The Kobyakov Cabinet: Circular firing squad

Ina Ramasheuskaya

Summary

2015 was a year of hope that the government would be able to become a driving force of reforms in Belarus having overcome the reluctance of the political departments to break the status quo. The replacement of the Mikhail Myasnikovich Cabinet by the Andrei Kobyakov Cabinet, which many believe to be a more reform-oriented government, and also the suspense over the delayed formation of the government after the presidential election, gave reason for optimism.

Reviewing the year, it can be concluded that at least three groups with different ideas of the government’s role in solving pressing problems in Belarus came up in the executive branch: (1) a group of reformers focused on the implementation of recommendations given by international organizations (IMF, World Bank), (2) a group of ‘regulators’ (security, defense and law enforcement agencies, Ministry of Trade and Ministry of Information) who see tightening of state control as a solution to social and economic problems, and (3) a group of conservatives pursuing a wait-and-see policy, i. e. maintaining the status quo, hoping for a change/return of the external environment to the most favorable state, including a rise in prices of oil and oil products, and economic growth in Russia and, accordingly, its increased purchasing power. As a result, the Belarusian government came to the year end the same way it entered it: in a state of strategic uncertainty.

Trends:

Abeyance or credit ex machina

The appointment of the new government on New Year’s Eve naturally gave rise to hope for a revision of the public policy or, at least, the recognition of the need for such revision. The head of state himself was talking about “constructive and breakthrough” ideas to enhance the efficiency of the economy when introducing new Prime Minister Andrei Kobyakov.1

Indeed, the first steps taken by new head of the National Bank of Belarus Pavel Kallaur made it possible to curb the recession associated with the fall of the Belarusian ruble following the Russian ruble, and to wipe out the deficit of cash and non-cash foreign currencies typical of Belarus. However, tactical steps were not followed by strategic solutions.

The first hundred days of the new government were over. Then the first six months passed, but no breakthrough ideas were produced. The economic bloc leaders as always engaged in the usual rhetoric going on about support for entrepreneurship and fostering of small and medium businesses. However, during the March assembly of business circles, government officials and businessmen sat side by side on the podium thus remaining deaf to each other. The wrap up press release of the assembly documented a deepening crisis of confidence between the government and the business community.2

Since May-June 2015, the government has focused on what it is usually busy with: looking for external financing. Given that the promised Russian loans did not materialize, the government was enthusiastically listening to new promises, this time made by ranking officials of China and India during their visits to Belarus. At first glance, those visits seemed to be very rewarding: India declared the readiness to give Belarus a USD 100 million loan and China promised a whole bunch of more or less tied loans totaling USD 7 billion. All the loans were supposed to be utilized under joint projects with their national companies, though.

Simultaneously, the Belarusian government was trying to reach loan agreements with the IMF and the EurAsEC Anti-Crisis Fund (Eurasian Fund for Stabilization and Development since June 15, 2015) pledging an updated program of structural reforms. Although neither of the two institutions denied the possibility of giving loans in general, as it usually happens in talks with the Belarusian leadership, the main question was what should go first, the money or reforms? Considering that the negotiations with both the IMF and the Eurasian Development Bank went through to the end of the year (and they were still going on as of this writing), a variant that would suit both sides has not been found yet.3

Tightening the screws

While the heads of the economic bloc were talking about the need to support entrepreneurial initiative of small and medium businesses, in particular to separate the functions of owner and regulator, a number of ministries and departments were handling problems of the Belarusian socio-economic model using the safe and proven method of “tightening the screws.” Since the beginning of the year, the Ministry of Trade has been pursuing a zero tolerance policy in relation to business entities violating the trade and public catering regulations. Over the first two months of 2015 alone, legal entities and officials were fined over BYR 1 billion for breaking the rules.4

Enabled by presidential decree No. 567 of late 2014 to suspend operations and close trading, consumer-service and public catering companies, the Ministry of Trade inspected about 3,000 companies, suspended operations of 577 of them and closed five outlets.5 The ministry was not happy about online stores indicating prices in foreign currencies and even spray-painted ads on pavements.

