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)
Seviarynets Free, Belarus Free Theatre Praised, Rosneft Invests in Belarus – Western Press Digest
After three years of imprisonment with hard labour, notable political prisoner Paval Seviarynets is free. Jailed civil rights activist Ales Byalyatski has been awarded the first ever Vaclav Havel Human Rights Prize. Russian giant Rosneft making inroads into Belarus, while the Belarus-Russia potash scandal continues.
Belarusian journalist Iryna Khalip and famous British playwright Tom Stoppard were the co-recipients of the 2013 PEN/Pinter Prize. Belarus Free Theatre continues to receive media coverage and positive reviews in the west.
The European Commission denied recent reports that it had improperly provided aid to Belarusian security forces. All this and more in this edition of the Western Press Digest.
Belarusian journalist receives prestigious PEN prize – Iryna Khalip, a journalist who spoke out and demonstrated against the 2010 presidential elections, received the PEN/Pinter Prize with British Playwright Tom Stoppard. Radio Free Europe/Radio Liberty notes that Khalip, a journalist for Russia’s Novaya Gazeta, was beaten and briefly imprisoned before being given a two-year suspended sentence for her participation in the 2010 protests.
The PEN/Pinter prize is annually awarded to a British writer and, as RFE/RL notes, a writer that has faced persecution. According to the Guardian, Tom Stoppard, who nominated Khalip in consultation with English PEN, stated that, “I salute her courage and her example; she is the reporter I wanted to be.” The PEN/Pinter Prize was created in memory of playwright and Nobel laureate Harold Pinter.
Activist Paval Seviarynets released after 3 years in a labour camp – Leader of the Belarusian Christian Democracy Party, who was arrested for participating in a protest against the December 2010 presidential elections, was released from jail. Seviarynets was arrested and imprisoned on his way to the protests. The Agence France-Presse coverage states that this was Seviarnynets’ second time working in a forced labor camp. He previously endured a two-year sentence in 2005 for protesting the passage of a law that eliminated terms limits for Lukashenka.
Despite his many run-ins with law enforcement agencies and his two stints in labor camps, the activist is said to have told reporters that he considers his work now to, “prepare for a moral revolution.” Seviarynets was detained in 2010 along side other prominent opposition figures, some of whom still remain in detention.
Human Rights Activist Byalyatski receives Havel Human Rights Prize – RFE/RL reports that Ales Byalyatski became the first recepient of the Vaclav Havel Human Rights prize. Byalyatski, who is serving a four-and-a-half-year prison sentence on tax evasion charges, received the honour from the Parliamentary Assembly of the Council of Europe for his “. . . daily struggle against violations of human rights, injustice, arbitrariness and authoritarianism . . .”
These accounts, the authorities alleged, were used to receive funding from international donors. Ales Byalyatski’s wife, Natallya Pinchuk, accepted the honor on his behalf in Strasbourg and made a brief statement before PACE that she accepts the award as a symbol of appreciation for his many years of hard work on behalf of Belarusians. The Vaclav Havel Human Rights Prize, named after the famous Czech playwright and former president, is a new annual prize that PACE will give to individuals or groups who defend human rights.
Belarus Free Theatre receives warm welcome and positive reviews – The Belarus Free Theatre troupe, traveling with their performance of Minsk 2011: A Reply to Kathy Acker by Vladimir Shcherban, has garnered praise. The Herald-Tribune describes the origins of the Belarus Free Theatre project as a group of performers living in exile from their native Belarus due to the persecution they faced at home. The publication notes that several of them have been arrested in the past for their performances.
The Herald-Tribute reports that the piece largely discusses issues faced under the Lukashenka regime through the lens of several short acts dealing with sexual repression. Each publication covering the performances stated that Minsk 2011: A Reply to Kathy Acker is not a straightforward political commentary, but more about the desire to return and live normal lives in Belarus.
Swede selling teddy bear drop plane, suggests Lukashenka buys it – The plane used in the now infamous teddy bear drop is up for sale on eBay, with the proceeds reportedly to be used to support democracy in Belarus. The BBC reports that Tomas Mazetti recently put up the plane used to drop teddy bears with pro-democracy slogans on eBay. The report also alleges that Mazetti sent an open letter to Belarusian ruler Aleksandr Lukashenka offering him to purchase it in order to help better train Belarus’ air defence systems.
European Commission denies it supports Belarusian police – In response to a recent report in U.K. daily the Telegraph, the European Commission has refuted claims made that British and EU member-state funds inappropriately went to support Belarusian police and border guards. RFE/RL states that while the European Commission did finance the purchasing of new equipment for Belarusian border guards, the funds were used to protect EU borders. New vehicles and night-vision equipment were purchased to stop the smuggling of goods and people across the EU-Belarus border, but the funds reportedly do not help to “enhance the regime.”
Rosneft looks to purchase Belarusian oil refinery – Russian petroleum giant Rosneft has expressed its interest in purchasing the state’s stake in the Belarusian Mozyr oil refinery. In combination with its shares from the Rosneft and Gazpromneft co-owned Slavneft, the Russian companies would have a controlling share. According to the Reuters report, Rosneft head and long-time Putin ally Igor Sechin stated that talks have been underway, but the right deal has not been reached. Sechin has opposed any cuts in whole exports to Belarus in the past, making him an ally of Lukashenka.
The primary reason for the sale of such a lucrative asset is to help boost a troubled Belarusian economy. With Belarus’ coffers running dry, it needs to raise tax revenue to be able to pay its outstanding international debts. Privatisation plans between Russia and Belarus have had a rocky history, but according to the Financial Times Rosneft’s Sechin appears to be providing enough guarantees to Lukashenka to make the sale possible.
Belarusian leadership seeks a respectable exit from potash scandal. The ongoing conflict between Belarus and Russia over the Belarusian Potash Company has seen new developments recently. Lukashenka continues to seek the removal of Uralkali’s major stakeholder and owner, oligarch Suleiman Kerimov, from the company. However, Bloomberg news reports that the charges against CEO Vladislav Baumgertner have been changed from abuse of power to “probably” embezzlement.
The possibility of Russia extraditing Baumgertner would help Lukashenka “save face” according to the New York Times. Still, Lukashenka presses his agenda of restoring the Belarus Potash Company and the resignation or removal of Kerimov from Russian potash producer Uralkali.