Helsinki-2, friendship with Venezuela, Sberbank advancement, boosting IT sector – Belarus state press digest

The Saudi King’s deals with Russia will benefit Belarus, believe experts. The Belarusian peace building initiative, Helsinki-2, receives positive feedback in the EU. Belarus and Venezuela work to restore former levels of cooperation.

The Belarusian oil industry is losing its hold in Russia’s market. Russian state-owned banking and financial services company Sberbank plans to increase its presence in Belarus. The government is working on a package of revolutionary laws to help boost the IT sector.

This and more in the new edition of the Belarus state press digest.

Foreign policy

King Salman’s deals with Russia will benefit Belarus. Belarus Segodnia has published an analysis of the recent visit of the King of Saudi Arabia, Salman bin Abdulaziz Al Saud, to Moscow and its impact on Belarus. For Minsk, it is certainly a positive development. Belarus is interested both in the growth of prices for oil products, which it produces and exports, and in the overall restoration of the Russian market, which consumes the bulk of Belarusian goods. The growing influence of Russia, Belarus’s key ally, in the Middle East also seems important.

World media and leaders discuss the Belarusian Helsinki-2 initiative. Belarusian President Alexander Lukashenka’s initiative for Europeans to abandon their geopolitical rivalries will occupy an important place on the European agenda in the coming year. Helsinki-2 derives its name from the Helsinki Process, a series of debates and dialogues initiated by Soviet Leaders in the early 70s, which culminated in the 1975 Helsinki Accords. If Belarus becomes a global discussion site, the whole of Europe will win. The German newspaper Die Zeit believes the need for such an initiative is long overdue and complains that Western diplomacy has played little or no part in bringing the initiative about.

Christine Muttonen, the chairman of the Parliamentary Assembly of the OSCE, sees Helsinki-2 as a good way to solve the problems that have accumulated in the region. This summer, Italian Foreign Minister Angelino Alfano set out Italy’s priorities for the OSCE Council chairmanship in 2018. He made it clear that his country will fully support Helsinki-2, writes Belarus Segodnia.

Belarus and Venezuela eager to restore former levels of cooperation. On 5 October, President of Venezuela Nicolas Maduro paid an official visit to Belarus and held talks with president Lukashenka, reports Zviazda. Belarus and Venezuela developed good economic ties in the past. They created several joint ventures in the production of cars and tractors, oil extraction, gas networks, construction and other areas.

In recent years, trade between the countries has declined due to the combined strain of economic and political woes in Venezuela and the world economic crisis. As Maduro said, “We’ve passed the time of wars and battles, and we strengthened in these battles. We are now at the recovery stage, and we’d like to restore former levels of cooperation.” Alexander Lukashenka stated both sides are currently elaborating a new road map for cooperation.

Economy

A branch of BPS-Sberbank in Minsk. Photo: sb.by

Russian Sberbank plans to increase its presence in the Belarusian market. According to the Russian, state-run Sberbank Head German Gref, the bank is planning to curtail its operations in a number of European countries and Ukraine. Sanctions against Russia have made work in these countries “extremely difficult,” reports Souyz. Belarus, on the other hand, has entered the list of the most promising markets for the bank, along with Turkey and other CIS countries.

Now Sberbank has 59 branches in Belarus, 15 of them in Minsk. Last year, the bank’s Belarusian subsidiary, BPS-Sberbank, retained third place among banks operating in Belarus for individual deposits, accounting for 7.3 per cent. The bank’s number of individual customers grew by 11,000 and has reached almost 1.58 million. BPS-Sberbank’s customers keep 61 per cent of their deposits in US dollars. Only 21 per cent of account holders keep their savings in solely Belarusian rubles.

Belarusian oil industry faces new challenges. The Belarusian oil industry faces two serious challenges: intensifying oil processing and capitalising upon new, premium markets, writes Respublika. According to Siarhei Hryb, General Director of the Belarusian Oil Company, Belarusian gasoline will soon become superfluous in Russia, because the Russian market is saturated. This is due to Russia’s rapid development of native oil processing facilities and self-preferential tax manoeuvring.

European markets seem the most promising alternative, in particular Poland, Czech Republic, and Slovakia. In the future, Belarus will need to expand its production of chemicals beyond oil-based compounds. The production of jet fuel holds vast potential for the industry.

