A Roadmap to Stability
Belarus has outlined a set of measures to stabilize the financial and economic situation
Belarus has outlined a set of measures to stabilize the financial and
No Easy Solutions
The head of state warned that there are no and cannot be easy and simple anti-crisis solutions. “I would say the solution has been specified, but it is never easy for any country that faces such hardships. If someone hopes that tomorrow we will get manna from heaven with a wave of a wand, he is deeply mistaken,” the President said.
According to Alexander Lukashenko, the government took its time to develop the action plan because it waited for the results of the socioeconomic performance of the country for H1. “We are not going to extremes. We have made the decision taking into consideration all the available resources”, the head of state said.
The economic performance in H1 provided a clear picture of the situation. The domestic economy was firing on all cylinders through the entire H1 2011, which was acknowledged by the global community. Over the seven months 2011, GDP grew by nearly 10%, almost all the social and economic targets for 2011 were fulfilled, and the export
the government of Belarus has finalized its financial and economic policy. Within 1.5 to 2 months, the situation on the currency market of Belarus is expected to return to normalcy. the crisis management plan developed by the government and the national Bank was unveiled by Belarus President alexander lukashenko on 30 august.
of goods rose by 70% and exceeded the growth in imports by 9%, for the first time in many years. “It surpassed our expectations,” the head of state said.
More so, in January-july 2011 the foreign currency revenue reached its all-time high and amounted to $25 billion, more than twice as much as in the most successful pre-crisis year of 2008. The President noted that the country had not seen such a foreign currency inflow before. In May-july 2011, the foreign currency surplus of Belarus stood at $1 billion. There is a steady tendency to bring the foreign trade into a surplus position. In July, the foreign trade surplus neared $200 million…
“In recent months we learnt to live without spending gold and foreign currency reserves. This has been achieved through an adjusted macroeconomic policy rather than currency restrictions,” the President underlined.
Alexander Lukashenko stated that besides boosting export revenue, the country is going to raise at least $5 billion in strategic investments on beneficial terms. Other sources of foreign currency revenue have been explored, too. The President believes this will be enough.
The head of state explained the true reason behind Belarus’ economic woes.
Being a socially oriented state, Belarus took advantage of the favorable economic environment of the last five-year period to boost economic growth and improve the well-being of people: the country invested heavily in construction, modernization of production facilities, addressed social issues, raised salaries, pensions, and allowances. The country created a solid foundation for the further economic expansion. However, when it was about to reap the benefits, the global crisis broke out in 2008. “The crisis eroded all our gains,” the President explained.
In 2010 the deficit in foreign trade in goods and services reached 14% of GDP. In other words, Belarusians consumed more than they produced and sold. However, the gross domestic product was invested mainly in the further economic growth, namely construction, technological upgrade and renovation of production facilities. Today our country is the world’s leader in terms of investment into development: in Belarus the investments into development account for 40% of GDP, while in the CIS it makes only 20% and in the European Union about 19%.
Taking into consideration that Belarus does not boast considerable mineral resources, it has to import many of them at increasing prices and volumes: oil, gas, raw materials, component parts, equipment. This contributed to the growing deficit in foreign trade in goods and services.
However, most of the blame for the considerable increase in the trade deficit goes to external factors. The Belarusian President noted that dollar and euro speculations on the global market pushed energy prices to record levels. Indeed, over the last five years, the gas price for Belarus soared five times, the oil price three times. “Today we pay about $280 for 1,000 cubic meters of gas, almost three times more than domestic consumers of Russia, our major trading partner. How can we compete in such conditions?” the head of state asked. In his words, over half a year, the energy price hike widened the gap in BelarusRussia trade by another $1.5 billion increasing Belarus’ deficit. “The increase in prices for energy, raw materials and other things alone are going to cost us about $2 billion. The losses may be even bigger,” the President noted.
According to the head of state, the blame for Belarus’ economic woes partially goes to massive importation of used foreign cars since the start of the year. In H1 2011, over 260,000 cars were imported to the tune of about $2.2 billion. “I am more than sure that this made $3 billion or even more. A threefold increase in car imports! Half of the country’s trade deficit over this period,” Alexander Lukashenko said.
However, the Belarusian economy keeps working, although this year another $5 billion will be taken out of it.
