VZCZCXRO0019
OO RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSK #0258/01 3531931
ZNR UUUUU ZZH
O R 181931Z DEC 08
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0022
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHSK/AMEMBASSY MINSK 0023

UNCLAS SECTION 01 OF 02 MINSK 000258 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL BO
SUBJECT: BELARUS: THE GLOBAL ECONOMIC CRISIS HAS ARRIVED 
 
REF: VILNIUS 1007 
 
MINSK 00000258  001.2 OF 002 
 
 
Summary 
------- 
 
¶1.  (SBU) Although President Lukashenka initially claimed that 
the global financial crisis would make the world realize the 
efficiency of Belarus' state-controlled economic "model," the 
crisis is having a clear impact on Belarus' economy.  Effects 
can be seen mainly in the drop in exports, the level of hard 
currency reserves, and in the exchange rate, as well as 
limitations in the banking system and the reemergence of the 
black market.  Now that the depth of the problem has been 
realized, the GOB is working more seriously to address the 
situation (including with the IMF, see update septel), but even 
if long-delayed reforms are undertaken the regime will find it 
extremely difficult to placate the Belarusian citizens who have 
been led to believe they are isolated from the world's economic 
problems.  End summary. 
 
Declining demand in traditional export markets 
--------------------------------------------- - 
 
¶2.  (SBU) Exports constitute the main source of Belarus' budget 
revenues with potassium fertilizers, oil and chemical products, 
machinery and food topping the list.  Demand in traditional 
markets, primarily Russia and Ukraine, has fallen dramatically. 
According to official statistics, in July through October 
Belarus' total exports decreased by USD 130 million, or four 
percent, per month.  Since President Lukashenka "prohibited" an 
increase in unemployment because it would lead to social 
instability, many companies in the export sector and elsewhere 
have shortened working hours and sent workers on long unpaid 
leaves.  We have learned that workers at the Atlant refrigerator 
factory in Minsk have been sent home -- without pay -- for three 
weeks; employees of state-owned factories in Borisov are 
expected to go on three or four weeks of unpaid holiday leave 
starting later this month. 
 
Benefits to exporters? 
---------------------- 
 
¶3.  (SBU) In the past, any exporter selling goods below cost was 
investigated by the GOB, as some kind of fraud was assumed.  As 
prices abroad decline, exporters have been making fewer sales, 
choosing to keep inventory on hand rather than risk an 
investigation.  (Comment: The National Bank is crowing about 
contiued GDP growth, although all state enterprises have been 
doing is filling warehouses with no customers in sight.  End 
comment.)  The GOB tried to remedy the export situation December 
1, issuing a resolution to allow Belarusian companies to export 
at prices below cost, but only on a case-by-case basis after a 
complicated permission process.  With energy and raw materials 
prices plummeting, the GOB is still hopeful that exporters can 
reduce their production costs and remain profitable, selling 
little below cost. 
 
Currency scarcity and soft ban on imports 
----------------------------------------- 
 
¶4.  (SBU) The country's hard currency reserves (kept in U.S. 
dollars, Euros, Russian rubles and Yuan) are depleting quickly 
due to the expense required to prop up the Belarusian ruble; the 
IMF estimate is just under USD 20 million per day.  It is also 
increasingly difficult to buy dollars and euros on the market, 
tying the hands of companies that do business in such 
currencies.  In an attempt to keep hard currency in the country, 
the National Bank issued a resolution in November that allows 
buying hard currency for advance import payments only in 
exceptional situations.  The same resolution recommends that 
exporters try and secure advance payments for their products. 
Hoping to drive consumers to local products, the government has 
instituted a soft ban on imports of many consumer and food 
products, urging Belarusian importers to avoid bringing 
non-critical imports into the country.  (Comment: Although these 
recommendations carry no penalties for non-compliance, any 
business found working against the recommendations will likely 
be investigated for other matters and punished accordingly.  End 
comment.) 
 
You've got a raise...or not 
--------------------------- 
 
¶5.  (SBU) In October, the GOB announced a 25 percent increase in 
pensions and public-sector salaries.  The raise was short-lived, 
the increase was reduced from 25 to five percent December 1; the 
GOB promptly blamed the change on the global financial crisis. 
Many Belarusians will probably still have a significant increase 
in net income as a graduated 9 to 30 percent income tax will be 
replaced by a flat 12 percent income tax starting in January 
2009, although that same flat tax is highly criticized by 
private entrepreneurs. 
 
MINSK 00000258  002.2 OF 002 
 
 
 
Keeping the banks afloat, at all costs 
-------------------------------------- 
 
¶6.  (SBU) At this point, extreme steps have been taken to 
protect the country's banking system.  In November Lukashenka 
issued a decree to allow unlimited no-questions-asked deposits 
in Belarusian banks to everybody, including foreigners, and 
insure every deposit regardless of amount.  The National Bank 
has been steadily increasing the bank rate to encourage 
customers to keep their money in the bank; the effect on loan 
rates however makes the average citizen unable to afford a loan. 
 However, some banks -- including Belarusbank, the nation's 
largest -- no longer issue loans for mortgages or new housing 
construction.  In November the four largest state-owned 
Belarusian banks received a total of USD 1.5 billion from the 
country's budget to replenish their reserve funds.  This puts 
yet another strain on GOB hard currency reserves; in August 
through November gold and hard currency reserves dropped by 18.4 
percent. 
 
Exchange rate blues 
------------------- 
 
¶7.  (SBU) As reported reftel, the National Bank has allowed the 
Belarusian ruble to slip; the current rate is about four to five 
percent lower vis-a-vis the U.S. dollar at just over BYR 
2,200:USD 1.  Interestingly, 92-octane gasoline, currently at 
BYR 2,530 per liter, is only USD 1.04 a liter at 
state-controlled stations (a 15 percent difference) to encourage 
some Belarusians to cash in their USD.  Black marketeers are 
becoming more widespread as well; we do not unfortunately have 
good information on what rates they are offering. 
 
Next steps: more control? 
------------------------- 
 
¶8.  (SBU) On December 4, Lukashenka announced that the primary 
mission of all government agencies should be to sell 
Belarusian-made products and preserve traditional markets at 
home and abroad.  The GOB plans to reduce sales taxes and will 
provide other tax benefits and subsidies to producers.  In an 
effort to cut budget spending, the government will revise all 
major economic projects, implement higher tariffs on imported 
consumer goods, reduce or cancel export tariffs, require less 
bureaucratic licensing, and reduce inspections of businesses. 
Consumers are supportive of these plans but are skeptical that 
they will result in much change. 
 
Comment 
------- 
 
¶9.  (SBU) The Belarusian people are periodically and unfairly 
accused of being passive in the face of their dictator's 
machinations.  It is true that the regime's control of public 
life has given the democratic opposition few opportunities to 
make its case to the people.  Now, however, the GOB faces broad 
public dissent as the oft-proclaimed Belarusian "economic 
miracle" is shown to be a failure.  That said, economic collapse 
is not/not in the USG's interest: if he has no hope of escape, 
Lukashenka will make any desperate deals that Moscow can stomach 
and likely use the worst elements of his apparatus to clamp down 
on civil society, both of which would significantly hobble any 
(albeit distant) prospect for a democratic Belarus. 
MOORE