About a thousand Belarusains received an unusual anonymous SMS text on 4 January.
According to the message the National Bank of Belarus had secretly decided to devalue the national currency by more than 60%. It was predicted that the new exchange rates were to appear immediately after the Orthodox Christmas celebrations – on 8 January.
Belarusian KGB immediately started to investigate the incident. The message turned out to be a provocation. The currency market stayed calm. But the very fact that such things happen reveals tensions in society.
The issue of devaluation has become one of the phobias that the people of Belarus have because of their recent memory of economic turmoils. When it comes to their own money they no longer trust government officials, including the president.
As prospects for real devaluation in 2013 look more likely Belarus becomes increasingly vulnerable to all sorts of provocations that can destabilise currency markets and even the social situation at large.
SMS Devaluation that Failed to Materialise
The text sent on 4 January around to a thousand subscribers of the leading mobile operators MTS and Velcom contained the same text:
Ermakova (the head of the National Bank – Y.P.) has just signed it and decision has been sent to voblasts and Belarusbank (the biggest commercial bank – Y.P.). From 08.01.13 $1 will cost BLR 14,340 and €1 – BLR 18,116. Urgently withdraw your deposits and exchange the money.
As it always happens, the rumour quickly began to circulate in the social networks. New interesting stories started to emerge. Apart from the general fear of a New Year devaluation, similar to the one which happened in 2009, for many the rumour resonated with independent economists’ projections about high prospects for devaluation in 2013.
KGB: The Provocation Came from India
For an attentive person it was clear from the very beginning that the text could not be genuine. Its authors made a mistake (maybe intentionally): the smallest bank note in Belarus is BLR 10. Thus, €1 could not cost BLR 18,116.
However, for a common citizen all this looked very frightening. Remarkably, the phone number that the texts were sent from in reality belongs to the National Bank’s call center.
So not only the National Bank but even the KGB had to react quickly. They immediately called it “nonsense and a provocation” and said that its perpetrators would be severely punished.
A bit later the KGB categorised the case as “hacking” and said that the messages came from a server located in India. Further investigation is underway.
The press-secretary of the National Bank stated that there were absolutely no reasons to devaluate the rouble and promised its stability.
Indeed, the rumour did not materialise. On 8 January the rate of one US dollar was BLR 8,630 and of one Euro 11,230 – much lower compared to what the SMS had predicted.
The New Year Tradition – Expectation of Devaluation
In fact, in recent years devaluation has become one of the most popular topics which Belarusians often discuss at New Year's celebration.
In 2009 the authorities made an extremely unpleasant New Year gift for the whole nation. Without any prior announcement they devalued the rouble by roughly 20% on 2 January of that year. The government chose very tricky timing: the people were still celebrating and did not pay much attention to what was going on around. But when they recovered, millions realised that they had lost thousands of US dollars because of the government’s decision.
Belarusian economist Leonid Zaiko calculated that overall the citizens lost about $1 billion from that devaluation.
Needless to say that for many Belarusians that was huge money. The government’s act left a deep psychological scar. And in 2011 the scar became even deeper.
Amidst the raging economic crisis in 2011, the authorities devalued the national currency first in May and then in September. As a result, the value of the national currency went down by almost three times. The losses suffered by people were very painful.
Importantly, in the previous cases the National Bank and the government never even tried to prepare the citizens for their harsh decisions. On the contrary, they made official promises that no need for devaluation existed and that people could relax.
Not surprising, therefore, that today the Belarusians have little trust in what officials say about money. Many even tend to listen to what the head of the National Bank, Prime Minister or Lukashenka say and do the opposite.
Since the devaluation of 2009 each year at the end of December long queues form in front of currency exchange offices. Having the government’s dishonesty in mind, thousands of people prefer to exchange some extra Belarusian roubles for hard currencies before another New Year arrives. They do it just in case.
Is Devaluation Likely in 2013?
At the moment the authorities do not see much point in devaluating the rouble. Even though the last months of 2012 turned out bad for the country’s foreign trade, overall last year was comparatively good for the current account balance.
The National Bank has slightly more than $8 billion in gold and foreign exchange reserves (by the IMF standards). This sum cannot pay for three months of imports and, therefore, is low. But it is still enough to make some tactical currency interventions.
Moreover, the liquidity (Belarusian roubles) is concentrated in the reserves of commercial banks. So the currency market does not feel the pressure of the additional 40% Belarusian roubles that the National Bank issued in 2012.
However, future problems are looming large. Many factors point to a probability of devaluation throughout the year.
First, the country is again facing foreign trade deficit and it is hard to say what can become its foreign trade locomotive (like solvents were in 2012). Second, Belarus has to pay the record sum of $3.1 billion in its foreign debt. Finally, the problems with exports might necessitate a devaluation to help exporters.
In the light of these factors the SMS case seems highly symptomatic. Bad economic policies make Belarus vulnerable to all sorts of shocks and provocations. One day they may destabilise not only the financial market but even the social situation in the country.
Belarus Space Odyssey
On 31 December 2012 Alexander Lukashenka announced that Belarus had become "a space nation". In other words, it had entered a club of countries having their own guided objects in space.
The Belarusian ruler meant the launch of the first Belarusian satellite that took place on 22 July 2012 at the Baikonur cosmodrome. But many consider the launch to be little more than a PR action.
