Waiting for a Miracle: Digest of Belarus Economy
On 28 March 2016 the Council of the Eurasian Fund for Stabilisation and Development (EFSD) approved the provision of a new loan to Belarus.
In the meantime, the export and real estate market established new numbers of their record fall, questioning the limits of slowdown in Belarus.
In such a situation the government tries to secure state financial support – President Alexander Lukashenka has signed a new decree that grants funding only for profitable strategic investment projects.
Exports: Reaching the Bottom
According to new data announced on 21 March 2016 by Belstat, Belarus’ exports in January has decreased by more than 20 per cent (in dollar terms) in comparison with the same month last year to just $1.6bn – the lowest level for one month since 2009 (see figure 1).
Moreover, exports declined for 16 straight months in a row. This happened mainly for three reasons. First of all, approximately half of Belarus’ exports go to Russia, where growth has been under pressure since 2014.
Second, Belarus’ main exports are positioned to markets outside the Eurasian Economic Union; this includes potash fertilizers and oil products. In January, the delivery of these items to foreign markets fell by more than a third in dollar value compared to the same period of the previous year.
However, according to the General Director of Belarusian Potash Company Elena Kudryavets, the company (Belaruskali) increases its share in the world exports and focuses on the real needs of the market while responding to changes in demand.
Next reason concerns refinery. Belarus exports about 14-15mln tones of oil products produced mainly from Russian crude oil and purchased at a reduced price. Therefore, the drop of world oil prices adversely affected the interests of Belarus – the lower world price, the lower the margin between the world and price for Russian oil.
Additionally, export prices for oil products has fallen more in comparison with world oil prices. As a result, foreign exchange earnings of Belarus from the sale of oil products in 2015 fell by 28 per cent compared with 2014.
Real Estate: Repeating the Bubble
Deep recession and big financial rescues for inefficient Belarus’ state-owned enterprises led to the downfall of households’ incomes (nearly by half). However, right now the next wave of economic problems has reached the shores of Belarus’ main private companies.
Starting in 2001, the rising oil prices marked the beginning of the "golden age" for real estate investments in Belarus. Sensing the smell of "easy money" local major entrepreneurs have started to turn into real estate bosses. As a result, the average house prices in Belarus almost tripled by the end of 2013 (see figure 2).
However, since 2014 house prices dropped by more than 28 per cent – the nightmare for Belarus’ real estate market.
The bubble occurred generally due to three motives: the overconfidence in stability of oil prices and the Russian market; steady growth of incomes of Belarusians subsidised by loose monetary policy of the National Bank of Belarus (NBB); and lack of other possibilities for profitable investment.
Moreover, Belarusian companies helped to ignite the fire of problems by themselves leading to the rising debts of their operations including real estate transactions.
Additionally, this situation plays both as a consequence of the economic crisis and a big reason for its continuance causing subsequent problems in the banking sector. According to the NBB, in February 2016 the amount of troubled assets of Belarus’ banks increased once again and reached 10 per cent share of their whole assets.
State Governance: Swapping the Rules
Step by step the state machine begins to change its main driving economic mechanisms. On 21 March 2016, a new Presidential decree, No.106, changed the system of formation of state programmes and the provision of state support to economic entities.
The main adjustments suppose the transition from an individual towards a programme approach for the granting of state financial support. It cancels the possibility of direct requests of the enterprise for additional financial resources in case of permanent economic troubles.
For now, the government provides financial resources only according to the strategic investment priorities of the economy and the possibility of the fulfillment of strict requirements for achieving efficiency targets.
As a result of such a daring decision, the EFSD, on 28 March 2016, approved the provision of $2bn loan to Belarus in order to support the economic policy measures and structural reforms proposed by the government and the National Bank of Belarus.
According to EFSD’s press centre, Belarusian authorities agreed to insure the control over the monetary policy, through implementation of flexible exchange rate policies and the achievement of a balanced budget. Moreover, structural reforms assume substantial increase in the share of compensated utilities by the population – up to 70 per cent by the end of 2017.
All these should add up to reduction in cross-subsidies and direct lending, playing an important role in the increase of competitiveness in the economy.
However, according to former NBB’s Chairman Stanislau Bahdankevich, the economy, right now, is experiencing substantial difficulties with repayment of previously obtained loans ($3.3bn only in 2016). The inability to accomplish such transactions means default for the economy; Bahdankevich believes that the new EFSD’s loan is needed only to avoid such a negative scenario.
Belarus’ economy still suffers from recession, stacked in debts enterprises, free falling exports and a declining real estate market. However, it seems that state authorities finally got some insight into the economic troubles and have started the process of finding a way out.
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)
Strengthening Territorial Defence, New Military Priorities, NATO Dialogue – Belarus Security Digest
As soon as one large-scale control check of combat readiness ended in February, the Belarusian army command launched another one in mid-March. Minsk also strengthened its territorial defence troops by introducing regular training and providing these units with their own equipment and materials.
Meanwhile, Belarusian officials reiterated the following: national armed forces are getting ready to fight “terrorists” and “extremists” rather than engage in major conflicts. In a regional context it means Minsk prepares for a Donbas-like scenarios of destabilisation and will do everything to stay away from any military confrontation in the region involving Russia and NATO.