Belarus has the chance to become one of the largest IT centres in Europe. The Belarusian government is working on a package of bills nicknamed High-Tech Park 2.0, which are intended to boost state support for the domestic IT sector. Its authors promise a revolution in the industry, which they hope will turn Belarus into the IT flagship of the entire European continent. According to Aliaksandr Marcinkievič, deputy director for marketing and development at the Belarus High Technologies Park, over the last 4–5 years Belarus has produced a critical mass of IT specialists.

Today, an environment for the development of innovative entrepreneurship and start-ups is emerging in Belarus thanks to three important factors: qualified specialists, abundant funding, and successful IT entrepreneurs and mentors. At the same time, the stiff competition among countries for the best staff and intellectual property is growing even stiffer. Belarusian officials and domestic entrepreneurs are working hard to come out on top, and thereby attract world’s leading tech companies to the country.

Culture

A Medieval festival in Belarus

Belarus needs to upgrade its festival industry. The number of festivals in Belarus is growing. The total number has reached a hundred annually. However, virtually none target foreign tourists. More than half of all festivals are national and historical in their focus, which does not necessarily interest tourists. Many such festivals also have a strong ideological backround, being organised by state bodies. They often look alike and appear unprofessional due to budget constraints and a lack of qualified organisers.

Many regional festivals are in need of attention and investment. Greater coordination with experienced promoters and business would help, too. Belarusian festivals should also develop cooperation with the International Festival Association, which might attract so-called migrating festivals to Belarus.

The state press digest is based on the review of state-controlled publications in Belarus. Freedom of the press in Belarus remains restricted and state media convey primarily the point of view of the Belarusian authorities. This review attempts to give the English-speaking audience a better understanding of how Belarusian state media shape public opinion in the country.




The Plan to Save the Economy: October Digest of Belarusian Economy

On the 10 October 2013 the government and the National Bank of Belarus issued a plan for structural reforms of the Belarusian economy aimed to increase its competitiveness.​ 

Faced with major threats to its macroeconomic stability and the unfortunate timing of the potash conflict, the Belarusian government came up with a plan of structural reforms. The plan should reinvigorate the economy and improve expectations for the country's economic agents.

The current facts, however, give little reason for optimism in the short run. GDP is stagnating, currency reserves are melting away, the ruble is devaluating, and there is no money to pay off debts.  The government has to cut back on social support, and it is important that it creates a new, efficient safety net for those in need.

The plan for structural reforms

The recently released plan for structural reforms of the Belarusian economy contains many ambitious goals and reforms, some of them more detailed and others only simple declarations of intent.

The main directions of the plan are the contraction of direct lending programmes, budget reform, tax reform, privatisation, a shift in its direct social supports and the further liberalisation of the economy. In other words, the plan addresses most of the structural problems Belarus has accumulated over the years.

Moreover, the solutions offered look surprisingly in line with the usual recommendations of international organisations like the World Bank or IMF. The plan also contains a lot of unpopular but necessary measures like cuts in utilities subsidies and in other socially oriented subsidies.

The government should carry out some of the points of the plan till the end of 2013. The major reforms are scheduled for 2014. Some experts have already expressed doubts about the government’s commitment to the plan. Indeed, the 2011 loan from EURASEC Anti-Crisis Fund came with similar conditions (the contraction of direct lending programmes, privatisation, liberalisation of the economy etc.), and Belarus did not meet them. Now the government is signaling its commitment more persuasively.

For example, on 22 October 2013 the Ministry of Economy revised its estimate of GDP growth for 2014 down from 5.7 to 2.4 per cent. On the other hand, this estimate is still more optimistic than the 1.5 per cent estimate of the World Bank.

The exchange rate and international balance

The creeping depreciation of the Belarusian ruble continued in October. Despite the continued efforts of the National Bank to regulate the demand for currency by restricting ruble liquidity on the inter-bank market, devaluation pressure itself has not disappeared. There are three main forces that affect the exchange rate negatively: the need to repay IMF loans, a negative trade balance and the unfortunate timing of the potash conflict. These forces will continue to put pressure on the exchange rate in the coming months. 

Meanwhile, the international reserves at the National Bank of Belarus have declined significantly: on 1 October 2013 only $7,387.7m remained in the reserves when calculated using the IMF's methodology (compare it to the $7,701.4m on 1 September 2013). We expect reserves to contract once again in October due to several payments to the IMF.

The current situation on the currency market demands external sources of financing. Luckily, Sberbank agreed to refinance the $1bn loan issued to Belaruskali at the end of 2011.  Out of this loan $800m went directly into the international reserves of the National Bank.  Belaruskali had to repay the loan this year, and the new refinancing deal with Sberbank relieved part of the pressure on the country's reserves. But it is not enough.

