The Consequences of the April 11 Minsk Bombing
The explosion in Minsk underground is the most tragic terrorist act, which Belarus has seen since the end of the Second World War. The bomb exploded at the busiest station of Minsk subway on Monday evening. Over two hundred people injured and eleven reported dead as a result of the rush hour bombing in the capital of Belarus. It was clearly a terrorist act. Who is behind it is a more difficult question. Belarus is not waging any wars, has a homogeneous population and no unsettled territorial disputes.
Belarusians were regarded as the most peaceful and non-violent nation in the former Soviet Union. But with the second terrorist act over the last years this perception of stable and peaceful Belarus is changing. On 3 July 2008, there was another explosion at a public celebration in Minsk. No-one died then but over forty people were injured. Today, eleven people are already confirmed dead and the number may grow.
Until recently, the main threat of instability in Belarus was irresponsible economic policies of its government which made itself completely dependent upon Russian subsidies in the form of cheap oil and gas. But 11 April 2011 has changed that. In addition to threats of imminent economic collapse and loss of political independence the threat of terrorism has actually materialized.
Instead of looking for real threats to Belarus, its people and statehood, the authorities had been focused on eliminating and marginalizing their political opponents. Following the December presidential elections, they imprisoned a number of opposition activists for participation in a largely peaceful demonstration against election fraud, which resulted in minor damage to a government building in Minsk. Many consider that the authorities staged that provocation – either actively or passively by leaving the main government building in the center of Minsk completely unprotected when tens of thousands of protestors were out on the streets.
The current regime in Minsk used that event as an excuse for wide-scale political repressions against Belarus opposition and civil society, which still continue. Some already fear that the authorities will use the today’s tragedy to eliminate any remaining signs of political pluralism and to distract people’s attention from economic problems.
The terrorist act is likely to make Belarus even more vulnerable to pressure from Russia to which it already turned for assistance in investigation. Regrettably, Russia is one of the least peaceful countries in the world. It suffers from terrorism, wages a war against islamic insurgents in its south, and actively supports separatist regimes in Georgia and Moldova. Currently, there is no border or customs control at the Belarus-Russia border.
It remains to hope that as a result of the post-election political and economic instability, Belarus will not turn into a new South Ossetia of Eastern Europe.
Belarus Economy: In a Queue for US Dollars
The Belarus Ministry of Statistics reports that the GDP growth for January-February was 7.8%. It could seem impressive but other indicators tell us a totally different story. The gross external debt for 2010 was already US$28.5 bn, which makes 53% of GDP and it continues to rise. And the total foreign reserves contracted to US$4 bn (by 25% from December 2010), while the foreign currency reserves account has only US$1.3 bn (see Belarus National Bank statistics). In January-February the deficit of trade balance was nearly US$2 bn. It is only with Russia that it reached US$1.3 bn in those two months. So the foreign currency reserves are barely enough to cover the monthly amount of import.
The data perfectly illustrates that Belarus did not live within its means. The GDP growth is backed by an increase in debt. Resources (including foreign currency reserves) are spent to produce goods, which do not sell, but accumulate in stockpiles. Such a situation creates an enormous pressure on national currency. For many years the government was able to keep it stable and overpriced, but with the melting of foreign currency reserves it became a real challenge. The devaluation is obvious and necessarily measure for Belarus’ economy, but without complex reforms it will not become a cure. In its last report on Belarus, IMF points out the importance of Belarusian rouble devaluation, but warns the government to avoid administrative measures aiming to restrain the washing out of foreign currency reserves. Unfortunately Belarusian officials do not know any other economic tools besides presidential decrees or bans.
At the beginning of March, the government restricted organistions operating in Belarus from buying foreign currency for importing equipment for more than 50,000 USD. But it only increased the awareness of Belarusians that something is wrong with the economy and they started to buy US dollars and Euros to protect their savings. The expectance of an increase in custom duties on foreign cars from 1st of July (when Belarus join the Custom Union with Russia and Kazakhstan) has also busted the demand for those cars and created an outflow of foreign currency. Under demands of pressure the National Bank allowed a 10% fluctuation of the currency rate for commercial banks instead of 2%, which in fact amounted to a devaluation of the national currency by 10%.
In few days time banks and exchanges were filled up by people standing in queues waiting to buy US dollars or Euros, which had simply disappeared. Afraid of further devaluation of Belarusian rouble some have already started to withdraw their foreign currency deposits or convert rouble deposits into the foreign currency ones. The whole banking system appeared under threat. The deficit in the availability of foreign currency has also provoked an increase of in demand for gold and other precious metals.
And what did National Bank or state officials do to deal with the problem? Instead of offering an official explanation and clarifying the situation to calm down the panic, the National Bank issued a new directive in which it banned itself from making any decisions until the end of April, when the Russian loan is expected. State media are also silent.
But what does this credit mean for Belarus and how much does it have to pay for such support? Similar to the IMF, Russia has required the Belarusian government to introduce a plan of economic reforms and seriously reduce budget spending. But only a select few believe in the noble motives of Russian government. Most Belarusian experts agree that the plan of reforms most likely will be supplemented by other economic and political concessions from Belarus government. Being in a strong bargaining position, Russia can require everything – from recognition of South Ossetia and Abkhazia to the sale of key Belarusian enterprises to Russian businesses.
Such glum tendencies in Belarus’ economy have begun floating rumours about an economic collapse soon. But even though the situation is really serious the government still has the means to relatively stabilize the economy at least for a year or two. With the help of privatization it can gain the necessarily resources. However, even if a default can be avoided it will be hard to avoid mass unemployment, which will happen as soon as the government cuts off state enterprises from subsidies and begins the restructuring process.
The contraction of budget spending by 50%, which was already proclaimed by government, without a large institutional support for business will put a lot of people in severe economic distress. In a normal economy, free labour force can easily find employment in the private sector. But it is highly questionable if this will be the case in Belarus, where the government still has a much too cold attitude towards the private sector.