Territorial defence troops: finally becoming a serious force?
Addressing on 18 February a training retreat for province-level civilian and military state officials on territorial defence, Alyaksandr Lukashenka said that separate stocks of arms and other materials would be assigned for territorial defence troops. According to him, each district should form a minimum of one-two companies and maximum a battalion of territorial defence troops.
Territorial defence troops were established in Belarus ten years ago, but it is only in recent years that they have become a real force by conducting military drills and getting their own equipment. Recently it was officially announced that province-level state officials should attend special training retreats once a year. Training goes on at lower levels, as well. Concurrently, with the retreat for province-level officials, a staff and command training seminar on territorial defence forces for state officials of Hrodna City and District has been held.
According to Belorusskaya Voennaya Gazeta, official military daily, "territorial defence units should fulfil their tasks alongside the regular army and not substitute the army.” According to Lukashenka, territorial defence should guard critical facilities in war time. In earlier military drills, however, territorial defence units were trained to counter infiltration of small armed groups.
Better conditions to serve in Belarusian army
In February, the Belarusian media published articles about an alleged case in which two soldiers were beaten in a special operations unit in Brest. The investigation found no proof of criminal behaviour.
The press service of the Defence Ministry, however, used the opportunity to boast of the army's achievements in halting criminal activities and providing safety for their personnel.
According to them, not a single soldier died in the Belarusian army in 2015. In addition, criminal levels fell to the lowest point in the history of the national army – 1.62 crimes for 1,000 personnel.
Conditions improved in other areas as well. In March, for example, the Defence Ministry revealed that 43 out of 132 army cafeterias have been outsourced to external providers. This act relieved more than 450 soldiers of everyday duties in the kitchen and let them devote this time to military training and duties. This year, 17 additional cafeterias will be transferred and by the end of 2017 more than half of the army's cafeterias will be run by external providers.
Army to fight terrorist groups
At the annual briefing for foreign military attaches on 19 February the head of the Department of International Military Cooperation of the Belarusian Defence Ministry Major General Aleh Voinau in very clear terms described the current priorities of the Belarusian army. According to him, the recently announced new Military doctrine will not lead to radical changes in military policies.
Minsk has started to rebuild its armed forces – e.g., towards making them smaller yet more mobile force to fight low-intensity conflicts, insurgencies and subversive activities – since the late 2010's.
Voinau also emphasises that no foreign country is considered an enemy of Belarus. The Belarusian official military daily added that a leitmotif of the address by General Voinau was the idea that “the preparation [podgotovka] of Belarusian armed forces is aimed mostly at fighting terrorist groups and not engaging in any large-scale hostilities.”
It is one more among numerous evidence indicating that Minsk is fearful of destabilisation and intervention by armed groups without direct state affiliation, like those which acted in Eastern Ukraine.
This year the army should improve training of its commanders and leaders with regard to commanding the troops “in the circumstances of serious deterioration of sociopolitical situation and massive negative information impact,” announced the Belarusian military official.
These statements in more direct form expressed what the higher-level state officials say on different occasions. Defence Minister Andrei Raukou, in February, also talked about new challenges and threats:
geopolitical subjects, terrorist and extremist organisations actively use new concepts and mechanisms of regime change in other countries, change of their constitutional system and violation of their territorial integrity by provoking internal armed conflicts.
His speech is an indication that Minsk has now fully realised what transpired in Eastern Ukraine and it will not allow anything like that to occur in Belarus.
Dialogue with NATO and Belarusian National Security
Speaking on 23 February, Defence Minister Raukou said that security of the country relied also on military cooperation not only with Russia and members of the Collective Security Treaty Organisation.
He also underlined Minsk's “strategic” military cooperation with China and “aspiration to develop a constructive dialogue with NATO in order to strengthen international and regional security.”
On 14 March Defence Minister Raukou met the head of the EU's Delegation to Belarus Andrea Wiktorin. They discussed joint projects. Although no further details had been reported, the Russian chauvinist news agency Regnum immediately commented, “Minsk demonstrates its turning towards the West not only in economic and political [but also military] spheres.”
New control check of Belarusian army
On 15 March Defence Minister launched the second, of this year, comprehensive control check of combat readiness of military units of the Belarusian army. 600 reservists, including 60 reserve officers have been called to duty from Minsk, Vitsebsk and Hrodna provinces. In total, 7,000 troops with 1,100 vehicles shall be embraced by this control check, i.e., more than 10% of Belarusian armed forces.
The military units engaged in this control check conduct intelligence gathering, block and eliminate illegal armed groups and apply firepower at maximal distance.
Drones also are deployed in all these operations. The control checks appear to involve serious examination and for instance after the previous control check in February even the Minsk-based 120th Guards Separate Mechanised Brigade got only “good” marks.
All in all, the Belarusian government with its military policies continue to respond to dramatic developments in regional security which occurred in recent years. Minsk systematically works on improving combat readiness of its troops. It adjusts its defence system to its opportunities. For example, encountering difficulties in renovating military hardware, Minsk has developed a territorial defence system. Furthermore, it cautiously develops relations with external players such as China, NATO and the EU.