More than 100 days have passed since new leaders of government and National Bank were appointed. Major personalities in new teams are former CEOs of major commercial banks – Pavel Kallaur, Head of National Bank and Vasily Matushevsky, Vice-Prime Minister. International financial organizations praised their economic policy. Will they enter Belarusian history as reformers?
Missions of international financial organizations regularly focus their attention on new economic team, which appeared in December 2014. So, last week the Eurasian Development Bank (EDB), whose mission was in the Belarusian capital in late March, issued a statement in which they praised the economic policy of the Belarusian government and the National Bank.
“EDB as a fund manager of EurAsian Economic Union generally welcomes the measures of the new economic team of Belarus”, – was emphasized in the report of the creditor.
The mission of the International Monetary Fund, which also came to Minsk in March expressed similar satisfaction with the policy pursued by the new leaders of the government and National Bank. The head of the IMF mission in Belarus David Hoffman called the steps taken by the authorities as encouraging. They happened after changes in government.
Why economic policy, which was initiated by Kallaur and Matyushevsky was supported by the international financial institutions? Will the government and the National Bank make the economic reforms advised by lenders? This questions was discussed with economists and financial analysts.
The first thing that the former executives of commercial banks made after the arrival to civil service was forming of so-called Club of Creditors, which included representatives of major Belarusian enterprises, ministries and departments.
According to BelaPAN, Belarusian enterprises actually billed new government, stating that foreign markets had narrowed and they had to service the loans, pay salaries. They asked for financial resources on concessional terms.
In response, the new leadership of the National Bank and the government stated that any financial assistance may be granted if the company will prepare a credible business plans and find a real way out of the difficult economic situation.
“We are creating collaboration with companies from the perspective of macroeconomic stability. Yes, it’s tough, ” Pavel Kallaur said in January 2015 at a meeting in the National Bank.
According to analysts, the new approaches of economic authorities in terms of financing the real sector comply with international financial institutions and, therefore, the system were supported.
“Why lenders welcome the policy of the National Bank and the government? Monetary targeting regime, which the regulator started earlier this year, shows that the economic authorities aim to tight monetary policy without any quasi-fiscal financing. In addition, at the beginning of the year there was a shift to a more flexible exchange rate. Everything is in line with the recommendations of the creditors of Belarus,” a senior analyst at Forex Club Valery Polkhovsky explained.
Belarusian economists point out that the economic course chosen by the new members of the government is constrained and includes a number of unpopular measures.
“Selected economic policy is of necessity. It was initiated because of complicated situation. Limiting of the personal income and reduction of industrial production will come as results. Nevertheless, these measures are an important step towards macroeconomic stability,” emphasizes the director of the IPM Research Center Alexander Chubrik.
He notes that the current economic policy was initiated by new authorities, so they should know about its disadvantages.
“The current policy is implemented in the absence of external financial support. Thus, the current tightening of monetary and fiscal policies are not imposed by creditors, but consciously chosen by the government “, – said Alexander Chubrik.
Stability, which was achieved so far in the money market of Belarus is a consequence of both internal and external factors, analysts say.
“The National Bank did everything to ensure macroeconomic stability. On the other hand, it contributed to the achievement of the external factor – the Russian ruble have been strengthening against dollar since January 2015, “- says Valery Polkhovsky.
The economic model of Belarus
International financial institutions, welcoming the steps of the government and the National Bank in monetary and fiscal policy calling for structural reforms to improve the economic potential for the sake of the country.
“In the case of deep economic reforms growth rates will improve and the Belarusian economy can grow by 4-5% per year in medium term,” David Hoffman said, answering journalists’ questions in March. Belarusian authorities heard similar message asking for a new loan from Eurasian Bank for Development.
Despite there are changes in fiscal and monetary policy, experts see no evidence of starting structural reforms.
“Tight monetary and fiscal policy, which is carried out in recent months is a standard response to the problems faced by the economy in December 2014. In the last five years we have seen periods of tightening and easing of economic policy. The novelty of the current situation is that, despite of the decline in industrial production, a tight policy continues,” says a senior analyst of «Alpari» Vadim Iosub.
The current management of the National Bank recognizes that the changes in monetary and fiscal policies aimed at macroeconomic stabilization, while current economic model wasn’t changed.
According to BelaPAN, during a February meeting in the National Bank, Pavell Kallaur agreed with the point of view of the economist Sergei Chaly. He thought that the current tight monetary and fiscal policies “affect neutrally the economic model.” Financial market analysts have concluded that the changes in economic policy that have occurred after the December crisis are not the same with structural reforms in the economy.
“The measures to put out a fire were taken. However, we didn’t start to deal with the causes of the fire”, Dmitry Kruk (Belarusian Economic Research and Education Center, BEROC) figuratively explained.
The economist believes that recent economic problems: slowdown in GDP growth and currency crises aroused due to internal, but not external factors.
“At the heart of the problems faced by the Belarusian economy are structural factors related to the lack of competitiveness of our businesses. This forms the basis of macroeconomic imbalances,” says Dmitry Kruk.
According to him, the country faced the need for structural reforms in 2007 after a sharp rise in energy prices. However, over the past 8 years Belarus didn’t dare to reform the system. There are different opinions about the probability of economic reforms in the coming years.
“Most likely, we will see reform. They will happen due to our desire to obtain new borrowings. International Monetary Fund and the Anti-Crisis Fund will not provide money for promises. Summarizing, Belarus needs money so much as it have to make reforms,” – says Vadim Iosub.
In turn, economists of BEROC take a more cautious prediction about the probability of economic reforms.
“The lack of reforms in the last 7-8 years shows that power wants to avoid them. On the other hand, there is a belief that stagnation, which plunged the economy, eventually force to reform. Therefore, it is possible that certain changes in the economy will be,” – says Dmitry Kruk.
Former heads of commercial banks Vasily Matyushevsky and Pavel Kallaur appointed to high office in December 2014 have already shown that they are willing to hold tight macroeconomic policies. And if there is a political will, and Kallaur and Matyushevsky could enter the Belarusian history as reformers. Whether they want it?