The “anti3crisis” government, or on the art of manoeuvring Текст научной статьи по специальности «Социальная и экономическая география»

THE "ANTI-CRISIS" GOVERNMENT, OR ON THE ART OF MANOEUVRING

Ina Ramasheuskaya

Summary

The year of 2011 has been rightfully named the "lost year", which main outcome was the rollback of the starting position for an inevitable reform of Belarusian social-economic model (which clearly has exhausted its potential) primarily due of the drop in competitiveness of the national economy. The main achievement of the government was the preservation of status quo at the expense of the living standards of Belarusians, of the trust and interest of investors and of the financial losses suffered by many small and medium businesses. During the year the government has not been able to come up with a comprehensive anti-crisis plan, leave alone a plan for future reforms. Throughout the year, its planning horizon was constantly shrinking, often to downright "here and now". Manoeuvring between the necessity to react to populist slogans of the political leadership and the desire to preserve at least a fa3ade of social stability, the government focused on short-term tasks of suppressing one after another pocket of instability and pretending to fulfill yet another impossible political demand. The government, led by prime minister Mikhail Myasnikovich, focused on three main objectives: (1) securing external financing; (2) maintaining control over social and economic situation; (3) lobbying for minimal structural reforms necessary to restore the economic balance.

Trends:

• The crisis in the relationship between the government and the presidential administration, where the government tried to advocate minimal structural reforms;

• The crisis of government policy which ended up paralyzed by the government's chaotic attempts to preserve economic and social stability;

• The crisis of communication, which resulted in the loss of trust of the people who essentially reverted to individual - i. e. independent of the government's efforts - strategies for overcoming consequences of the economic crisis.

Securing external financing

Appointment in the late December 2011 of experienced administrator Mikhail Myasnikovich (whose career included such positions as deputy prime minister in the mid-90s and head of the presidential administration during 1995 — 2001 ) as a prime minister

gave rise to cautious expectations of some structural reforms in public administration and economic management. Far from being an adherent of market economy, Myasnikovich nevertheless seemed to realize the danger of widening economic imbalances — most importantly, of the increasing foreign trade deficit against the background of dwindling international reserves. Already in January 2011 he ordered to revise the draft program for social and economic development of Belarus in 2011—2015 (which was approved just a couple of months earlier by the All-Belarusian People's Assembly) in order to more clearly define the ways to achieve by 2014 the positive external trade balance — primarily, by increasing exports.1

The first two months of 2011 were marked by constant assurances by public officials that the national economy of will continue to develop steadily and the country will not face any economic shocks. Indeed, the expectations were that having weathered the final — populist — phase of the electoral cycle, the government will be ready to embark on unpopular economic measures, in particular, a wide-scale privatization (which was cautiously advocated by the new prime minister in his public statements) . These expectations were enforced, on one hand, by the unyielding position of the Russian Federation in the negotiations of the terms of oil supply to Belarus, which made it impossible to revert to the previous scale of profitability in oil processing. On the other hand, despite the political crisis flaring up in the relations between Belarus and the EU and US after the brutal suppression of the December postelection protests, the economic cooperation seemed unaffected, which gave rise to the hopes of securing external financing, including from international financial institutions. For instance, despite repeated President's orders to stop expensive external borrowing, in mid-January the government — in cooperation with several European banks - has implemented its last year's plans to issue Eurobonds.

The expectations for economic reforms were enforced by much-awaited Directive Number Four adopted just before the New Year, which outlined the measures for the improvement of business climate, including the liberalization of price formation mechanisms. In February, the newly appointed deputy prime minister, ex-banker

http://www.belta.by/ru/all_news/economics/Mjasnikovich-poruchil-dorabotat-proekt-Programmy-sotsialno-ekonomicheskogo-razvitija-Belarusi-na-2011-2015-gody_i_538120.html (in Russian)

Sergei Rumas has detailed the government's plans for relaxing the administrative controls over prices, including transportation tariffs. This allowed some experts to rank him among the few perceived economic liberals in the government.2

However, already within a month these liberalization plans had been rolled back and the government's dedicated almost all its efforts to the search of external financing, needed not only for replenishing the rapidly dwindling international reserves, but also for supplying hard currency to export-oriented state-owned enterprises (which required constant flow of dollars and Euros to purchase imported raw materials and assembly parts).

Soon the impossibility of commercial external borrowing at any remotely acceptable interest rate became obvious, and the government's efforts focused on attempts to get loans from Russian Federation, from the EurAsEC Anti-Crisis Fund (the application was made in 2010) and from the IMF (the application was made in May 2011). In March 2011, the Russian Federation assured the Belarusian government that the answer to the application will most probably be "yes" if Belarus comes up with a comprehensive — and public — anti-crisis plan. Similar conditions were put forth during the IMF's regular monitoring mission in June.

