Analyst Speaking about "Penultimate Day Of Belarusian Economy"

An expert comments on new foreign exchange legislation two weeks after its introduction.

On July 9, 2021, the Belarusian legislation in the field of currency regulation and control was seriously changed. Two weeks under the new rules is enough time to draw the first conclusions.

But here's what is surprising: at any other time, the adopted changes would have become a reason for numerous discussions in the business environment, but now they have entered into force and were accepted by market participants with little or no emotion. Legal entities went together to register contracts in foreign currency, and the possibility of introducing emergency measures did not surprise anyone at all.

Why did it happen? Leu Lvouski, Doctor of Economics, Senior Researcher at BEROC, spoke about this for Your Country's Tomorrow.

- This complex of measures has been discussed for a long time. Initially, this was supposed to be an important step in the currency liberalization of Belarus. But when the time came, the political environment and the crisis made their own changes, and a number of fearsome measures were added. As a result, the general vector turned out to be slightly toughening.

- Why did they need a separate normative legal act, because earlier the National Bank and the government have more than once introduced various restrictions on the foreign exchange market without preliminary preparation?

- It is always better to act according to the law than without it. So they wrote down formally what already happened in practice. We saw almost no reaction from the market and economic agents - the level of distrust towards the government's economic institutions was already high enough, and the risks have already been taken into account by the majority of market participants.

In a normal situation, the announcement of such potential measures, of course, could scare people, this is akin to the fact that the captain of the ship would say before departure that in the event of a shipwreck, an order would be given that it is permitted to eat part of the passengers. Everyone deeply inside themselves guesses that this happens, but the statement at the official level is still horrifying.

The Decree #154, it seems to me, is included in the same list of documents as the idea of a state of emergency and martial law: the government thinks that if everything collapses, it will be able to turn on manual control and float out. But this is not the case. World historical practice shows that such decrees are usually put into effect on the "penultimate day of the economy", that is, they themselves are powerful triggers for acute economic crises.

- The Decree #154, concerning restrictions and prohibitions in the field of currency regulation, contains rather streamlined wording regarding the conditions for the introduction of the prescribed measures and prohibitions.

In particular: "deterioration of the economic and financial situation", "damage to the interests of security", "negative development of the situation in the balance of payments".

Personally, in your understanding, are there any specific criteria, what could this mean? For example, what should be considered "sharp fluctuations in the exchange rate" or what level of gold and foreign exchange reserves should be considered "below permissible"?

- It is difficult to answer unequivocally. Take, for example, a sharp surge in the exchange rate. Suppose that today the dollar becomes 4 rubles. The National Bank is applying measures from this package, but what will this provoke in reality? On the black market or in real negotiations with foreign partners or commercial banks, the dollar will rise in price even more, and the situation will only get worse.

Or imagine that today the exchange rate is still 2.5 rubles, but the National Bank predicts a collapse next week. Again, the use of any measure from this doomsday package will automatically lead to a currency panic, and a collapse will follow. Such measures can work successfully only in the event of short-term shocks, and we are in a situation of a protracted crisis, reinforced by distrust towards institutions.

- Another important amendment valid from July 9 - registration of contracts in foreign currency. How will this affect the Belarusian business - will it force Belarusian and foreign partners to reduce the number of contracts? Or is it a technical requirement that will quickly become part of the process?

- From what we know so far, this is more of a technical requirement that will add inconvenience, but not become crucial.