By Sergei Kuznetsov in Minsk
BNE
Russia’s ruble currency crisis has spilled over the border and brought neighbouring Belarus to the edge of its own currency crisis. Russia has shied away from currency controls, but on December 19 Belarus’ central bank was not so shy and introduced a limited set of capital controls in response to the soaring demand for foreign currency on the local market in a desperate effort to preserve the country’s diminishing international reserves, according to the regulator. However, the crisis measures imposed by the central bank to halt the collapse of the Belarusian ruble have probably killed off any chance the republic has of getting help form the IMF and will force it to turn to Russia once again for bail-out funds.
The Belarusian ruble has been falling steadily all year, but the collapse accelerated since the onset of the crisis and the value of the Belarusian ruble has fallen by about 20% in the last two weeks. At the time of writing the central bank’s crisis measures seem to have been effective and halted the slide of the local ruble for the meantime. However, experts believe that the central bank’s move was, in effect, “a hidden devaluation” of the local currency and will be a painful blow for Belarusian exporters. That is bad news for 2015 as Belarus remains probably the only country in the Commonwealth of Independent States (CIS) that has built up a successful export industry, selling its goods to both east and west markets.
The most extreme measures imposed by the central bank was a 30% tax on purchases of foreign currency by legal entities and individuals, apart from enterprises that need to pay hard currency for natural gas, oil and electricity imports, as well as budget needs.
The share of mandatory sales of revenue in foreign currency by local companies was increased from 30% to 50%. The central bank has also hiked interest rates on its liquidity operations by a massive 26% to 50%.
According to the central bank’s statement, these measures were imposed, “taking into account the state of affairs in the economies of the neighbouring countries, primarily in Russia.” The Russian ruble collapse led to a panic in Belarus, where growing demand for the foreign currency spiked in the days after the Russian ruble’s precipitous plunge that began on December 15.
Nadezhda Ermakova, the governor of the central bank of Belarus, told bne in an exclusive interview that capital controls were imposed with, “the aim of preserving the country’s international reserves,” which stood at just $5.8bn as of December 1, or just 1.9 months of import cover – not enough to ensure the stability of the domestic currency in the face of peak of external debt repayments and the country’s traditional current account deficit.
Following the introduction of the central bank’s anti-crisis measures, the local banks bought foreign currency exchange rates in exchange kiosks close to the official rate level. However, on December 23, the regulator allowed eased restrictions on foreign currency purchases and allowed individuals to buy dollars and euros at rates close to the official rates plus 30%. According to the local media, which quoted unnamed sources in the banking sector, this measure was imposed in an attempt to “remove the preconditions for the formation of the shadow market.”
According to Ermakova, the central bank has achieved a positive “intermediate result.” “Sales of foreign currency have exceeded purchases. We are also witnessing a growth in domestic currency deposits,” Ermakova told bne.
On December 26, Alexander Lukashenko, the president of Belarus, said that the situation on the financial market “is not that dramatic.” “We can say that the issues that were so acute a week ago are being successfully resolved,” he said during the emergency government meeting in Minsk.
In the last days the pressure has been reduced as interventions by the Russian central bank and significant currency purchases by Russia’s biggest exports has seen the Russian ruble return to its pre-crisis level of about RUB53 to the dollar.
Hidden devaluation
Alexander Mukha, a Minsk-based independent financial analyst, believes that a 30% tax on foreign currency transactions is a “hidden form of devaluation” of the Belarusian ruble for exporters and other buyers of the foreign currency. “However, this is an unorthodox devaluation: importers were already facing rising costs for imports, but exporters have not received the expected benefits [that would result from a formal devaluation],” Mukha says.
The expert adds that the position of Belarusian exporters has become even more difficult due to the increase in the share of mandatory sales of revenue in foreign currency from 30% to 50%. “Now there are no reasons for exporters to sell foreign currency… Many of them will be very interested in extending the deadlines of foreign trade contracts,” Mukha says.
The central bank has refused to use the term “devaluation.” “When we are talking about devaluation, we should look at the results of trading on the Belarusian currency and stock exchange,” Ermakova told bne.
Another negative outcome for the Belarusian FX market is the emergence of multiple currency rates, in particular: the official rate of the central bank; the rate for foreign currency sold by individuals; the rate of purchase with the 30% tax; and the shadow market rate.
Meanwhile, the Belarusian authorities have not excluded the possibility of imposing additional capital controls. In particular, the central bank’s officials have told bne that tough restrictions on lending are on the agenda.
But even if Belarus faces a worst-case scenario, it looks like the authorities are confident of their ability to overcome the crisis quickly. “Whatever happens in the country, even if we face the worst scenario, we will manage to stabilize the situation in six months,” president Alexander Lukashenko said on December 19 following an emergency Cabinet meeting.
Russian aid
Mukha believes that the measures imposed by the central bank to stabalise the currency market are a violation of agreements made with the International Monetary Fund (IMF), which rules out, “any discriminatory currency arrangements or multiple currency practices.”
The central bank’s moves have killed any chance of agreeing a new IMF support programme for Belarus, according to Mukha. The country agreed a $3.46bn support package from the IMF in 2009, and since 2010 the government has been attempting to obtain aid to help service its debts and support the economy from the fund, with out much luck.
The multinational lender has said repeatedly that it wants to see structural reforms in Belarus, before releasing more money. “A new programme would continue to require a credible commitment to a comprehensive package of consistent and strong macroeconomic policies and deep frontloaded structural reform that could be supported by IMF membership,” David Hofman, head of the IMF mission, said earlier this year.
Meanwhile, Belarus desperately needs $4bn to repay its state debt in 2015. Due to the extremely low level of its reserves, the country is fated to rely on support from Russia and Russia-led institutions like the bail-out fund of the Eurasian Economic Community, EurAsEC, which rescued Belarus from a balance-of-payment crisis in 2011 with a $3bn support package.
On December 25, the prime minister of Belarus Mikhail Myasnikovich and his Russian counterpart Dmitry Medvedev discussed possible “options of financial support which could be provided to Belarus,” Myasnikovich’s press office said, without giving any details.
“Probably, Belarus will try to secure either Russian intergovernmental loan or a loan from the bail-out fund. I believe, that the amount of possible funding could be up to $2bn in 2015,” Mukha says.
Belarus is also planned to spend export duty on oil products made using Russian oil in 2015 to repay its debt. “We intend to spend resources earned by oil export, including customs duties, to reduce the government debt instead of spending them on routine consumption,” Myasnikovich said in November.
Courtesy of BNE
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