Although the economy operates normally, the country still lacks foreign currency, multiple exchange rates have emerged, and the consumer market is shaken by occasional shortages.
A comprehensive expert evaluation was carried out to come to grips with the situation. The experts studied various currency strategies, recommendations of the People’s Bank of China, the International Monetary Fund, suggestions of the Russian Federation, the National Academy of Sciences of Belarus, and government experts.
Three options were put on the table. The first and easiest one was to preserve the status quo. However, time showed that this would not work. “While the production sector is demonstrating some growth, the financial sector and the currency market are exposed to growing risks and misbalances, which will or might have a negative impact on economic performance,” the President said. Experts believe this option is fraught with risks.
The second option suggested maintaining the fixed currency rate. Belarus tried it, too. But the inflexible currency control can trigger another financial crisis. Therefore, experts rule out the second option, too.
The third option was left. The exchange rate should be determined by supply and demand.
This option was backed by the Government, the National Bank, top executives and the majority of citizens.
“We have to follow objective economic laws,” the President emphasized.
Thus, an action plan to balance out the single exchange rate and maintain social guarantees was developed.
A Step-based Strategy
The State will stop supporting artificially the Belarusian ruble. From now on the ruble exchange rate will be shaped by supply and demand on the market, and this is the major point of the plan.
At the same time Alexander Lukashenko ordered the State Control Committee and law enforcement agencies “to put a formidable barrier to profiteers who are now artificially inflating the situation.” In addition, the President demanded that the National Bank should monitor the situation on a daily basis and intervene when necessary, knocking down speculative attacks.
Citizens who wish to buy foreign currency will be given such an opportunity. To this end, the President agreed with the proposal of the National Bank to hold an additional trading session on the Belarusian Currency and Stock Exchange (BCSE) in mid-september, where anyone could buy and sell foreign currency freely. Thus, the entire foreign exchange supply and demand will be concentrated at the BSCE.
Alexander Lukashenko instructed Prime Minister Mikhail Myasnikovich, Deputy Prime Minister Sergei Rumas and Chairperson of the National Bank Nadezhda Yermakova to exercise strict control over the operation of the Currency and Stock Exchange.
The primary session will only sell the currency to settle the payments for natural gas and electricity, and other immediate payments, which will restrict the price growth.
To ensure the necessary volume of currency sales at the BSCE primary session, the President signed a decree to abolish the benefits to enterprises regarding the manda- tory sale of foreign currency.
After the BCSE additional trading session, all banks will be required to exchange foreign currencies at market rates, without any restrictions.
“I invited the heads of virtually all commercial banks for today’s meeting to make sure they know that they and the National Bank are entirely responsible for the ongoing activities,” said the President.
In addition, the National Bank was instructed to introduce, no later than October, an electronic record system for foreign currency exchange operations based on ID documents. A similar system exists in many countries, including Russia.
The President stressed that once the panic demand for the currency subsides, the exchange rate will balance out. Many states have gone throughsimilarproblems.according to Alexander Lukashenko, Belarus has the necessary resources to attain success in this matter.
According to the estimates of the Government and the National Bank, it will not take much time for the exchange rate to reach equilibrium. “Thus, the exchange rate will be based on market principles, which both businesses and household are eager to see,” summed up the President.
As for deposits, everybody who wishes will have an opportunity to convert ruble-denominated savings into foreign currency.
However, Alexander Lukashenko advised against converting the deposits. According to him, banks now offer very high returns on deposits in Belarusian rubles. In the near future they will be even higher. Thus, the State will support the national currency and take responsibility for it.
“You may do as you please. You are entitled to it. But look what is happening with the euro and the dollar. Today, nobody knows what to do with all that printed green paper. Everybody started talking about recession. You may be left with your euros and dollars in your pockets, under a pillow, under mattresses, in garages, bank cells. But then do not blame us for not warning you,” the head of state said.
“We are responsible for the national currency. And we will support it in every possible way,” said Alexander Lukashenko.
The President stressed that no restrictions will be imposed on withdrawal of deposits. “There are no plans to freeze deposits. This will not happen! I emphasize in particular: there is nothing to be afraid of. Although our “fifth column” would be happy to see us take this move and tremble with fear. I would like to say to all these personalities: In your dreams!” said the head of state.
The President also instructed the National Bank to create such economic conditions so that people could eagerly bring their money to banks. According to estimates of the National Bank, over $7 billion is in the hands of the population.