Many experts believe that the government and the National bank designed the Plan of structural reforms mainly to persuade international lending organisations (IMF and EURASEC Anti-Crisis Fund in particular) to open new credit lines for Belarus.

The budget and changes in social policies

The 2013 is a year of frugality for Belarus, and not only because it is the country’s motto of the year. The budget revenues this year are lower than expected. The income tax revenues are especially low: in January-August 2013 the tax administration collected only 52.7 per cent of what it had in its annual plan. The low tax revenues are not surprising: the majority of the large taxpayers are not making any profits due to the burdens of high wages being paid out and low external demand.

The government realises that the budget deficit is not temporary. Budget cuts are now being carried out everywhere. In particular, the number of government employees is decreasing, and the government has cut back on many price subsidies. The tax administration is on the lookout for new sources of revenue. The plan for structural reforms includes the possibility of introducing a unified property tax that will be an effective redistribution tool.

The talks about the $100 exit fee are now in the past, but the government is still considering a tax on unemployed. Of course, this tax is not targeting the unemployed in the usual meaning of the word; the intent is to tax those who work abroad but come to live and receive education, health care and pensions in Belarus. Technically this tax is very difficult to implement, and this is arguably the only reason why it has not yet been introduced.

To sweeten the pill of budget cuts and lower social support, Lukashenka announced a big new social program for fertility support – the Big Family project. The main idea of the project is to give $10,000 for the first child, $20,000 for the second and so on. Projects like this are very popular, and may help some families overcome financial difficulties.  However, very little evidence suggests that monetary stimulus can boost fertility on a macroeconomic level. Evidence of the effects from similar programmes in Russia and Ukraine also remains inconclusive.

The plan for structural reforms stipulates in general designs a transition to direct forms of social support: a shift from subsidising prices for everybody to direct income transfers for those in need. It is hoped that plan is followed through, as this reform is necessary, especially given the current level of unemployment benefits – which today stands at less than $15 per month in Minsk.

Kateryna Bornukova, BEROC

​​This article is a part of joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)




Fuel Prices Rise, Gazprom’s Social Projects – Belarus State TV Digest

Fuel became more expensive in Belarus, but is still cheaper than in neighbouring countries. Channel BT1 extensively covered a meeting of Lukashenka with the head of Russia’s largest bank Sberbank and the head of Gazprom and Gazprom’s support for social projects in Belarus. 

State TV also reported that the European Union expressed its interest in rapprochement with the countries of the Eastern Partnership. Recently thousands of Belarusian pupils have shown interest in learning Belarusian language rather than Russian. 

Domestic Affairs

The voice of Belarus on Syria. State TV reported on a round table of Belarusian experts, a Syrian diplomat, a Syrian businessman and unnamed international experts that took place in Minsk. The participants thanked Lukashenka for his “attention and contribution to a global settlement of the crisis”. A Syrian businessman based in Belarus commented on the Russian proposal to the crisis, saying “we can barely trust the American politicians”. The Belarusian TV channel noted that in the aftermath of the “confrontation between the authorities and armed insurgents, every third citizen of Syria has lost his house”, which amounts to about 7 million people in total.  

Gazprom sells energy to Belarus and supports its financially. The state channel widely covered the meeting of the head of Gazprom, Alexei Miller, with Lukashenka. Journalists commented that regardless of the bad press it has received, this week proved that the Russian business still had a vital interest in Belarus. Lukashenka also met with the head of the Sberbank of Russia, Herman Gref. The head of the state confirmed that gas supplies would increase in the next year and discussed with Miller the future development of the gas transportation system.  

At the meeting “special attention was paid to the social projects of Gazprom in Belarus”. Lukashenka thanked Miller for years of support and strong co-operation. In Miller’s words, financial support to social projects in Belarus would increase by 5 times as much”. These social projects relate to sport and cultural events for children, but also support for hospitals. The state TV journalists recalled that the Russian company Gazprom planned to donate 1m USD to purchase expensive modern equipment for Belarusian hospitals. This equipment would help with an early diagnosis of hearing loss in babies.

Gazprom was aslo involved in the raising of a new Orthodox Church in the town of Polack. It also supported financially the construction of a house for families with multiple children. It continues to support children’s cultural and sport events. According to the journalist, the Belarus-Gazprom is a “good partnership in both the social and economic spheres”.

