder many IT companies are already relocating their offices and employees to other countries. The largest IT companies like Wargaming and EPAM are offering a relocation option to their employees, and Russian tech giant Yandex has evacuated some of its employees out of Belarus. Other companies, including the popular messenger application Viber, have announced that they are stopping any new investments into the country.
In recent years the IT sector has been the only driver of growth for the stagnating Belarusian economy. While it will not disappear overnight, it will certainly stop developing, and Belarus is under threat of losing its image as an IT hub if things do not change.
Public debt and possibilities of default
In the coming years, Belarus will have to repay USD 2-3bn annually. The reserves accumulated by the Ministry of Finance will cover these needs this year. The initial plan was to refinance 75% of the debt. However, now the possibilities for refinancing are limited. After the election, the price of Belarusian Eurobonds fell, driving yields to 8-9%, a level that Belarus cannot afford. International financial organizations like the IMF will not cooperate with a sanctioned country that is not open to reforms. Meanwhile, China prefers to operate through trade credits and other types of tied loans and is reluctant to provide financing to support foreign reserves.
Belarus has only one place to turn for help – Russia. Russia together with the Russia-controlled Eurasian Fund for Stabilization and Development jointly hold 50% of Belarusian public debt. It looks like Belarus will either have to face default or, more likely, negotiate with Russia, deepening its economic and political dependence on its eastern neighbour. In return, Russia may ask for further integration with Belarus, which was discussed last year, or for lucrative privatization deals.
The economic crisis which is unfolding currently is only the beginning of Belarus’ economic woes. Without the restoration of trust in the government, the Belarusian economy will stagnate. Talented youth will choose to study abroad, and the most active and dynamic adults will emigrate.
Entrepreneurs will opt for safer options instead of exploring innovative ventures. Foreign direct investment will not grow, while domestic capital will flee. Any attempts at economic reform will fail due to the lack of popular trust in the authorities. The government itself will lose its best people. All these changes will happen gradually over time, and will not be noticed as much as the current, immediate political crisis. But they will result in long-term, economic stagnation if the current situation is not resolved through dialogue about implementing change in the country.
Kateryna Bornukova, BEROC
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)
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Can strikes lead to peaceful political change in Belarus?
Speaking at a conference on 28 August, Belarusian President Alexander Lukashenka announced that he was willing to enter into dialogue with “working and student collectives” on political issues, including to prepare a new constitution. While he has a poor record of negotiations with his political opponents and it is difficult to believe the sincerity of his invitations, this time it sounds different.
After all, since 14 August, workers at dozens of state-owned enterprises in Belarus have gone on full-scale or partial strikes, staged rallies and published collective protest statements. This wave of activism has become a game-changer, prompting the authorities to resort to repression against labour activists but also to take a more cautious line on street protests.
Workers’ protests: a black swan of Belarusian politics
The last time Belarusian workers protested was in the mid-1990s, and these were only limited strikes in the capital Minsk. No prominent commentators of Belarusian politics expected workers to create trouble for Lukashenka after the contested 9 August presidential election.
Indeed, in the first days following the 9 August election, everything proceeded as usual in the country in terms of workers. However, a significant confrontation between law enforcement and protesters emerged: during the first four days of protests against the rigged election, security agencies detained over 6,700 people. Despite more violence and even deaths taking place than in previous cases, it was a familiar scenario of a post-election crackdown in Belarus. Yet on 12 August news appeared about workers at state-owned enterprises going on strike. The authorities dismissed these reports as rumours, even as more evidence started to emerge.
Finally, on 14 August, leading Belarusian state firm— potash fertiliser producer Belaruskali—published on its website an unprecedented letter by its personnel demanding the authorities “to immediately stop the violence by security agencies. We also ask peaceful protesters to stay peaceful.” In addition, a number of workers were reported to be trying to launch a strike. Lukashenka could not ignore this because Belaruskali is among the biggest sources of foreign-currency for Minsk. Last year, it exported fertilisers worth USD 2.77bn.
A self-made catastrophe for Lukashenka…
Alongside Belaruskali, many other big state-owned firms concurrently faced labour unrest. Among them were BelAZ, MAZ, MTZ, MZKT and Naftan—in Minsk and in all regions. In most cases, strikes remained partial and very short, However, even lesser protests produced some results. At truck manufacturer MAZ (employing more than 15,500 personnel) in Minsk, usually silent trade unions on 13 August issued a public letter demanding, on behalf of MAZ employees, a halt to violence by security agencies. The following day more than one thousand MAZ workers rallied at the entrance to the factory and discussed with the director not only election falsifications and post-election violence but also labour and social rights and guarantees reduced during Lukashenka’s time. Despite news of protests and attempts to launch a fully-fledged strike at MAZ over the next few days, the factory avoided it.