As a result, the government devoted the second half of 2011to trying to persuade the potential creditors of its serious intentions to mitigate immediate economic imbalances without undertaking any binding commitments (which proved to be quite difficult since the first and foremost demand of the creditors was to liberalize the exchange rates — which meant admitting the reality of devaluation of Belarusian ruble with all its social and political implications). Throughout the year, senior officials' reports to the president and to the Council of Ministers seemed to be dedicated solely to the progress in obtaining each of the loans.3

The progress was only partial, since the IMF — having a realistic view of the ability of "economic liberals" in the government to influence the economic policy — had agreed to review the government's anti-crisis plan only after the country's political leadership publicly supports it (which has not been done at the time this review was written). Despite the repeated assurances that Belarus is

http://belapan.by/archive/2011/02/16/450118/

http://belapan.by/archive/2011/05/17/471050/belapan.by/archive/2011/ 05/17/470968/

not desperate for a new IMF loan made by Nadezhda Ermakova, the newly appointed governor of the National Bank, the government clearly expected that in the end the IMF would soften up and take a few diffident gestures (such as liberalization of the exchange rate literally on the eve of the next round of loan negotiations) for a comprehensive anti-crisis plan. This however did not happen. Similarly, then Russian Finance Minister Alexei Kudrin was insisting on balancing the economic policy as a pre-requisite for obtaining the requested loans (in the end narrowed down to just a loan from the EurAsEC Anti-Crisis Fund). Despite Kudrin's resignation in September 2011, the strict conditionality for each of the two tranches of the loan received in 2011 has been enforced by the leadership of the Fund each time prompting somehow bitter public reaction from Belarusian government (along the usual lines of not tolerating the interference in its economic sovereignty).

However, the struggle over each 400-million tranche of the EurAsEC loan, as well as hectic attempts of the government to secure additional external financing somehow abruptly lost their significance in November-December 2011 after a series of favorable steps made by Russian Federation, including finalizing the purchase of Beltransgaz, issuing a 1-billion loan backed by 51% shares of Naftan oil refinery, promising to finance the construction of a nuclear power station, as well as concluding the new — much more advantageous - agreement on the terms of oil and gas supply to Belarus.

Maintaining control over social and economic situation

In contrast with the relatively well though-out communication strategy employed in early 2009 after the IMF-inspired devaluation of Belarusian ruble, during the period of financial and economic shocks of the last year the government did not construct a consistent plan for communicating neither with the population nor with the business community. After the repeated assurances of the country's leadership that the devaluation of Belarusian ruble is not going to happen under any circumstances, the devaluation ended up being conducted amidst nearly total silence of state-controlled media (apart from a noncommittal remark on the next day's exchange rates). The second devaluation was conducted in an identical way. Against the background of almost total policy paralysis and incessant pop-

ulist orders of political leadership (which essentially boiled down to the demand to "make everything as it was"), none of the members of the government mustered up courage to announce what exactly is going to be done. The situation was aggravated by the fact that any — no matter how sensible or economically justified — plan of the government could be instantly criticized and abolished by the president. This situation was perfectly illustrated by the case of the government's attempts to increase gasoline prices. This attempt resulted in relatively substantial (by Belarusian standards) drivers' protests, which in turn prompted the president to quickly order the prices to be brought back and to organize the public "flogging" of those responsible for the decision (at the same meeting, the president prohibited the government to raise any price by more than 5 per cent without his personal permission).4

However, these examples of concessions to the public discontent were far and few apart, since in the situation of total uncertainty the government increasingly reverted to familiar administrative-command methods, acting mainly through prohibitions and threats of punishment. As a result, the population faced not only hard currency shortages, but also shortages of goods, including medicines (the result of administrative price controls distorting incentives for export and import). The government tried to threaten vendors not offering what it considered an adequate assortment of goods, however these threats were effective only during brief periods of government inspections. The effects manifested themselves in the ways usual for administrative command economy — people queuing for "deficit" goods and many private retailers suffering huge losses and even going out of business.

With its hands essentially tied, the government was not able to neither explain the real causes of the crisis to the population nor describe the plan for overcoming it. The only evident plan the government came up with was to use disproportionate force to squash weak public protests ("the silent revolutions") and to point to the alleged culprits of the economic troubles (such as protesters themselves, gasoline traders, and importers).5

4 http://news.open.by/economics/55313

5 Мясникович: белорусский рубль не пойдет в свободное плаванье ('Myasnikovich: the Belarusian rouble will not go on a free voyage'): http:// telegraf.by/2011/07/myasnikovich-cherez-paru-mesyacev-mi-viidem-na-ravnovesnii-kurs-rublya

For the sake of fairness it should be mentioned that some members of the government were instructed by the president to venture out in the field and explain the situation to individual working collectives. However, the motif of these talks (apart from referring to the world economic crisis and blaming Russia for abruptly raising oil and gas prices) was the one formulated earlier by Andrei Tur, then the deputy minister for economy: "You lived above your means".6 In this way, the blame for tipping the balance of national economy was being shifted to the population apparently guilty of consuming too much imported goods and of accepting salary increases which outpaced labor productivity.

