Belarusians in their modern history saw two major economic crises. The first followed the collapse of the Soviet Union in early 1990s and the second was in 2011 when many thought the Belarusian economy would crumble. The 2011 currency crisis and inflation dramatically changed well-being of Belarusians. Consumer prices went up 108 percent within a few months.
Although the effects of 1990s devaluation have been properly examined in the literature, the effect of the 2011 deserves more attention. A recent study of Kateryna Bornukova of the Belarusian Research and Outreach Cente 'The Impact of the 2011 Devaluation on Real Income of Belarusians' fills this gap.
The paper shows that a fall in income and spending of all social groups in Belarus rapidly decreased the level of well-being of the Belarusian society. The state tried to cushion the crisis effects but their policies had a very limited effect.
Mechanism of index of prices appeared to protect the poorest social groups in Belarus from the currency crisis effects. However, the group of pensioners seemed to be the most harmed by the politics of the state.
Life was More Expensive
Inflation hit the poorest Belarusians harder than most other groups. In the first quarter of the year 2011, the prices went up by 3.9 percent. Inflation of 2011 was very irregular. Prices for some goods increased even three times, whereas for others has not changed at all.
Such asymmetrical reaction of the market was due to the increased prices for the imported goods, which reflected the fall of the Belarusian currency. On the other hand, Belarus has a system of state regulation of prices and the state tried to control the prices of certain goods and public services of social importance.
The galloping inflation also caused the increase in the food prices. For example, there was a 72 percent increase in prices of diaryproducts and 155 percent increase in the prices of meat and paultry. This increase harshly affected the poor class of the society. However, after the stabilization period, official Minsk increased the prices for the public services, such as transportation.
In order to manage the inflation, the state authorities introduced indexation of the minimal income and minimal pension. In practice, it meant adjustment of the part of income payments by a price index.
Lost in Devaluation
Apparently, only the poorest Belarusians saw their real incomes increase in 2011, whereas the most well-off population groups suffered from consumer inflation and rouble depreciation the most. The real incomes of those in the top-10 by the amount of incomes in the first quarter of 2011 had decreased by 30 percent by the end of the fourth quarter. This should be attributed primarily to the social policy pursued by the Belarusian government.
Minimum wages were growing faster than inflation, enabling a growth in real incomes of households with minimum earnings. At the same time the groups with wages well above the minimum prior to the crisis saw their incomes grow only slightly as a result of wage indexing, meaning that their real incomes were falling.
Furthermore, the poorest Belarusians, as a rule, tend to rely on inflation-proof income sources, such as incomes in kind, privileges, welfare assistance and sale of produce more than any other population group.
The above trends can also explain why the currency crisis hit the most well-educated Belarusians. Real incomes of people with higher education fell 19 percent in the fourth quarter of 2011 from the first quarter, while real incomes of Belarusians with general secondary education or general basic education fell only by 9 percent.
However, the pensioners became the biggest victims of the crisis: their real incomes fell by 16.7 percent on average. Since their incomes were not high originally, such a decrease is remarkable and put the pensioners in a group of high social risk.
More Money to Spend
The authorities attempted to soften the results of the crisis for the poorest, in particular those with low-paid jobs. However, it has not opened the protective umbrella over the pensioners.
Due to the crisis, Belarusians were less prone to spend money. In fact, level of spending in 2011 proves the panic atmosphere of crisis within the society.
Compared to 2010, the second quarter of 2011 proves that spending was higher than income due to the panic on the market. Because of the crisis the structure of the spending has also seriously changed. Belarusians needed to spend more money on the food, although their real incomes had decreased.
In the fourth quarter of 2011, the share of spending on food reached level of 35.4 percent, the highest since 2005. To put it into context, in developed countries the share is usually between 15-20 percent.
One of the main consequences of the reduction in real incomes was the increase of poverty. Number of people with incomes below the official minimum subsistence level more than doubled (from 4.7 to 10.1 percent) in 2011. At the same time, number of those who claimed that are dissatisfied with their incomes has also substantially increased from 14.75 percent in the first quarter of 2011 to 22.08 percent in the fourth quarter.
The currency crisis has not only decreased the real income of Belarusians, but also played a redistributive role. The paper shows that the crisis actually decreased inequality among the Belarusians, because it seriously hit the richest in Belarus. It affected at most people with high income. Therefore, those who earned more prior to the crisis suffered more from it. In the aftermath, the level of inequality decreased.
This review was prepared on the basis of Policy Brief Impact of Devaluation-2011 on Belarusians’ Living Standards. The study was conducted by Belarus Public Policy Fund as a part of a program jointly carried out by Pontis Foundation (Slovakia) and Belarusian Institute for Strategic Studies.