“I am willing to consider the amnesty of capital if it helps the cause,” stressed the President.
Along with the exchange policy measures, Alexander Lukashenko demanded that the National Bank and the Government should stop emissions. “All construction and other projects should be funded from healthy non-emission sources,” he said.
Thinking about the Future
At the same time, the President stressed that the financial problems are not the only concern for the Government. “This problem will go away next year top. Life will go on. I once again emphasize, the Government must think about how to build, to modernize, to create, and how to move forward. This is your main task,” Alexander Lukashenko said addressing the government members.
“Yes, we seem to be doing all of this. But we became unthrifty. We have started thinking money comes out of thin air. And it turns out that money must be earned,” the President added.
The head of state emphasized the need for more active efforts on import substitution. “The goods we can produce must be manufactured at home,” said the President. Personal responsibility for import substitution efforts rests with First Vice Premier Vladimir Semashko.
In addition, Alexander Lukashenko warned the Finance Minister, the chairmen of the oblast executive committees and Minsk City Hall of the need to execute both the national and local budgets, strictly within the range of revenue. “If there is money in the budget, then use it. If there is no money, look for it yourself. Do not come to me asking for more,” he said.
The President also demanded to restore proper order in the banking system. In his opinion, today there is too much laxity and greed in the system. Often it is the banking system that feeds alarmist misinformation to the population. The President instructed the KGB, the State Control Committee, law enforcement agencies to take the matter under control. “I want you to report to me on every such case, even the smallest one. Measures will be taken immediately against bank managers,” the President warned.
The President instructed the National Bank to organize work in such a way as to discourage people from violating laws. “Police should catch thieves and crooks, but not interfere in the life of good citizens,” said the head of state.
Another most important task is to return the foreign currency earnings to the country. “Today it is nearly $5 billion. We sold the goods worth $5 billion. Yet no payments have arrived into the country. The money is out somewhere. Someone is living on it,” the President said. He ordered the Prime Minister to return half of that amount to the country by the end of the year: “Your task is to make sure the accounts receivables do not exceed $2 billion by the year-end. Then we will put effort to reduce it. Let the ministers push enterprise managers to work harder on returning the money to the country. Please take this matter under control!” Alexander Lukashenko added that the decree in this regard has been already signed.
“The State Control Committee and law enforcement agencies must ensure strict application of the most stringent measures, regardless of rank and past accomplishments. The National Bank and the government should not grant permits to extend the deadlines for currency transactions!” stressed the President.
All laws and regulations prohibiting the State Control Committee and law enforcement agencies from conducting audits have been suspended until the end of the year. The move is aimed to stabilize the financial situation.
Alexander Lukashenko stressed the need for greater discipline in workplace. “There should be no democracy in workplace but dictatorship of technology and iron discipline! This is the way work is organized in civilized countries, including private companies,” he said.
The President also asked the directors of companies not to lay
off people in this difficult period. “Yet, they should punish discipline violators and slackers, drunkards and undisciplined people. No pity for such people! You have a job, you do it well,” said Alexander Lukashenko.
“The market economy does not mean you can do whatever you want. The top officials and governors are personally responsible for efficiency of public spending at enterprises and in respective regions. No statute of limitations here,” warned the head of state.
The state has also elaborated social security measures, first of all for low-income individuals.
Thus, the President ordered to channel the excess profits associated with price rises into social security programs. This applies both to budget-financed and also commercial organizations. “Healthy businesses, manufacturers, and individuals have to realize that they have to lend a hand to the state,” Alexander Lukashenko said.
All the excess profits will be accumulated in a special fund and distributed among large low-income families in the first place.
Alexander Lukashenko also reminded businessmen of their social responsibilities. “All sole traders and businessmen have to understand that this is their country,” the President said. The state did the private sector a favor by implementing fundamental provisions of Directive No.4 in H1 2011, namely, free price formation, advisory rate schedule, i.e. discretionary determination of wages and other monetary incentives, reduction of the number licensable economic activities.
The President emphasized that the living standards have to be preserved at the same level by all means. “We must make sure real incomes of people do not fall,” he said.
One-time payments will be made to support the population. Thus, the public sector employees will get a Br500,000 bonus. Those working in the real production sector will not be overlooked, either. These payments will be made as early as September.