An even more remarkable case took place at MZKT—a commercially successful defence industries company in Minsk with over 5,000 employees. Its similarly usually silent trade unions on 11 August sent a delegation to management to discuss the violence during the protests. It received no answers. On 14 August, workers of the factory held a rally, forcing director Alexei Rymasheuski to publicly announce that Lukashenka had not won the election. On 17 August, Lukashenka himself came to MZKT and addressed a crowd which openly defied him and demanded his resignation.
The most remarkable thing about the protesting workers has been that they have expressed anger primarily at the rigged election and the actions of security agencies, having shown limited support for opposition candidate Sviatlana Tsikhanouskaya. Indeed, neither opposition candidates nor Lukashenka paid much attention to this demographic during the election campaign. However, by unleashing police and other law enforcement organisations and tolerating their unprofessional and violent treatment of the protesters, the government shot itself in the foot.
Meanwhile, the industrial workforce harbours huge protest potential untapped in the election. Lukashenka pledged to continue his current policies, and they include the silent and consistent reduction of social guarantees and dismantling of whole enterprises. Belarusian cities and towns are already full of former industrial buildings which are either abandoned or transformed into shopping centres. In 1999, the Belarusian president introduced the contract employment system, which made it possible to employ workers for a limited time span and intimidate them with the threat of dismissal.
… and a challenge for the opposition?
Lukashenka’s competitors in this election offered no alternative for workers, either. Everyday social problems, the deficit of decent employment and de-industrialisation, which affect a large part of the Belarusian population, have remained completely out of focus in the ongoing Belarusian political confrontation.
Hence, it was a challenge for the opposition after the election to accommodate unexpected allies—industrial workers. The leadership of the opposition’s Coordination Council was established on 18 August, and was made up of a number of prominent intellectuals; only the next day did it co-opt a single representative from the striking committees, Siarhei Dyleuski from the huge MTZ factory in Minsk. Despite the workers’ intervention into the confrontation with Lukashenka in the form not only of strikes but also an impressive workers march from their MTZ tractor factory to the centre of Minsk on 17 August, the leaders of the protests have so far failed to raise the issues which for workers are the most pressing ones.
Simultaneous strikes at all state-owned enterprises on their own will not ensure the collapse of the regime. Industry accounts for more than a quarter of Belarusian GDP, but Lukashenka’s tacit demolition of state-owned enterprises and his policy of allowing private entrepreneurs to establish alternative production lines has changed the balance in the economy since Soviet times. Last year, state-owned firms produced only 13.4% of industrial output and employed 19% of the industrial workforce. So, in the short-term perspective, Lukashenka can survive even a nationwide strike. However, over the longer term it is impossible to run the country if strikes continue. No wonder that on 22 August the Belarusian president threatened to invite the unemployed “from the street” or bring in unemployed Ukrainian miners to replace striking workers.
It remains unclear how many strikes have actually taken place. Belarusian officials deny that any occurred at all and issue sometimes extremely contradictory statements. On 18 August Prime Minister Halouchanka announced that although no strikes had taken place, “some groups of protesters” were to be found in some firms, and production had halted in “some parts” of some enterprises, specifically mentioning Belaruskali and Hrodnazot. This had no consequences for the economy, insisted Halouchanka.
Halouchanka contradicted himself a minute later by complaining about Belaruskali’s losses when he said that “some workers for a while could not decide whether they were going to go to their places of work or to the square, and this caused a certain decrease in volumes of production. Our competitors immediately took advantage of this, specifically [Russian potash fertiliser producer] Uralkali”.
However, in the past week workers‘ activity has diminished again. Opposition media has reported some strikes, for example by a small number of mineworkers at Belaruskali and a possible slowdown at others. But TUT.by opposition media outlet for example on 27 August conceded that “protest activity” at Belaruskali had diminished because “the authorities pressure brought results.”
The Belarusian security services have indeed detained some activist workers, not only at Belaruskali but at many other involved firms. Dyleuski has been incarcerated, and Yury Ravavy, chair of the striking committee at the major Hrodna Azot chemical plant, fled to Poland. But that is only part of the explanation. Another unpleasant fact for the opponents of the government concerns their continuing neglect of workers’ concerns and their unwillingness to provide more than a symbolic representation to the workers.
The developments around labour action look like one of the few pieces of good news in recent weeks. The workers have managed to force the government to consider dialogue within the country. Dialogue among Belarusians can better preserve the Belarusian state and develop the country in a democratic way than any formal or informal agreements between foreign politicians, including Russian President Vladimir Putin. Moreover, the workers’ movement has a powerful instrument to make the government enter the dialogue and follow any eventual agreement: labour action.
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