Belarus: Tough Times, Austerity and New Potential Benefits from Russia

Publication: Eurasia Daily Monitor Volume: 10 Issue: 210

(Source: FT)

Russia’s Office of the General Prosecutor officially petitioned that Belarus extradite Vladislav Baumgaertner, the Russian potash producer Uraslkalii’s CEO, under arrest in Minsk since August 26. The petition is under consideration. It appears that it was directed to Minsk as early as October 22 but was made public only in early November (http://news.tut.by/politics/373586.html ). According to the Russian TV channel NTV, Russia’s Investigative Committee charges Baumgaertner with abuse of power leading to grave consequences.  Should it be proven in court, this accusation carries a potential sentence of up to ten years behind bars. On October 21, during his meeting with the editors of the major media outlets in the Commonwealth of Independent States (CIS), Belarusian President Alyaksandr Lukashenka alleged that an organized criminal group headed by Baumgaertner “used to sell potash through a Swiss firm for, say, $400 [per ton] while showing a $350 price and they divvied up the difference. There have been several episodes like this, and he will hardly get away with impunity.” “We had better close this page as soon as possible and punish those guilty,” concluded Lukashenka.  Prior to Uralkalii’s unilateral withdrawal from the Belarusian Potassium Company (BPC), a joint trader, Belruskalii, the sole Belarusian producer of potash, used to be the major corporate contributor to the state budget (http://naviny.by/rubrics/society/2013/11/05/ic_articles_116_183554/).

While the BPC’s demise is not the only factor behind Belarus’s current fiscal problems, it is definitely one of them. According to Sergei Nikolyuk, a reputable sociologist, another factor has been the increasing share of wages in the gross domestic product (GDP) beyond a reasonable level—long a populist measure practiced by the Lukashenka government. Thus, during the second quarter of 2013, wages and salaries accounted for 50.7 percent of the GDP, which is 9.3 percent more than one year ago. For comparison, in Russia, the equivalent indicator was 36.6 percent over the course of 2012, whereas in the European Union, the proportion of remuneration in the GDP was at its highest in the United Kingdom—45 percent. Nikolyuk believes that the last time the Belarusian government applied a “social generosity” of that magnitude was in January and February 2011, when wages and salaries exceeded 50 percent of GDP. That year’s series of state-mandated salary increases became one of the major causes of the 2011 financial crisis, which led to the Belarusian ruble shedding two-thirds of its value.  

The ongoing fiscal crunch urges the government to apply austerity measures until at least the end of 2014 and to seek new sources of funds. At least two such sources exist, of which one is potential and the other is already tapped. The potential source would be to make Russia annul its export duty requirements paid to the Russian treasury whenever Belarus sells products refined from Russian oil to third parties. During the upcoming December summit of the Eurasian Economic Council, Belarus will try its best to talk Russia into cancelling those payments as a by-product of economic integration ascending to the highest level in 2015. If Belarus succeeds, this will translate to an additional $4 billion a year at its disposal, or 5 percent of Belarus’s total GDP (http://naviny.by/rubrics/economic/2013/11/08/ic_articles_113_183581/).

Still one more benefit that Belarus will try to extract from a customs-free market with Russia will likely be the cancellation of subsidies to Russian producers of agricultural machinery. These subsidies threaten what used to be a stable and even expanding niche for Belarus: tractors, harvesting combines and other implements sold on the Russian market. In exchange, Russia wants Belarus to clear artificial obstacles for Russian products in Belarus. For example, the January–October 2013 review by Russia’s Ministry of Economic Development mentions that Minsk has been narrowing the conditions for participation in supply contract tenders in Belarus to technologies actually used in that country. One example provided by the authors of the review was Belarus’s recent tender for school buses. The requirements for participants of the tender were reportedly written in such a way that the Belarusian producer (Minsk Automobile Factory) would win the tender      (http://naviny.by/rubrics/economic/2013/11/08/ic_articles_113_183581/).  

On the other hand, Belarus has already tapped into funds originating from remittances sent back by Belarusians working abroad. These remittances have been on the rise due to the fact that Belarus effectively exports highly qualified labor. In 2012, for example, remittances amounted to $950 million or about 2 percent of Belarus’s GDP. It could be that this is an underestimate. Indeed, the above sum was remitted by just 55,400 workers, whereas the number of Belarusians working in Russia alone is estimated at 130,000–180,000. According to Nikolyuk, the overall number of those working abroad exceeds 600,000 (Deutsche Welle, November 9).

And yet within Belarus, private citizens buy more hard currency than they sell—a clear sign that Belarusians anticipate yet another devaluation of the ruble. Thus, in September, Belarusians bought $1,058,000 worth of dollars and euros and sold only $726,000. The difference is $332,000, whereas in August it amounted to $168,000 (IISEPS October 2013 Infofocus).

At the same time, Belarus retains its relatively high Doing-Business ranking by the World Bank. In the just released 2014 ranking, Belarus is 63rd, whereas Russia is 92nd and Ukraine is 112th. The World Bank nonetheless predicts economic stagnation if Belarus does not commit itself to structural reforms, including far-reaching privatization. Economic growth strategies such as boosting domestic demand have been largely exhausted, and the chief of the International Monetary Fund (IMF) mission in Belarus, David Hoffman, has appealed to the Belarusian authorities to use restraint. Incidentally, on November 4, Paritetbank, the last state bank that still offered subsidized real estate loans, stopped doing so. That decision reflects the much scaled-down 2014 state plan for commissioning new homes.

By most accounts, tough times lie ahead for Belarusians. But the government wants such economic tribulations to be over by the beginning of 2015, the year of the next presidential elections.