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Economist: Authorities Have Only One Way Out - Printing More Money

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Economist: Authorities Have Only One Way Out - Printing More Money

The consequences of sanctions will be evident in the near future.

The EU has introduced sectoral sanctions against the Belarusian authorities, prohibiting the purchase, import or export of Belarusian oil products, as well as technical and financial assistance. The Charter97 website spoke to economist and publicist Leu Marholin about the sanctions and their consequences.

- To begin with, the sanctions have a slightly delayed character, because they allow the end of existing contracts. However, we cannot say that sanctions will not be effective until they actually come into effect, because there is a physical implementation and there is a moral impact. Even those companies that could continue to cooperate for some time will try to cut back their activities. Any interaction with Lukashenka's regime becomes toxic for them. Those companies that work in the field of oil, as well as those that supply equipment, will try to scale down their cooperation. Therefore, the consequences of the sanctions will be noticeable in the very near future.

We can also add that this applies not only to European companies, but also to many Russian companies that are connected with Europe. They try to avoid contacts with Belarus in some way. In any case, in spite of such dashing statements of the Belarusian authorities, the situation with Naftan in the third quarter remains unclear. So far, there are no specific contracts for oil supplies for refining.

- The price of petrol in Belarus is quite cheap, but our country is in the penultimate place in Europe by the number of liters of petrol, which the Belarusian can afford on his average salary. Could sanctions increase the cost of petrol in Belarus?

- If the cost of petrol in Belarus were a market-conscious criterion, we could talk about how the sanctions would affect the price - would lower, raise or leave it unaffected. However, the price of petrol in Belarus is an entirely political criterion, that is, it does not depend on what the situation on world markets is.

The state, which is the monopolist in this field, raises prices without regard to the purchasing power of the Belarusians. The only thing which can restrain the authorities in this respect is the reaction of the people, the Belarusian drivers.

Over the last couple of years, the petrol price has been increasing by the kopeck, because the Belarusian authorities are afraid of some protest mood. I believe that everything will continue the same way as long as the government does not feel any threat at this spectrum. It will gradually raise petrol prices by the kopeck regardless of the sanctions.

- The republican budget deficit rose to 1 billion rubles in May. Do you think this trend will continue because the sanctions will make it harder to get oil and it will reduce budget revenues? How much may the budget lose because of the sanctions against the oil industry?

- Again, there are no real big losses and financial impact until the moment when the current contracts expire. Another thing is that the first 5 months of 2021 have shown that without sanctions the state of the economy is deplorable. It will obviously not be possible to meet the planned budget, even taking into account the fact that it was quite solid.

The world financial markets are actually closed for us because of the part of the sanctions that are already in effect now. Of course, the authorities are now pinning great hopes on placing bonds on the Russian market. However, Russian companies are also wary of investing in Belarusian assets, and it is unlikely that the Russian government will assist in this sense.

Most likely, this bond offering will prove to be unsuccessful, and then there is only one way left, which is well known to the Belarusian authorities - pumping money into the economy, the way of printing money in order to somehow compensate the budget deficit. It is necessary to pay salaries to state employees, not only doctors and teachers, but also the riot policemen, the army and internal troops. Pensions are also to be paid, so I don't think there's any other choice.

- Russia's Transneft says it has no applications for supplies to Naftan. Kazakhstan has also announced that it would not supply oil all summer. How critical is it for Belarusian refineries which have not yet completed modernization?

- First of all, it is critical for Naftan, the company which is not going to be supplied by Transneft, which volumes cannot be replaced by the Kazakhstani ones. Kazakhstan has said it will not supply in the summer, but this question is still open, because the country's supplies depend primarily on Russia. Will Russia allow the transit of Kazakh oil to Belarus? I somehow very much doubt that Russia will give such permission, because if they themselves do not want to supply oil, there are some reasons for that. It makes no sense to run into the same trap, only with Kazakh oil.

What role can this play? As for the domestic Belarusian market, the capacity of the Mazyr refinery is quite sufficient for it. Quite apart from the fact that petroleum products are not in short supply now and they can be brought from Russia if necessary.

The fact is that oil and petroleum products are one of our main export commodities. Even if sanctions are imposed starting from 2022, but Naftan will not have volumes for refining, it will not be able to supply oil products even now, under the existing contracts. That is, now there is some contract for Naftan to supply petroleum products to the European market. It could supply these petroleum products despite the sanctions, but since there will be no physical volumes, there will most likely be no refining until the end of the year. The sanctions will de facto come into effect six months earlier.

- Analyzing the strategy of a "kopeck" rise in automobile fuel prices, experts note that the Belarusian authorities are trying to shift the main costs to the petrol stations. How will the sanctions and resulting additional difficulties affect the work of the petrol stations?

- I would not agree that they are shifted to the petrol stations. They are shifting them to you and me, to the end customers, and they are shifting them twice. On the one hand, people who use motor transport, private or public, pay more. On the other hand, it falls on the cost of other goods, because the cars, which take products to stores, are also filled with petrol or diesel fuel. Accordingly, the conditions are also more expensive for them.

As for the filling stations, yes, the cost of fuel does not allow them to hit stride. It's unified, it's the same everywhere, the margin is minimal. They are offered to make money on related services, which they are doing rather successfully. If you want to try exotic foods, go to a filling station, and you'll see something new there. So petrol stations will somehow survive, if you and I survive, and we still have money to buy fuel.

- What will happen if our neighbor, Ukraine, joins the EU sanctions against the Belarusian oil industry?

- It would be difficult because Ukraine was one of the main buyers of the oil products along with the European Union. As a matter of fact, I think that sooner or later Ukraine will join these sanctions because it wants to follow the EU policy. Moreover, Lukashenka himself does everything for Ukraine to join these sanctions. Just look at the order to block the Belarusian-Ukrainian border and the absolutely groundless accusations that weapons are flowing across the border. Belarus is pushing its neighbors to take decisions not in favor of Belarus. This will be a heavy blow, which, according to various estimates, may cause a 10% to 15% reduction of the gross product next year.

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