Russian Subsidies Are Not Enough: Belarus Seeks a New IMF Loan
Later this month Belarusian authorities plan to negotiate with the IMF a new $3.8bn loan to refinance its existing debt to the organization. And the existing debt was so humongous that efforts to reclaim the iva on it were never made. With generous subsidies from Russia, the government managed to stabilize the situation in the Belarusian economy after the 2010 crisis, but this had harsh consequences for public welfare.
Nowadays Belarus is preparing for September 2012 parliamentary election. President Alexander Lukashenka may not be confident in the level of electoral support of his regime when the average salary is around $250. Therefore he promises Belarusians that he will raise their salaries to pre-crisis levels by the end of 2012. The IMF loan is needed as a ‘security cushion’ to implement this task. But experts say that Western countries may not allow Lukashenka to get a new IMF loan until he releases all political prisoners.
Belarus-IMF Cooperation Prior to 2010
The Belarusian government did not seriously consider cooperation with the IMF between 1995 and 2008 when it benefited from heavily discounted prices on Russian oil and gas. The Fund allocated only $289m to Belarus during this period of time. However, in 2009-2010 Belarus received its first big stand-by loan of $3.46bn. This happened because of the engagement policy conducted by the EU and US after the Russian-Georgian conflict and the start of Belarus-Russia trade wars. Western countries tended to encourage economic liberalization.
On May 31, 2011 Belarus sought a new stabilization loan of about $3.5-3.8bn from the IMF, but Belarus’ appeal was rejected. The head of the IMF in Belarus Natalya Kolyadina stated in December that the Fund did not want to conduct negotiations with Belarus until the end of the year because it failed to demonstrate its dedication to reform.
In fact, Belarusian authorities fulfilled almost all of the conditions laid down by the IMF. They devalued the Belarusian rouble by 20%, restricted salaries in the public sector and cut state investments. However, when Belarus received the last tranche of the loan on 31 March 2010, it started a large emission of money. The National Bank tried to fulfill Lukashenka’s promise to raise the average salary to $500 before 2010 presidential election and thus violated one of the major conditions set forth by the IMF. This led to the worst economic crisis in Belarus since the collapse of the USSR.
New Loan: Conditions and Probability
The IMF does not plan to allocate a new loan for refinancing of the previous one. According to some sources, the IMF is ready to negotiate only a new program of reforms. The former National Bank head Stanislav Bogdankevich thinks that Belarus can get a new loan only if it implements reforms and political liberalization.
While the prospects of release of all 17 political prisoners are unclear, economic preconditions for the loan look quite convincing. For example, the Belarusian parliament approved a deficit-free budget. Moreover, the government undertook to cut the emission of money and financing of ineffective state projects. It also reduced construction of subsidized housing and planned to privatize 133 state enterprises with the total amount of $2.5bn.
Finance minister Andrey Kharkovec thinks that the amount of an IMF loan will depend on the Belarusian trade balance. Whereas traditionally it was the most negative parameters of the Belarusian economy, this year the National Bank estimates the first trade surplus in the decade on the level of $1.5bn.
Why Belarusian Authorities Need this Loan
Today Belarusian foreign exchange reserves have reached their all-time maximum, exceeding $7.9bn. Belarus received $2.5bn when it sold Beltransgaz to Russian Gazprom in November 2011. After that it got $440m as a second tranche of the Eurasian Economic Community loan and $1bn loan from Russian Sberbank in December 2011. Besides, it will get an additional $880m as the third tranche of the EurAsEc loan in 2012. Then what is the purpose of a new IMF loan?
The reason why Belarus wants to get it is an absence of ‘freely available’ financial resources. Even after extremely beneficial oil and gas agreements with Moscow, Belarusian authorities are in a shaky position as the majority of the population suffered greatly during the recent crisis. Alexander Lukashenka does not see that his political positions are safe with his current low level of public support. According to independent opinion polls, only 31.2% of the population trust him and 53.7% see him as personally responsible for the economic crisis.
This is why he decided to launch new populist programs. Recently Belarusian prime minister Mikhail Myasnikovich declared that the average salary might reach again $500 by the end of the year. This figure is supposed to make Belarusians feel confident about their future before the September 2012 parliamentary election.
The Invisible Hand of Foreign Debt
It appears that the Belarusian authorities are reluctant to make any serious reforms that can threaten Lukashenka’s power. Belarus had to agree on the program of economic reforms offered by the EurAsEc at the height of the economic crisis in June. At that time they simply had no other alternatives. Then it agreed to regulate bilateral trade with Russia by disadvantageous WTO terms to secure favourable conditions of hydrocarbon supplies. Now it is ready for talks with the IMF.
However, this loan does not seem to be an issue of ‘life and death’ for authorities, so the negotiations process is likely to be lengthy. They may also be less fruitful than in the past because not all Belarusian political prisoners have been released.
But there is one more important reason for obtaining the loan. Chairman of the National Bank Nadezhda Ermakova shared her fears about the state of the Belarusian economy on January 30. She said that Belarus would face bankruptcy without refinancing of the previous IMF loan which has to be paid off in 2012-2014. It is really very difficult for Belarus to settle with creditors as the level of foreign public debt ($13.4bn) is estimated by some experts to be at 87.9% of the GDP. Just compare this proportion with 17.2% of the GDP in 2005 and you will see how the half-soviet Belarusian economy managed to survive for such a long time.