Lobbying for minimal structural reforms necessary to restore the economic balance

During the first six months of 2011, the collision between the government and the presidential administration on economic policy largely remained below the surface. As late as the end of March, when the currency crisis was already raging and threatening up to 600 thousand jobs in the retail sector, the minister for economy was still painting quite an optimistic picture of economic development marked by sustainable growth and controllable inflation.7 However already a month later, in his annual speech to the National Assembly, Lukashenka heavily criticized the Myasnikovich's government on the grounds that the measures suggested by the government for stabilization of the economy (and the exchange rates in particular) are detached from the reality and based purely on the theories "described in Western textbooks".8

As the economic situation deteriorated and the government was growing desperate for foreign loans, disagreements between the government and the president started to erupt to the public sphere. In May the president yet again threatened to dismiss Myasnikov-ich, expressing in this way his displeasure with the plans for liberalization of the economy that the government kept submitting to the administration. "Starting today, all price increases should be

Тур: вы живёте не по средствам ('Tur: you live beyond your means'):

http://telegraf.by/2011/06/tur_vi_zhivete_ne_po_sredstvam_-_video

http://www.belmarket.by/ru/120/15/9388 120/15/9388/Пока-сажаем-косточки-плоды-будут-потом.Ыт http://belapan.by/archive/2011/04/21/465632/

stopped in the most severe way. This is the only market reform that we need" — he said, adding that any plans to conduct a wide-scale privatization (which at that time ware actively discussed with the EurAsEC Anti-Crisis Fund) would not be accepted either.9

In the light of finally undertaken commitments to the AntiCrisis Fund and with the hope of securing an IMF loan, the government (in the person of vice-premier Rumas) did attempt to publicly and objectively explain the situation in the economy and outline the planned steps for its stabilization.10 As the result, the discrepancy between the opinions of the government and those of the administration became so obvious that they were openly remarked on by the IMF representative (later on, the absence of the agreed position became an official reason for the IMF's refusal of the loan).11

The standoff peaked in November at the Council of Ministers' meeting, where deputy minister for economy Yaroshenko presented several scenarios for the economic development in 2012 and outlined the measured planned by the government for stabilization of the economy (including the cutting down on lavish financing of various state programs via printing press, which was a conditions for the EurAsEC loan and also an IMF's recommendation). This suggestion provoked a very harsh reaction of the president's chief economic aide Sergei Tkachev who insisted on preserving and expanding the state programs. In return, the prime minister openly accused the administration of carrying out an unsustainable eco-nomic.12

Very soon there was a retribution from the president who yet again threatened Myasnikovich with dismissal reminding him that his job is to achieve target economic indicators approved by the All-Belarusian People's Assembly: "And if you want to make everything market-like, then such policy is not acceptable to us".13

However in just a few days these frictions lost their significance after the package of agreements on substantial credit and other support extended by Russian Federation to Belarus was

http://belapan.by/archive/2011/05/27/473807/

http://www.belta.by/ru/all_news/economics/Pravitelstvo-Belarusi-prinima-

et-srochnye-mery-po-stabilizatsii-ekonomiki-_i_557438.html

http://belapan.by/archive/2011/06/13/477437/

Правительство vs эмиссионное лобби ('The government vs. the emission lobby'): http://www.interfax.by/article/85983 http://www.interfax.by/news/belarus/101696

signed in Moscow during the meeting of the Council of the Union State.14

Conclusion

Many trends in public administration that were first charted out in 2010 gained further momentum in 2011, therefore narrowing down the options for future social and economic development of Belarus. The adherents of short-term solutions and administrative command methods (who form the core of the presidential administration) prevailed over the proponents of a more balanced approach to economic policy in the government (often referred to as the Myasnik-ovich — Rumas group). This triumph was made possible first of all by the generous terms of oil and gas supply from Russian Federation seen by many as a means to stimulate Belarus' deeper integration into the Common Economic Space.

The perspectives for the transformation of Belarusian social and economic model also became clearer. At this point it is evident that any reforms would take place only within the Common Economic Space (CES) framework, and their consistency and depth would depend on how much pressure the Russian Federation applies. Taking into account the fact that the terms for oil and gas supply to Belarus are likely to remain more or less stable in the next three years, and those CES agreements which are least compatible with Belarusian economic model will not yet come into force during this period, the government can hardly be expected to put significant efforts into initiating any large-scale reforms.

Another factor which surfaced in the 2011 and which is likely to negatively affect the government's capacity to develop and implement a comprehensive reform plan is the decline in the prestige of public employment as a result of the devaluation, and the subsequent outflow of talented administrators from the civil service (specifically, from the ministries). As long as the private sector (both inside and outside of Belarus) continues to offer more lucrative employment opportunities to specialists with competitive managerial skills capable of operating in market environment, the number of proponents of market reforms in the Belarusian government is going to shrink even further.

14 http://www.belta.by/ru/all_news/economics/Belorusskaja-storona-polnost-ju-udovletvorena-podpisannymi-v-Moskve-dokumentami—Rumas_i_ 582515.html