A new energy supplier to Belarus?  The head of the Rosnieft met with the head of Belarusian company Belnieft, Igor Zhylin. They discussed the supply of Rosnieft gas to the “Hrodna Azot”, but also potential supplies to Belarus by the end of 2013 and in 2014.

The state supports talented youth. Lukashenka visited the Minsk City Olympic Tennis Centre. The state television reported that the number of Belarusian interested in playing tennis is increasing. The journalist emphasised that Lukashenka had ordered the establishment of a proper system for the selection and training of young talented athletes.

Lukashenka wants more Belarusians to be trained and then successfully represent Belarus in international sport events. He stated that the proper conditions should be created for both athletes and trainers. He said, “I cannot understand how we could not train around 50 players”. 

Green economy in Belarus and Kazakhstan. A forum of Belarusian and Kazakh scholars, diplomats and experts took place in Minsk. The participants of the event discussed alternative energy, bio-resources and the development of more efficient technology. According to experts, transition to a new ecological model would allow not only to increase the GDP of the state, but also to create new workplaces and a completely new branch of production.

Lukashenka is concerned about the construction of new houses in Minsk. The head of the state met with the Minsk mayor, Mikalai Ladutka, to discuss the construction of new houses in Minsk. Lukashenka expressed his concern over the long term of construction of the houses. The mayor confirmed that in the next year nearly 1 million new houses would show up in Minsk.  

More expensive fuel, but in other countries it is worse. Prices for fuel increased in Belarus. According to experts, “this increase is related to an increased excise rate of the petrol”. At the same time, experts stated that after the increase, prices in Belarus still would be lower than in other countries of the Customs Union. In Ukraine a litre of fuel costs $1.34. In Poland and Lithuania pay over $1.80. The fuel in Belarus costs slightly over $1 per litre.

The European Union rapprochement? Belarusian state television reported that the plenary session of the European Parliament encouraged the countries of the Eastern Partnership for rapprochement. It said the EU would “be searching for a way for a normative rapprochement also with the members of the Customs Union”.

Stephen Fule, a commissioner responsible for the enlargement of the union and European neighbourhood, said that “EU is interested in traditionally strong relations with its Eastern neighbours and with Moscow”. The state TV added that Brussels would help the Customs Union to adjust the standards and norms to meet European and worldwide law regulations”.

EU supports Belarusian border service. State television informed that the EU supported Belarus with new equipment to operate its border service on the Belarus-Ukraine border. The journalists pointed out that the EU helped within a project of international technological assistance. It added that a vector for Belarus-Ukraine interests the Europeans for a good reason.

The border is difficult to control and became recently popular way for illegal migrants and “uninvited guests” on their way to the EU. The border service guards say that the new equipment is not just a luxury, but a necessity to decrease border crimes. In total, the EU budget for the international technological assistance for Belarus-Ukraine is estimated to be around 1.3m EUR.

Education in Belarusian is getting more popularState TV reported that a thousand pupils have begun their education in the Belarusian language. Already 14 schools in Minsk, and in 200 other places across the country, are offering education exclusively in Belarusian. The TV channel added that it was “possible also to study in Belarusian abroad. Today Belarusian schools exist in neighbouring Lithuania, Latvia and Poland”.

Belarus Digest prepared this overview on the basis of materials available on the web site of Belarusian State Television 1 (BT1). Freedom of the press in Belarus remains restricted and state media convey primarily the point of view of the Belarusian authorities. This review attempts to give the English-speaking audience a better understanding of how Belarusian state media shape public opinion in the country.




Belarus the Indebted

The Belarusian government spent the whole year actively looking for money to sustain the collapsing socio-economic model. It was looked for everywhere: in the West and the East, in Europe, Asia and Latin America, at the IMF and EurAsEC. And over the last several weeks finally Belarus managed to get a big chunk of foreign loans. The biggest ‘gift’ came from Russia as a reward for Minsk’s support of the new wave of post-Soviet integration.

Now that the hard currency reserves have become thicker the government can take it easier for some time. But how long can the strategy of surviving on foreign loans last? Already next year the Belarusian taxpayers will feel the burden of the debt.

The Year Of Money Quest

As soon as the first signs of the financial crisis became visible earlier this year the Belarusian government went back to its once successful way of muddling through an economic turmoil with the help of borrowed money. In 2009 the country received USD 3.6 billion as a stand-by credit from the IMF which to a large extent saved it from full-scale socio-economic repercussions of the plummeted demand for Belarusian goods on international markets. Belarusian rulers reasoned that instead of opening the Pandora’s box of economic reforms in 2011 it would be less risky to look for new external borrowings.

