Belarus Facing Recession

Publication: Eurasia Daily Monitor Volume: 5 Issue: 214

Since the mid-1990s, Belarus has frequently cited its economic successes: high growth rates (over 10 percent in the first half of 2008), impressive increases in industrial output, and an economy that has managed to thrive even while closely controlled by the state. President Alyaksandr Lukashenka has referred to this development as the "Belarusian way." So how is Belarus dealing with the world economic recession? There seem to be two types of answers: the official version and the reality of life on the street.

On November 4 Lukashenka spoke at a government session on global economic challenges and once again noted that the Belarusian economic model had shielded residents from the sort of fate that had befallen other countries. According to him, Belarusians have faith in the Belarusian banking system and are not rushing to withdraw their savings. He did note, however, that as the country was part of the global economy, it might be necessary to take more liberal measures. Moreover, the recently issued Presidential Decree 22 “guaranteed” the security of the population’s savings deposits (SB-Belarus’ Segodnya, November 6).

In 2004 Belarus ended its close association with the International Monetary Fund (IMF), of which it had been a member since 1992. It had refused to follow the IMF’s recommendations on economic reforms, thereby increasing its reliance on Russia for loans. Moreover, Belarus has remained heavily reliant on imported oil and gas from Russia but has lost its privileged, subsidized position over the past two years, thus necessitating loans from its neighbor simply to pay for the gas it will use through the next winter. Russian Prime Minister Vladimir Putin visited Minsk in early October for talks with his Belarusian counterpart Syarhey Sidorski and proposed that Belarus create a "currency pool" with Russia during the period of unstable financial markets. In essence, Putin was reiterating the idea that Belarus switch to the Russian ruble for energy payments (Kommersant, October 7). In the past Lukashenka has always strongly rejected the idea of adopting the Russian currency.

The year 2008 has followed the practice of the recent past. Belarus has requested a loan from Russia of $2 billion, with the first tranche later this year and the second in 2009. Russia has agreed in principle to this new loan (Kommersant, October 23), but essentially it draws Belarus even further into the Russian orbit. Therefore the Belarusian National Bank also asked the IMF for an identical loan to bolster rapidly declining capital reserves (Newsweek, October 23). Belarusian officials were quick to dispel any rumors of an impending crisis, stating that the money was not required with any urgency and would likely not be used at all. It was needed to establish a "safety cushion," as it is impossible to predict how long the international crisis will last. Reportedly, as one condition for the IMF loan Belarus has agreed to increase the limit on foreign ownership of its banking sector from 25 to 50 percent (Associated Press, October 29).

The evidence suggests, however, that Belarus is fast running out of reserves, which decreased by almost 12 percent in September alone and currently stand at $4.94 billion, or $4.12 billion according to IMF calculations (Kommersant, October 23). This is about one-ninth the reserves of Ukraine, which is experiencing very adverse effects from the world recession. Belarus’s reserves could be depleted rapidly in an economy that is heavily dependent on imports and has until recently been paying for them in dollars. Indeed, it is the demand for the dollar that is a key indicator of the state of the Belarusian economy. On November 3 Standard and Poor’s changed its rating for Belarus from stable to negative, with a statement that its experts anticipated that the Belarus economy would "undergo negative influence" from the adverse international economic situation (Interfax, November 4).

Reports from Minsk suggest both a very high public demand for dollars and the reappearance after several years of black marketers who will sell the greenback, but only at much higher prices than the official exchange rate. Charter 97 reported that although banks like to keep several currencies in stock, the population of Minsk has embarked on a wave of panic buying of dollars and that several exchange offices were refusing to pay out dollars, though certain branches of the National Bank continued to do so (, November 3). There are widespread rumors about an impending devaluation of the Belarusian ruble and a growing reluctance of banks to offer credit to the public at the former low interest rates (Belorusy i Rynok, November 3-10).

The value of the Belarusian ruble has declined sharply against the dollar over the past three months. On August 5 $1 bought BR 2,120 at the official rate and on October 28, BR 2,165. As one analyst commented, however, the rates set by the National Bank were not the same as those at street outlets, which were up to BR 2,170. Moreover, it was added, people were prepared to buy dollars at the rate of $1 to BR 2,300 (Komsomolskaya Pravda v Belorussii. October 31). In addition to the fears over the stability of the currency and declining hard currency reserves, consumers are also facing monthly price increases of 2 to 2.5 percent by the end of the year for bread, milk, and sour cream (Belorusy i Rynok, November 3-10). Belarusians are bracing themselves for the hardest winter in years.