Russian rouble devaluation is now main challenge for Belarusian economy
The sharp Russian rouble devaluation, given the scale of the Russian-Belarusian economic relations is a direct threat to the Belarusian economy. In developing protective and compensatory measures, the Belarusian government apparently intends to use the traditional administrative means. In particular, despite the agreements on free movement of goods within the Customs Union, Belarus may restrict imports of Russian goods to the Belarusian market in order to protect domestic producers.
On November 15th, the RUR/USD exchange rate was RUR 47.39 per USD 1. This means, that since early 2014, the Russian currency depreciated by 45% against US Dollar. The main reasons include, progressive drop in oil prices and destabilsing effect from the sanctions imposed by Western countries over the situation in Ukraine. In addition, Russian rouble is under significant pressure due to the need to repay significant external corporate liabilities and because foreign currency earnings have reduced significantly due to falling oil prices and reduced sales of natural gas on foreign markets. Some large Russian companies have limited access to loans on the debt markets in the EU and the US, as well as to technology, which allows increasing production in the long-term. In the view of the bulk of negative external factors, the Russian rouble will be subject to further pressure from legal entities and individuals.
The Belarusian economy is largely dependent on the processes taking place in the Russian economy. Belarus’ Prime Minister Mikhail Myasnikovich said, that the Russian rouble devaluation was one of the main reasons why domestic goods had lost their competitiveness. For example, in August-October 2014, losses from the Russian rouble devaluation in food industry alone exceeded USD 160 million. Export of engineering products are reducing, so as they are mostly supplied to the Russian market. Fears for the Belarusian rouble amid Russian rouble devaluation have led to an increase in devaluation expectations in Belarus, which resulted in citizens becoming net buyers of foreign currency and rouble deposits growing at a slower pace in the banking system.
In these circumstances, the most reasonable thing would be Belarusian rouble devaluation by circa 20%-25% in order to restore the competitiveness of domestic products, both on the domestic and on the Russian market. However, this solution might cause undesirable social phenomena ahead of the elections in 2015. Therefore, the National Bank – for the sake of "stability" – maintains the gradual depreciation of the national currency policy. In order to help domestic producers on the domestic market, the government may apply administrative restrictions on imports, including ‘non-officially’ on Russian products. On November 11th, President Lukashenko said, “sit down and think about how you are going to protect our own producers. References to that we liabilities in the Customs Union, the Eurasian Union shall not be accepted. Own producers should be protected”.
In order to reduce the production costs, wage growth may be limited at industrial plants and managers’ functions may increase in order to have the room for layoffs.
The government is using mainly administrative means to neutralise the negative impact of the Russian rouble devaluation on the economic processes in Belarus. In the mid-term, such measures may be ineffective, because they might inflict new negative effects, in both, economic and social spheres.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.