But this year the overall situation was not as favorable for the Belarusian government. After the crackdown on the protesters on 19 December 2010 and the wave of repressions against the political opposition and civil society Belarus found itself in a severe confrontation with the EU and USA. Discussions of the next IMF loan went nowhere because Belarus refused to fulfill the necessary political pre-conditions. Moreover, the unwillingness to adjust the macroeconomic policy to the recommendations by the IMF made a loan from that institution twice impossible.

At the same time the government was looking for money everywhere else. There were hopes for Venezuela, Iran, Azerbaijan and China. But what the ‘distant friends’ were able to offer were peanuts. In July Belaruskali got USD 300 million from Azerbaijan and the money was transferred to the national reserves. At the beginning of October a USD 400 million credit was promised by Iran but with no follow-up.

There were several announcements of credits from China (including USD 1 billion in November). But Chinese credits do not look very attractive as they have a condition attached – to be spent on Chinese goods. And for Belarus it means to further expand its trade deficit.

Another source of external money was through selling Eurobonds. And in January the country completed its borrowing of USD 800 million through this mechanism. But as the financial disturbances were growing bigger Belarus’s sovereign rating and the commercial banks’ ratings were downgraded.

The sovereign rating was downgraded from B2 in January to Caa1 today by Moody’s and from B+ in January to B- today by S&P. Both agencies keep Belarus’s credit on a negative watch, which increases the likelihood of further downgrades. As a result, Belarusian Eurobonds maturing in 2015 and 2018 were trading at 20% and 17% yield respectively in late September 2011 (being originally issued at 8.75% and 8.95%).

Following the Gazprom deal on 25 November, the yields on the Belarusian 2015’s and 2018’s Eurobonds have compressed to 13% and 12%, respectively. However, even such high yields make the Eurobond market hardly attractive for the country. Should Belarus decide to return to the market, it will need to pay a hefty new issue premium and find bookrunners capable and ready to place its bonds with institutional investors. 

All but one bookrunner of the previous Belarusian Eurobonds refused to work with the sovereign due to human rights abuses in the country. Sberbank is the only bookrunner who has not dropped Belarus from its coverage list.

From Russia With Love

Last but not least, there was Russia, the regime's biggest creditor and donor. However, during the first half of 2011 no money came from the ‘Big Brother’. Only in July did the Belarusian government manage to negotiate a USD 3 billion loan from the Russia-controlled Anti-Crisis Fund of EurAsEC. The first tranche of the loan (USD 880 million) arrived in the summer. Another USD 440 million was scheduled for October-November. But because Belarus has not met all the agreed macroeconomic conditions the tranche is still pending.

However, there is little doubt that it will arrive after the ‘integration agreements’ reached on 18 and 25 November. Belarus (more precisely the state-owned company Belaruskali) got USD 1 billion as a syndicated credit from Sberbank and the Eurasian Development Bank. And, finally, it was announced that Russia would provide USD 10 billion for the construction of the Belarusian nuclear power plant in Astravets. However, the credit will be allocated in several tranches.

And So It Is…

So what does the preliminary results of the ‘credit quest’ in 2011 look like in numbers?

As of 1 October 2011, the government debt was USD 11.88 billion. Provided that the second tranche of the EurAsEC credit arrives this year, the government debt will rise to almost USD 12.5 billion, which will represent 25% growth of the debt in 2011. That is an estimated 36% of the GDP which realistically will amount to around USD 35 billion this year. The gross national debt will exceed the GDP already in 2011. Given that in the Belarusian command economy there is little difference between the liabilities of the state and of state-owned banks and enterprises (about 80% of the economy), the risks are getting high. And new credits are on the way.

Thus, the external debt level is becoming a new Belarusian tragedy which can soon completely overshadow the other national concerns, i.e. current account and foreign trade deficits, and even inflation. Taking into consideration that the dominant slice of the debt is Russian, the Belarusian government’s ability to resume its geopolitical maneuvering will be significantly limited.

Yauheni Preiherman

Yauheni Preiherman is Policy Director at the Discussion and Analytical Society “Liberal Club” in Minsk




Return of Russian Subsidies: What Are the Implications for Belarus’ Economy?

Belarus has managed to secure significant monetary benefits in exchange for its active support of the new wave of Russian integration initiatives. Generous Russian subsidies followed almost immediately after the solemn signing of the Declaration on Eurasian Economic Integration on 18 November 2011. On that same day Belaruskali (read Belarus government) got USD 1 billion as a result of a syndicated loan agreement with Sberbank and Eurasian Development Bank.

