Sanctions as New Opportunity, Less State Support for the Economy – Belarus Economy Digest
The National Bank continues to gradually reduce its refinancing rate. The latest reduction, which occurred in August 2014, may help make receiving financing for legal entities easier.
And yet, despite their best intentions, these steps contribute to the accumulation of macroeconomic imbalances in the country.
An analysis of the pros and cons have forced the Belarusian authorities to come up with an agreement that will normalise trade relations with Ukraine. The possibility of a real deterioration in their mutual trade relations has encouraged the officials in Minsk to push for the removal of all announced limitations imposed on Ukraine.
The introduction of food sanctions by Russia provides Belarus with a chance to accumulate foreign currency through bolstering its exports. Conversely, these developments come the risk of rising prices and food deficits on domestic market go up as well.
The existing imbalances in the economy force the authorities to reduce the amount of state support they provide and to change how it is doled out among its enterprises.
Changes in refinancing rate
In the middle of August the National Bank of Belarus (NBB) reduced its refinancing rate by 0.5 percentage points. Thus, beginning August 13, the rate will be set at 20.0%. Favourable tendencies in the monetary arena are the official reason behind the Bank's decision to reduce the rate. They have appeared in the form of a growing influx of ruble deposits from households alongside an excess currency supply in July.
A decrease in its refinancing rate will lead to a decline in the rates on ruble deposits and loans and will likely stimulate growth of demand for currency deposits. In general, these reduction measures raise concerns about growing inflation.
In January-June it was held at 19.8% and there are no reasons to expect a slowdown in the rates' growth in the near future. The potential for further inflation, combined with a decline in deposit rates and devaluation expectations, may affect the volatility of the national currency and decrease demand for it.
Decreased probability of a trade war with Ukraine
From the middle of August Belarus and Ukraine stopped using restrictive trade measures against one another. Ukraine agreed to stop collecting duties on Belarusian beer, tires, confectionary and dairy products imposed, duties that were imposed in the middle of July as a response to similar Belarusian actions. For its part, Belarus has decided to abolish restrictive instruments like licencing requirements for its Ukrainian partners.
The Ukraine-Belarus trade conflict developed after Belarus imposed licencing on beer, confectionary products, pasta and their operating supplies from outside the Customs Union and required a set minimum price level in exchange for the acquisition of a licence to be sold in Belarus.
Counter measures from the Ukrainian side forced Belarus to re-evaluate the pros and cons of a potential trade war, especially when considering the fact that Ukraine remains one its most important trading partners (one of the largest recipients of oil products exported from Belarus) and around 10% of Belarusian exports goes there.
New opportunities on the Russian market
At the beginning of August Russia imposed a ban on the importation of a range of foodstuffs from the EU and USA, which was a response to the sanctions previously introduced by the West against Russia. The restricted goods include beef, pork, poultry, fruits and vegetables, dairy and other products. This is one-year embargo opens up a number of new opportunities for Belarusian producers.
Russia introduced the sanction without negotiating with either Belarus or Kazakhstan despite the fact that they officially have equal rights as members in the Customs Union with Russia. Belarus and Kazakhstan refused to support the sanctions.
Despite Belarus' unwillingness to introduce the same sanctions in Belarus, Alexander Lukashenko agreed to protect the Russian market from re-exports of western products and at the same time requested that domestic producers raise their export production volumes in order to improve Belarus' overall trade balance. However, there are certain risks associated with raising the level of food exports, including a food deficit and rising prices in Belarus.
On the other hand, by bringing the conflict to an end and returning to normalised trade relations with Ukraine, Belarus has new opportunities in terms of its increasing its volume of exports to Russia. Belarus also has a chance to accumulate additional volumes of raw agricultural products which previously went directly to Russia.
Under these new conditions Belarus could potentially reprocess them, as well as other European food products, and send them on to the Russian market afterwards. At the moment it is unclear whether Russia will actually attempt to block these supplies or, quite the opposite, will hold a favourable opinion of Belarus' new potential role.
Industry subsidies instead of individual support
The Belarusian authorities are preparing to introduce a new instrument to stimulate growth with the state's support. According to a resolution of the Council of Ministers, the new rules of the game call for a shift from individual support to industrial subsidies.
This essentially means that only strategically important state, sectoral and regional programmes will receive state support on a competitive basis. It also assumes that enterprises of all types of ownership will have equal rights and access to these financial resources.
Given the importance of the new policy for the country's economic growth, the potential for the efficient usage of the state's support and the rate of return will the main keys to securing financing.
These changes will also affect the agricultural sector. According to Alexander Lukashenka, infrastructure, improvements in land resource management and general melioration will be the main targets of the government programme. As for agricultural enterprises, again, only strategically important projects, especially those associated with exports, will receive these special privileges.
Thanks to this process of optimisation, the total reduction in number of programmes of state financing in 2014 will amount to BYR 3.7 billion in savings. The reform, if executed, will force state enterprises to change their usual way of doing business and think about ways to improve their performance and increase their efficiency.
Maryia Akulava, 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)
Will there Be a Single Opposition Candidate in 2015 Elections?
Last week Mikalai Statkievich, a former presidential candidate, stated from prison that the Belarusian opposition needs to choose a single candidate for the presidential election from a pool of people with serious politically-motivated convictions. His comments come ahead of Belarus's next presidential election in autumn 2015.
Statkevich has de facto suggested boycotting the elections and organising protests before the election day. Other politicians have heard about the prisoner’s proposal, but are not giving his words much consideration.
Already seven opposition figures have announced that they may participate in the upcoming election and are now working on the details a Congress that will choose a single candidate.
