Chernobyl-Style Economic Policy of Belarus

The reaction of the Belarusian President resembles Soviet Union’s approach to the Chernobyl accident. At his press conference last Friday he repeated the old mantra: “No crash happened, we have everything under control, do not listen to foreign propaganda, no reason to worry…”

In fact, there is a lot to worry about: economic meltdown is in full progress. A large number of trading companies, whose business was based on imported goods, are suspending their operations. Factories, which rely on imported components for their production, are running out of material to continue their production. The result is an exploding unemployment rate. Even Belstat, otherwise overoptimistic and very questionable in their data, admitted one month ago that due to the crises about 600 000 people already lost their jobs.

How the crises unfolded

The hot phase of the crisis in Belarus started in mid-March 2011. The Central Bank of Belarus could no longer supply new amounts of foreign currency to the money market. That affected all spheres of the economy and left the country in a desperate situation.

Belarus kept from Soviet times the old system of fixed foreign exchange rates. The foreign loans  have been used to supplement the deficit in foreign currency caused by an enormous trade deficit and keep the financial system more or less stable. Over the recent years Belarus got used to a steady inflow of foreign currency mainly through foreign loans (Russia, IMF, Eurobonds). They used this money in two ways.  First, to provide foreign currency to the domestic money market and maintain an exchange rate set up by the government. Second, that helped the government to fill the holes in the state budget.

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Belarus Digest