Besides, the state will continue fulfilling its legally binding commitments on indexed payments. Then, the first class wage rate for public sector employees will be increased.
All the commercial entities should follow suit and raise salaries, the President stressed.
Child support allowances will be increased on a quarterly basis. In Q4 the one-time allowance for the birth of a child is planned to be doubled.
Retired pensioners will not be left behind, either. They will get a Br500,000 bonus as well.
As of 1 November 2011 labor pensions will be indexed following the increases in the Q3 average wages. Given the recent increases in average wages the pensions will go up significantly as well.
The budget sets aside about Br70 billion for the most vulnerable groups of people. No one will be left behind, Alexander Lukashenko emphasized.
To Strengthen Control
It goes without saying that every item of the plan is a serious challenge that requires continuous efforts. Therefore, Alexander Lukashenko tasked the State Control Committee and law enforcement bodies to exercise daily and even
hourly control over the implementation of the plan.
In particular, the state secretary of the Security Council has been charged to control and coordinate activities of all the law enforcement bodies related to maintaining order, discipline and carrying out measures that are in their terms of reference.
In case there are difficulties with the implementation of the plan, the most complicated issues will be brought to the attention of the head of state.
Alexander Lukashenko also expressed interest in the situation in the regions. The heads of regional and Minsk city administrations noted that the regional economies were rapidly developing that year.
Nonetheless, Governor of Vitebsk Oblast Alexander Kosinets suggested that scientists should be actively involved in import-substitution efforts. Besides he deems it necessary to double wages in order to offset the increases in prices for consumer goods and align the incomes of the Belarusians with those of the Russians. The President replied that the local administrations have to explore every possibility to raise wages.
Governor of Grodno Oblast Semyon Shapiro suggested considering lower taxes for enterprises that boosted exports. He also emphasized the need to reduce the share of imported components in Belarusian goods. Semyon Shapiro also suggested that the shares of companies offered to foreign investors should be available for sale to the workers as well.
Chairman of the Minsk Oblast Executive Committee Boris Batura also spoke in favor of elaborating measures to boost exports.
“Today as never before we have to engage our administrative resources to adopt the course, which we have been speaking about, in an orderly and most vigorous manner. However the administrative resources and pressure cannot be applied to solve economic issues. This is partially the reason for today’s problems. Now we are dealing with the consequences of our actions. We tried to pressurize administratively, without taking into consideration economic laws, especially in what regards money and finances. Therefore we have to do everything rationally and you know how to do it,” the head of state said.
Alexander Lukashenko emphasized that the governors and Minsk mayor would be the first to be called to account. “Stick to what we have agreed on and explain the measures to people,” the President said. “I have done my part here,” he added.
The head of state stressed that there would be no more foreign loans. “Whatever the situation, we will act depending on the demand and supply. Do not expect us to borrow in order to maintain a certain exchange rate.”
Alexander Lukashenko believes that under the circumstances the mass media tools should be fully engaged to explain the real economic situation to the people. “Everyone has to readapt be it mass media, bankers or others. Do not be offended by my harsh words. We cannot make some people work hard and let others ruin their efforts,” the President declared.
“Therefore let us be clear. We will act as one. And we will prove to everyone who wants to bring us down that we are a monolith and we can stand up to any challenge. We have everything we need to solve these issues,” the head of state said.
He stressed that his tough demands remain unchanged and that they have to be followed through. “Otherwise we will not solve anything. We have set our course and now let us follow it. But I repeat, you cannot stop life! You have to look into the future, you have to see perspectives,” the President said.
“I am sure that by joining our efforts we will overcome these temporary difficulties and continue our progressive development”, Alexander Lukashenko stressed.
“This will be an adequate response to all those who say that the Belarusian model has exhausted itself. There can be and will be no deviation from the course that we have outlined and that has been approved at the All-belarus People’s Congress. Our state is for people. And we have to make our utmost to ensure that people live decent lives,” the President stated.
The exchange rate of the Belarusian ruble will be determined by supply and demand, President of Belarus Alexander Lukashenko said at the government session held on 30 August to discuss social and economic development
rate of the national currency is determined by trade results of the Belarusian Currency and Stock Exchange
Important investment projects will not be frozen in Belarus. In particular, the first startup complex of Minsk’s central bus station has been commissioned
continues providing targeted
social aid to citizens of Belarus