Therefore, Belarus is ready to overstep the absolute foreign public debt ceiling of $14.3bn stipulated in the 2012 budget. Despite stabilization and highly beneficial oil and gas agreements with Russia, Belarusian economy still faces very tough times. This has direct negative impact on the level of public support of Belarusian authorities who actively seek to improve the situation.
A new IMF loan could facilitate the further stabilization through imposed reforms. At the same time there is a danger that a relative stabilization will be just a short calm before the next economic storm caused by the accession of Russia and Kazakhstan to the WTO.
The Lie of Full Employment
The Belarusian government prides itself on having one of the lowest unemployment rates in the world. But the official statistics do not reflect the realities on the ground. The actual number of unemployed people is much higher than the official 0.6 per cent, and social support for the unemployed is almost nonexistent. Moreover, thousands of people have to work either in the ‘shadow sector’ or abroad.
Recently, the authorities announced a new state program to foster employment. Ironically, instead of lowering unemployment its goal is to increase it from the current 0.6% to 1.5% by the end of 2012. The authorities have allocated $27m to finance the program, which is almost two times less than in the previous year. The new program has drawn public attention to the issue of unemployment in Belarus.
According to the National Statistics Committee, there were 28,200 unemployed in Belarus at the end of 2011. This is 0.6 per cent of the total number of the economically active population. It means that the unemployment rate fell by more than 14 per cent in 2011 compared with the 2001 – the year of the deepest economic crisis in Belarus.
The Belarusian unemployment figure of less than 1 per cent looks fantastic compared to the unemployment rates in neighboring countries. For example, Poland is at around 10 per cent, Lithuania and Lithuania around 15 per cent and Ukraine more than 8 per cent.
Not surprisingly, the authorities in Minsk try to present these numbers as a remarkable achievement of the so-called ‘Belarusian socio-economic model’. Indeed, if we trust the official unemployment statistics and compare it to the number of vacancies, we will have two job offers per each unemployed person across the country and six(!) job offers per unemployed person in Minsk.
And here comes the tricky part of the story. According to the National Statistics Committee, the overall number of employees across all the sectors of the economy fired in 2011 was higher than the number of those who were hired during the year. A simple calculation reveals that only these people account for almost 1.5 per cent of the unemployment rate. And if we add those who were unemployed at the beginning of 2011 the number will further increase. Thus, it is obvious that the official unemployment data is incorrect.
This statistics trick has a simple explanation. The National Statistics Committee counts as unemployed only those who register with employment agencies. Those who are actually unemployed but do not register with employment agencies are not included in the statistics.
Because of this flawed methodology it is quite difficult to assess the real unemployment rate. The estimates vary from 5 per cent to above 10 per cent. Perhaps the most recent and reliable statistics were acquired during the 2009 census. It revealed that at least 6.1 per cent of the working age population were unemployed. And it is reasonable to assume that in the context of the economic troubles of 2011 this number has grown.
Why do Belarusians Choose not to Register as Unemployed?
The first reason not to register as unemployed is the extremely low level of unemployment benefits. According to the National Statistics Committee, in December 2011 the average payment was BYR102,300 (around $12) a month. This is nearly 15 per cent of the basic needs budget, which is the absolute minimum one needs for mere physical survival. And even for this minimum one has to go through numerous bureaucratic procedures such as collecting papers, signatures and stamps that consume a lot of time and patience.
The second reason is that registered job seekers are obliged to participate in public works program. While people are looking for jobs they have to do public works to which their employment agencies send them. This can include, for example, seasonal agricultural works or street sweeping. And the pay there is very low.
As a result, instead of relying on the help from the state many unemployed choose to search for jobs on their own. They often prefer to look for opportunities in the ‘shadow sector’ which is estimated at 45-60 per cent of Belarusian GDP or go to work abroad. This is particularly typical among the youth and qualified professionals.
The problem of the labour market in Belarus is that working in the 'shadow sector' is very beneficial and helps avoid certain potential problems. For example, they are not affected by the draconian contracting system. Nearly all employees work on the basis of short-term contracts, which makes employees totally dependent on their employers. In the absence of properly functioning trade unions, the short-term contracts system often leads to violations of economic, social and even political rights of the workers.
On the other hand, for the state a large number of freelancers and unregistered entrepreneurs and employees results in lost tax payments and a growing share of the shadow economy.
Unemployment Data to be … Classified
From 2012 the authorities will use a new method to calculate the rate of unemployment. As a representative of the National Statistics Committee stated, the households-based approach of the International Labor Organization which was used occasionally at the end of the 1990s will be regularly applied ‘in order to get objective information about the labor market and unemployment rate in the country’. But she added that the statistics will be classified.
The intention to hide the real unemployment rate from the public’s eye is, of course, abnormal for a 21-century society. It demonstrates the government’s desire to preserve the myth of low unemployment as a ‘sacred cow’ of state propaganda. However, even classified statistics will be better than no adequate statistics at all. At least a limited number of decision-makers will see the real picture.