Analytical note: Monitoring of the Economic Security Situation (January 2014).


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The most important events of the month. The main disappointment of the month was acute and mostly unexpected weakening of RUR (from RUR 32.66 to RUR 35.18 per USD). Within the frameworks of the inflation targeting policy, in the beginning of the year the Central Bank of Russia has decided to reduce its participation in exchange rate formation process. Against this background the situation within the markets of developing countries, incited by expected tightening of monetary policy of the US Federal Reserve System, together with seasonal surplus of ruble liquidity in Russian banks, called agiotage, and sometimes almost panic currency demand. As a result the Central Bank of Russia has still got back to its active currency interventions, and already in the first half of February the situation should stabilize, even pullback of RUR is pretty possible.

Such situation with Russian currency has destroyed the plans of the Government of Belarus, which to the mind of many analysts has planned to slow down the rate of gradual devaluation from the beginning of 2014 with the target to establish finally the terms for BYR credits cheapening. However, the rates of weakening of BYR to USD eventually has not changed (appeared in the ordinary range and comprised +120 rubles), which was not enough to preserve parity to the Russian currency. And although the rates in all segments of the monetary market dropped a bit in January, their value is still prohibitive for long-term credit.

Ambiguous events happened in January in bank sphere. The most sensational was the decision of the National Bank to prohibit issuing of foreign currency credit for settlements with residents. Such regulating measure is a forced one and targeted at restraining of the growth rates of bad debts in the bank system, as the situation with uncontrolled growth of foreign currency credits has become frightening. This restriction was a recommendation of the IMF specialists as well as the specialists of the EurAsEc AF, but the reaction in the business-environment (regardless the proprietary form) was acutely negative. Nadezhda Yermakova even had to defend in public the need of this measure. How long shall the ban be active (and it is not the first practice of foreign currency credits restrictions within last years and each time they were cancelled under the pressure of the Government) and how effective shall it be shall be demonstrated by the statistics of near months.

Dynamics of the situation development for a month. As we wrote in the previous review foreign-exchange reserves (hereinafter FXR) of the country according to the results of the last month of 2013 demonstrated growth, assured by Russian credit in the amount of USD 440 mln. (as earlier it turned out, it was a bridge-credit of VTB bank for the period before direct credit from the Government of Russia is received). But statistical data, released in January, showed that stability in the last month of 2013 was more expensive for the state’s authorities, as the National Bank additionally attracted the sources of non-residents in the amount of USD 500 mln. It’s surprising but the National Bank refused to disclose the source of the funds and the way of their attraction. Some specialists expressed an idea, that it was Chinese credit, about which the authorities talked yet in the beginning of autumn. The situation could clarify during the visit of the Prime Minister Mikhail Myasnikovich in China, moreover earlier Lukashenko and Yermakova announced agreement of final parameters of credit aid for Belarus during this visit.   

Also December foreign trade statistics turned out to be negative, and in this situation it seriously affects devaluation expectations in economy. Negative balance of goods trade exceeded USD 900 mln., which is the worst result for the last 2 years. But here we should note, December is a traditionally bad month for foreign trade, when the growth of consumer and investment import is observed on the eve of New Year holidays and at the cost of active additional financing of budget programs. Except for that, statistics was worsened by acute growth of oil import in December, which did not incite the same growth of export because of temporary lag on oil products production. However, such growth of oil import shall positively influence on foreign trade already under the results of January, and we should expect its sufficient improvement.

Also it’s worth underlining recapitalization by the Government of the biggest state banks, engaged in financing of programs of the authorities under preferential credit rates. Yet in June 2013 the authorities promised the IMF that in the end of the year this operation (traditional to great extent) shall not be held. However destabilization of the situation in the monetary market in the second half of 2013 has forced to undertake extraordinary measures: first because of disastrous deficit of liquidity state banks were released of reserve funds formation, and on the very eve of New Year their capitals were enhanced. Partially this procedure was performed at the cost of budget funds, which does not have emission effect and in general is quite acceptable. Additional capitalization of banks, traditional pre-holidays budget expenses and reduction of the devaluation expectations grade resulted in the situation of liquidity surplus in the bank system and assisted some normalization of rates within monetary market, which, however, can be just temporary.

The end of January and the very first days of February were marked by several noticeable meetings with the participation of the representatives of economic authorities, which were devoted to the development of the country’s industrial sector. The events have clearly demonstrated that the strategy and tactics of the power have not changed absolutely: they are going solve the problem of economic efficiency and competitive ability of domestic goods with big-scale state investments, persuasions and discipline enhancement. Pressure towards the Government itself has also increased, as it has been given the maximum term to improve industrial situation till April 1st 2014. The materials of the meetings demonstrate that there is a serious conflict on the issue of credit rates in the system of economic authorities. The Government, the State Control Committee, as well as the Heads of enterprises publicly criticized the National Bank and the bank system in general, demanding to make the credits more available and reduce return on bank equity. Judging by all A. Lukashenko in this issue has still supported bankers; however, concerns about possible volunteer actions have remained. Formally the Government has its own levers for emission money issuing (deposits of the Ministry of Finance in the National Bank, which in practice represent a ruble equivalent of FXR of the country), which it can use without agreement of the National Bank.       

Conclusions. Under the results of January we can state that there is no improvement of the economic situation in the country. Pre-holidays foreign currency agiotage has dropped predictably, but in general the situation has not changed. And yet low economic growth, incited by structural inefficiency of economy, is slowed down by high rates within monetary market. The later ones are the unbiased reflection of the expectations of economic agents and without cardinal measures (acute FXR growth or cardinal change of economic policy) shall not decrease till acceptable level. Surprising is a statement of A. Lukashenko that due to unbiased reasons the rate of economic growth and the growth of the people’s incomes shall hardly be the way it used to be. Within the terms of retardation of Belarusian economic growth in comparison with almost all neighbors, such line is not acceptable and results in greater retardation. Probably it is an attempt to legitimize the failures of the Government of the country during the pre-electoral period and return to the issue of accelerated growth of economy shall still take place.