Actually it was not the first attempt by Belarus to join the club of "space nations." Six years earlier, on 26 July 2006 the Russian carrier rocket "Dnepr" with Belarusian satellite "BelKA" crashed after an unsuccessful launch.
The failure was shameful for Belarusian authorities. Lukashenka himself visited the Baikonur cosmodrome to observe the launch and with his own eyes observed the misfortune. Later, the investigation showed that the problem was not in the Belarusian satellite but in the combustion chamber of the carrier rocket. Nonetheless, that failure badly spoiled the mood of Lukashenka.
The Second Attempt and New Plans
Soon after the events of the July 2006, Belarusian officials announced: "There is going to be a second attempt". Independent experts criticised the idea. Some said that a small country like Belarus did not need expensive space projects.
Finally, after many postponements, on 22 July 2012 the successful launch was carried out. This time Russian rocket Soyuz-FG successfully launched into orbit the Belarusian satellite named "BKA".
The time of the satellite is set to function is five years. If Belarus had to pay the market price for the whole project, it would have cost $100m. But they launched BKA at a serious discount thanks to Russia. The total price tag reached only around $17m, which looked more like sponsorship than ownership.
Soon after the launch the government revealed new cosmic plans: Belarus will produce its own satellites and will soon start another launch project in cooperation with Russia.
The Advantages are Overrated
The news really inspired government experts and officials. "Belarus has become a space nation", – they proudly announced, as if they foresaw Lukashenka’s annual New Year's speech. The data from the satellite might be useful for agriculture, geodesy, cartography, combating forest fires and generally for the work of the Ministry for Emergency Situations – they predicted.
After some time, the first pictures from the satellite arrived. The satellite photographed Mozambique and Bahrain. After that, the advocates of the idea claimed that the Belarusian satellite would be even profitable: pictures can be sold to foreign customers.
Proceeding with self-praise, the National Academy of Sciences declared that several potential customers had already expressed some interest to the pictures from the Belarusian satellite. Among them: old friends Venezuela, Azerbaijan, Ukraine, Kazakhstan and even Google. The latter, as was later honestly admitted, agreed only to consider whether it needed products from the Belarusian satellite.
And then came the silence. Not a single foreign customer has bought pictures from the satellite. Nothing has been heard about the usage of satellite in agriculture or by the Ministry for Emergency Situations. We can presume that if such cases indeed occurred officials would have proudly told about them. Hence, the reverse is likely the case.
Vladimir Belyakovsky, a manager from Peleng, a company that took part in manufacturing the satellite, admitted that such space projects were seldom profitable. The only more or less sound guarantee of the Belarusian satellite's payback was low initial costs due to the favourable conditions, provided by Russia.
With regards to prestige, today the status of "a space nation" is quite a common thing among more or less developed countries. Around 60 states including most of Belarusian neighbours are in the club. Having ones own satellite was a privilege half a century ago. Now it is just something that states possess if they need it. So the point of pride is a bit weak.
The True Motive is Self-Satisfaction
Since the time of communism , space exploration has been more than a mere branch of science and economy. Soviet party leaders did their best to foster the development of space technologies. While the country suffered heavy food deficits nobody dared to cut down on financing for space projects.
The same is true for today’s populist dictatorships. Belarusian fellow members of the "space nations" club are Iran and North Korea. In the meantime, thousands North Koreans die of starvation. What is also really symbolic, the first North Korea’s satellite was also launched in 2012.
Commenting for BelarusDigest, Belarusian economist and an ex-candidate for presidency, Yaraslau Ramanchuk named several points of governmental motivation for the space programme: "Lukashenka’s pride, lobbying of the National Academy of Sciences and a false idea of technical and technological progress. And maybe even an illusion of some kind of possible safe means of communication without the Kremlin listening to secret talks".
An Example of Window-Dressing
The willingness of wasting money on "prestigious" projects is not limited only to Belarus' space ambitions. The history of Belarusian-Russian relations has seen many cases of dumping money just for producing an image. Globally, the whole project of "the Union State" among two nations is a project of this kind.
Belarus contributes 35% to the budget of this organisation, which in figures will be around $2bn (out of $5bn) during the 2013. These funds are used to finance numerous supranational entities, bodies and their projects. For more than 15 years this organisation has been a perfect example of how two populist governments can waste peoples’ money in order to feed their nostalgic illusions.
One of the most glaring examples of such "fruitful" partnership is a project "Union TV-set" dating back to 1999. By means of this programme two governments wanted to support the moribund branch of TV-sets production. The collapse of the Soviet Union resulted in a serious production crisis in this sphere.
The investments in this branch reached tens of millions of dollars. But the market was already captured by foreign cheap and high-quality TV-sets. Enormous money injections in out-of-date plants without their modernization resulted in failure. The folding of the project in 2001 entailed mass dismissals at the related Belarusian enterprises.
Now back to space. The Belarusian government has introduced another Russian-supported project with obscure aims. The lack of practical results together with the critical experts’ estimations brings to an unpleasant conclusion. The satellite launch was done mainly for the sake of the traditional window-dressing.
Whether the state of the Belarusian economy can sustain expensive technological prestige projects does not seem to bother the Belarusian leadership.