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I Eastern Europe
bne October 2012
Belarus looks to secure next part of EDB loan
and the bugbear here is the large current account deficit. However, some progress has been made here too: in the second half of 2011, the current account deficit began to fall from almost 16% of GDP in January-June 2011 to 4.5% in JulyDecember 2011. And it turned positive in the first quarter of 2012 when it was a surplus of 0.2% of GDP. At the same time, international reserves doubled and were equivalent to 2.1 months of imports (still below the three months of import cover most economists believe is necessary to maintain the stability of the domestic currency) as of the end of the first quarter.
elarus probably suffered more than any other country in Central and Eastern Europe during the 2008 crisis, but four years on how is it doing? And more importantly, will it qualify for the next tranche due this November from the Anti-Crisis Fund?
mainly driven by an almost 20% drop in investment. Although Belarusian exports have grown significantly, the prospects for the rest of the year don't look very rosy, as the positive effects of the real depreciation of the ruble are vanishing due to high inflation.
The republic has taken several shaky steps forward, but much remains to be done. "The success of stabilisation completely rests with the prudent monetary management and fiscal policy followed by the authorities of the Republic of Belarus with simultaneous maintenance of a flexible exchange rate. A further decline in inflation is a key condition of sustainable growth and external balance improvement in the medium-term perspective," Sergey Shatalov, the head of the ACF, says.
An expansionary monetary policy under a fixed-exchange rate combined with the deterioration of terms of trade and several external shocks hit Belarus hard. The government had to devalue the national currency twice and saw the economy come to a virtual standstill.
But despite the difficulties, the government acted more decisively than the likes of Greece: the National Bank of the Republic of Belarus (NBB) ended directed lending in June 2011 and adopted a unified exchange rate in October 2011, which resulted in a return to real positive interest rates by the end of 2011. Inflation has also been brought down
The government is also burdened with a relatively high level of debt (by CIS standards, but not by EU standards) that has risen to 28% of GDP in the last few years, which needs to be repaid to external creditors over the next three years. Still, this problem can be tackled thanks to the fact the government is running a budget surplus: the 2011 budget was
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In order to keep its head above water, Belarus requested a financial loan from the Anti-Crisis Fund (ACF) set up by the members of the Eurasia Economic Community and administered by the Eurasian Development Bank (EDB). A third tranche of $440m was distributed in June and another tranche is due to be released in November. The republic has so far met 15 of the ACF’s 17 conditions for the release of the next tranche of money and the much-needed cash injections have stabilised the economy. In 2011, GDP grew 5.3%, following 7.7% in 2010, a sharp turnaround from 0.2% in 2009. In the first six months of 2012, Belarus’ GDP grew by 2.9%, dragged down by the collapse in internal demand
"Any attempts at artificial stimulation of the economy will reduce the competitiveness of the economy" from the hyperinflation levels: between January and June 2012, the average monthly inflation rate was below the 2% level and the end-of-year rate is forecast not to exceed 22%, against the rate of 108.7% in 2011.
implemented with a surplus of 2.3% of GDP against the initially planned deficit of 1.5% of GDP. The strong budget position was possible by cutting expenditure and surprisingly high revenue arising from inflationary income.
But to fully recover, the country needs to grow out of the trough it has fallen into
The gross external debt is still a relatively high 62.3% of GDP, of which a
bne October 2012
quarter is destabilising short-term debt and could put pressure on the currency market or deplete official reserves. Going forward, the NBB and government signed a new letter of intent with the AFC that lays out the conditions for managing the economy this year, clearing the way for the release of the next $440m tranche in November. Still, the government’s plans for this year are too ambitious, targeting growth of over 5% for 2012. Economists warn that if the state attempts to artificially stimulate the economy, this will accelerate inflation and quickly run down the country's hard currency reserves due to increases in domestic demand and real exchange rate appreciation. So the AFC has explicitly recommended Belarus goes more slowly. "Any attempts at artificial stimulation of the economy to attain GDP growth planned by the authorities on the level of 5% will exert high pressure on the international reserves level, the exchange rate and inflation, and through accumulation of structural disparities will reduce the competitiveness of the economy," says Shatalov. The AFC has called on the government to be a bit more modest in its plans and resist the temptation to return salaries to their pre-crisis levels, as well as keeping a tight rein on state-directed lending. At the same time, the European Bank for Reconstruction and Development is calling on the government to accelerate the privatisation programme. The AFC says that if the government can hold state lending to a total of BYR7bn and general lending increases to 15%, then inflation could be brought down to 20% by the end of this year, with growth running at between 2% and 3%. "The government needs to manage a tricky balancing act between keeping a tight rein on monetary policy and encouraging the recovery," says Shatalov. "Rising deposits, the state efforts at recapitalising banks and the reduction of state programmes at the end of 2011 have all contributed to excess liquidity at the banks.
Eastern Europe
Lost chance in Belarus
Sergei Kuznetsov in Minsk Belarus' parliamentary elections on September 23 had a predictable result – the opposition did not win one seat in the 110-seat lower chamber. It seems that the new parliament will be much like the present one that was elected in 2008 – an institution that will rubber-stamp any presidential initiative without discussion. According to Belarus' Central Election Committee, 109 MPs were elected on a turnout of 74.2%. This seems high, because the election campaign was listless and it appeared that the general public, especially in large cities, were not much interested. The only extraordinary move took place approximately a week prior to the election when Belarus' two main opposition parties – the United Civic Party and Belarusian People's Front – said they would boycott the elections and withdrew their candidates. The two parties said that the ballot could not be considered free and democratic, especially when many opposition activists remain political prisoners. President Alexander Lukashenko condemned this move by the opposition parties. "I am coming to the conclusion of their complete inability as politicians," he told reporters after voting at a Minsk polling station. Commenting on the possible reaction on the elections of the West, Lukashenko said that he "always hopes for the better," but the country was "conducting elections today not for the West, it is the Belarusian people that are front and centre during the elections." Except the people play little role in the process. Reports say that a number of Belarusian opposition websites were blocked after they reported the results of the turnout for the elections had been falsified. After the last presidential elections in December 2010, considered a sham by the West, and the subsequent mass arrests of opposition activists, the EU and the US imposed sanctions on Belarusian officials, businessmen and state-run enterprises. The US imposed sanctions against six large state-owned oil and chemical companies, including Naftan, one of the country’s two oil refineries, due to the deteriorating human rights situation. The EU has imposed sanctions against several tycoons suspected of being close to the regime, as well as against more than 30 companies controlled by them. According to a bne diplomatic source, the EU has taken a pause in the process of imposing sanctions until October. As such, the views of the election monitors sent by the OSCE will play a crucial role in deciding on further sanctions. Judging from the OSCE's findings issued September 24, there is little comfort for the government. "This election was not competitive from the start," said the OSCE. "A free election depends on people being free to speak, organize and run for office, and we didn’t see that in this campaign."
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