And last week more economic carrots followed. They included subsidized natural gas prices, new loans and hard cash for the sale of Beltransgaz.  Although the Belarusian authorities once again managed to secure significant aid from Russia, in the long-run the return of Russian subsidies is likely to do more harm than good for the unreformed Belarus economy. 

Russia Increases Its Subsidies to Belarus

As a result of inter-state talks, Russia provided an unexpectedly generous discount on gas prices. Instead of the USD 244 per 1000 cubic meters that Belarus is currently paying (which is, by the way, also lower than the agreed contract price), in 2012 it will have to pay USD 165.6 (a 32.5% discount). Compared to the contract price for the fourth quarter of 2011 (USD 303), the ‘integration discount’ is even more impressive: 56.7%. It means that the next year Belarus will save around USD 2.5-3 billion on gas.

Another benefit is the restructuring of the debt that resulted from the difference between the contracted gas price for 2011 and the de facto payments made by Belarus. According to the Belarusian Statistic Agency, as of 1 October the debt amounts to USD 106.7 million and will continue to grow until the end of the year. The restructuring comes at the right time time for the crisis-hit Belarusian finances.

It was also announced that Belarus would get a USD 10 billion credit for 15 years to construct a nuclear power plant. If this decision is not reversed or further delayed (which is still a possibility) it will considerably worsen Belarus' sovereign debt problem. But it will also help postpone unpopular socio-economic decisions that the authorities are so afraid of.

Moreover, Belarus struck a deal with Gazprom on Beltransgaz. The Russian monopoly purchased the remaining 50% stake of Beltransgaz for USD 2.5 billion and became the only owner of the company. Taking into account that the market value of Beltransgaz is generally assessed at about USD 3-3.5 billion (which is far from 5) and that the newly opened Nord Stream pipeline and the prospects for the construction of the South Stream pipeline further diminish its market significance, this is a very good deal for Belarus. In the present-day economic situation it is also essential for the Belarusian government that the money is paid in one transaction. Russia paid in four consecutive transactions over four years for the first 50% of Beltransgaz.

There were even more gains for the Belarusian authorities from the new wave of post-Soviet integration. On 28 November it was announced that the Eurasian Economic Community would allocate the second tranche (USD 440 million) of its loan to Belarus. The tranche has been expected for a couple of months. But it did not come until now because the Belarusian side failed to fully fulfill the conditions attached to the loan. Now, in the midst of the ‘integration honey moon’, it seems that the previous conditions do not matter that much.

Implications for the Belarusian Economy

It looks that the ‘good old days’ of affluent Russian subsidies and problem-free credits are back. There are plenty of discussions going on about the Russian rationale behind such generosity and about how long it is going to last. But little is said about the implications of this for the shaky Belarusian economy. And the implications are particularly important for disagreements within the elite on the economic policy which are not yet over.

The new Russian subsidies give more weight to the ‘status quo group’ in the ruling circles who argue against macroeconomic stabilization and any reforms. This group are predominantly representatives of the Presidential Administration. With the newly reached deals on gas and credits it is, of course, very tempting to avoid any socio-political risks associated with reforms and fully resume the proven administrative methods in the economy. The logic of the authorities goes: if the easy money can keep the existing economic model afloa, why reform it and face an unpredictable period of transition?

Unfortunately, this logic can already be seen in the latest decisions and declarations. Take, for example, the return to price regulation which is named as a tool against inflation. Fundamentally, price regulation/non-regulation has nothing to do with the level of inflation. However, it is undoubtedly easier for top Belarusian officials to think so than to curb emission-based state investment that is the real cause of inflation, but which keeps the existing socio-economic model going. As a result, the market distortions and all sorts of deficits will once again be a part of Belarusians’ daily life.

We can also expect that the new Russian subsidies and credits will affect the final discussions regarding the outlook for socio-economic development in 2012 scheduled for mid-December. It will be easier for the ‘status quo group’ to convince Lukashenka that 5-5.5% of GDP growth is possible and desirable in 2012, even though such growth will make 100%+ inflation inevitable. And this will only further aggravate the systemic problems of the Belarusian economy.

To sum up, the new Russian subsidies are likely to once again undermine any hope for market-oriented policies in Belarus. It means that the agony of the Belarusian archaic economic model will last longer and its ultimate demise will be even more tragic.

Yauheni Preiherman

Yauheni Preiherman is Policy Director at the Discussion and Analytical Society “Liberal Club” in Minsk.