Will currency devaluation help Belarus economy?


Experts suggest that the devaluation of the Belarusian currency against hard currencies could produce a positive influence on the country’s economy.

But the authorities do not seem to see any use in lowering the rate of the national currency.

Negative trade balance is growing. But the government cannot cope with the situation because it cornered itself into the stable rate of the Belarusian currency.

“Devaluation could be positive in the sense that imports and higher than exports, creating a huge trade deficit. If imports could become more expensive against the salaries in the Belarusian rubels, the population would start buying less imported goods, thus reducing the foreign trade deficit. Therefore, the situation would become more stable,” says economist Alexander Chubryk.

For the same reason, the Europeans, for instance, have put the growth of Euro on hold. The European goods were becoming more and more expensive compared to the American goods. Devaluation was a way out for Europe.

In Belarus, most of enterprises are strictly import-oriented. In other words, if you need to assembly a car, you need to bring some spares from abroad and use foreign energy. An exporting enterprise can make $20 due to devaluation while importers can lose $15. However, devaluation could be useful in certain situation, according to economist Leanid Zlotnikau.

Stanislau Bagdankevich, the former chairman of the Belarus’s National Bank, says exchange devaluation can bear fruits only on condition of a market economy which is open to foreign investments. But, this is something this country is currently missing, in the view of the banker.

“Devaluation is always useful for enterprises that work for exports and have a low level of profitability. Selling the same amount of textiles could earn more money in the national currency. Some enterprises can cover their expenditures and still remain with a profit for salary bonuses,” Bagdankevich said.

At the same time, devaluation can damage the banking system. If the National Bank lowers the exchange rate of the Belarusian rubel, the dollar will start growing. Saving in the national currency will stop being profitable. That’s why the population will start withdrawing their money from rubel deposits.

The government could raise the interest rates. But it would make loans more expensive. This is not Europe where people have a very high confidence in their currency and don’t think about saving in which currency.

Yet, there is one more reason for the government to fear a weaker rubel.

“There is a government’s plan to bring wages to the level of $500-540 by 2010. This is an election platform of Lukashenka. From this point of view, devaluation is harmful,” suggests economist Alexander Chubryk.

It seems that the authorities want to preserve stability not in the currency only.