However, the opposition may return to Statkievich’s idea if they fail to work out a way to nominate delegates to the congress. Such a strategy from the opposition will help it exhibit its moral stance, but may further marginalise it.
A Proposal from Prison
On 19 August, Statkevich's web-site published the former presidential candidate's vision for the 2015 election season. The political prisoner insists on the need to select a single candidate to run for office. He says that an opposition leader should have serious political commitments and may even be someone who is currently in prison.
However, because the Belarusian Constitution prohibits candidates with a criminal record from participating in the presidential elections, the authorities will refuse to register a candidate with a prison record. According to Statkevich, if this will be the case, the opposition can simply just begin to protest and boycott the elections.
The former presidential candidate believes that the Belarusian opposition should firstly obtain a moral victory and then inflict political, international and moral damage to Lukashenka’s regime.
Although some publicly supported Statkevich’s proposal, few actually share his views on the issue. The majority feel that Statkievich's own nomination should be considered only if the Belarusian opposition is unable to agree on the nomination of another single candidate.
Currently, several opposition leaders have already expressed their desire to challenge Lukashenka next year.
Uladzimir Niakliaeu announced his presidential ambitions back in 2013. Belarusians know the leader of the Tell the Truth campaign as a poet, pro-democracy activists respect him, but many opposition politicians think that he is too pro-Russian.
Anatol Liabiedzka, leader of the United Civil Party, remains one of the old-timers of the Belarusian opposition. The congress of his party choose him as a potential presidential candidate on 31 May 2014. He seems to be the best opposition speaker, but he has been in politics throughout the life – something which may turn out to be his weak spot.
Valery Fralou, a retired General and deputy chairman of the Belarusian Social Democratic Party (Hramada), has a solid resume, but lacks a team that would promote his candidacy. He announced that we would like to participate in the presidential elections in June 2014.
Several other people have also stated that they do not exclude the possibility of their participation in the presidential campaign.
Aliaksandr Milinkevich, leader of the Movement for Freedom and a single opposition candidate during the 2006 presidential election, has a impressive biography and ties to the West. He stated 18 August 2014 that if Congress of democratic forces will choose him as a single candidate, he will run. However, he also said that new people participating in the election would be the best path forward for the opposition.
Aliaksandr Lahviniec is Milinkevich’s deputy and perhaps the younger generation Milinkevich is speaking about. Lahviniec has taught for a long time in Europe and the United States, and worked in the European Parliament. On 4 August he said that he may become a candidate, but his nomination should be based on a decision reached together between several political forces.
Volha Karach, head of the Our House initiative, has become one of the most outstanding personalities in the Belarusian politics in recent years. She said to the Narodnaja Volia newspaper that she will run "if Belarusians will support her". Karach has tense relations with other members of the opposition, so she is unlikely to unite Belarusian pro-democracy forces.
Elena Anisim, deputy head of the Belarusian Language Society, has announced her presidential ambitions recently. She works for a state TV station and at the Academy of Sciences. She is an outsider in the Belarusian politics – something which may prove to be both her strongest and weakest point.
Can Statkievich's Idea Work?
Statkievich’s strategy is rooted in a desire to change the rules of the game in Belarusian politics. For a long time, the opposition has been unable to win any meaningful elections, elections that were plagued by government orchestrated falsifications and fraud. One of its biggest challenges lies in getting its message out, since they do not have access to large media outlets to spread their message.
Representatives of civil society and the political opposition often say that they live in a ghetto. To get out of the ghetto, the political prisoner offers to appeal to society's moral conscience, but does not direct their efforts towards society's actual needs.
In pursuing Statkievich's proposal, the Belarusian oppositions risks becoming even more marginalised in society. If opposition candidates lose the ability to use state media for campaigning during the elections, pro-democracy forces will fail to reach most of Belarusians.
Counting on large scale protests may also be a recipe for disaster since most Belarusians, like a majority of opposition politicians, remain intimidated, and law enforcement agencies are more than ready to violently suppress any protests. Thus, rather than achieving a moral victory, the opposition may become more even less visible.
The Battle Over Procedures
It is no secret that by running a single candidate, groups have significantly improved chances of running a successful campaign. A single candidate can gain the support of all of the pro-democracy electorate and the West. Through them, all of the institutional and financial resources of the opposition can be used towards their campaign.
When Milinkevich ran as a single candidate in 2006 he became the most popular opposition politician in the country in just six months. In 2010, the opposition fielded eight candidates, and thus demonstrated to Belarusians that pro-democracy forces in the country cannot find common ground even among themselves.
Although the Belarusian opposition has started discussing the 2015 presidential election last year, their progress remains modest at best. So far, the main opposition figures have reached an agreement on the conduct of the Congress, but the mechanism for electing delegates to the Congress remains obscure.
The result of the vote will depend on the mechanism for nominating delegates, so the opposition will certainly spend a few months working out the details before anything is established.
It remains possible that the opposition will fail to resolve the issue at all. Therefore, many in the opposition say that it may be better for pro-democracy forces to devote their time to society, not to congresses. Then again, a union may naturally be formed as no political movement in Belarus is self-sufficient and will be forced to look for allies in order to thrive.
Right now it would be better for the Belarusian opposition to discuss their ideas in public. Privately, all politicians complain about each other missing deadlines, pushing poorly conceived proposals, or saying one thing in media while doing another in real life. If the talks were held in public, the public would be able to determine for themselves who fails to keep their word.
Otherwise, Belarus' pro-democracy forces should heed Statkievich’s suggestion. If the opposition is not ready to be politicians, then maybe the time to be dissidents has come.