The ministry took an uncompromising stand against individual entrepreneurs and insisted on the execution of decree No. 222, which obliged the retailers to have certificates of compliance for each item they sell. The entrepreneurs argued that it was impossible to obtain all the required papers from the suppliers (mainly Russian), but the authorities kept pushing them out of the small-scale retailing sector. This led to a serious crisis and growing social tension as soon as early 2016.

The Ministry of Labor and Social Protection declared full support for decree No. 3 ‘On prevention of social parasitism’ issued in April. According to the decree, officially unemployed persons must pay a levy to compensate for their missing contribution to the state budget. Experts say the execution of this decree will cost much more than the unemployed would pay, not to mention that, according to human rights organizations, the decree violates the Constitution and a number of international treaties signed by Belarus.6 Nonetheless, the Ministry of Labor repeated in all sharps and flats that the decree was totally reasonable thus stating that there were no preconditions to increase unemployment allowances, which currently amount to 20 euros in equivalent on the average.

Dreaming about reforms

Starting from the second half of the year (to be more exact, after the presidential election of October 11), a number of high-ranking officials, mainly in the Ministry of Economy and the Presidential Administration, began speaking (cautiously choosing their words) about shortcomings of the existing socio-economic development model and offering reform scenarios.

During the first three months after the re-election, the president was making extremely vague and contradictory statements concerning the possibility of reform. A whole group of civil servants (the deputy minister of economy, deputy presidential chief of staff and presidential aide for economic affairs among them) was trying to interpret those ambiguous statements together with independent experts. At a scientific conference on the socio-economic development forecast and management held October 23, presidential aide for economic affairs Kirill Rudy made a comprehensive critical overview of the ‘manual control’ of the economy in Belarus.

The valid criticism of the low efficiency of the economic management continued at the already traditional October Economic Forum (Kastryčnicki Ekanamičny Forum) in 2015. Nikolai Snopkov, who moved up from minister of economy to the position of the second person in the Presidential Administration, however did not completely lost faith in the liberalization of the economy. He said that the vertical of executive power was inefficient in terms of the management of economic processes. According to Snopkov, this is largely due to the misalignment of objectives between the different levels of government. He however sees a solution in a unification of concepts, programs and objectives on all levels of public administration, rather than reform of local governance and real empowerment of local authorities as suggested by the National Strategy for Sustainable Development.

Snopkov was seconded by Kirill Rudy at the 2015 October Economic Forum. Rudy argued with himself in a report on the possibility or impossibility of structural reforms in the coming year. He said that not all of those “wearing European suits” adhered to European ideas, and all probable reformers would have to get along and find a common ground with security officials and Soviet-minded directors. Despite the criticism of the current model and advocacy of reforms (repeated more than once at various events till the end of the year), holders of key positions in the state machinery have to admit that the last word remains a prerogative of the head of state.

The reform suspense lasted for a while, because, according to the Constitution, the government officially resigns after a presidential election and acts as a caretaker until replaced or reappointed. Almost a two-month pause before the formation of government gave many experts a reason to hope that there were backstage talks on a new premier and key ministers, advocates of reform, that would be a clear signal that the political departments were ready to take decisive steps.

Besides, Belarus and the IMF were likely to agree on a new loan. The expert community believed that the Belarusian authorities would have to provide a feasible plan of structural reforms and support its implementation in order to obtain the loan. However, in mid-December, the government was fully reappointed, including the prime minister, and the negotiations with the IMF were put on hiatus.

Conclusion

The new Belarusian government entered the year 2016 in the habitual waiting-for-a-miracle mode. A rise in oil prices and, accordingly, boosted oil refining profits could be such a miracle. Loans from the IMF and/or the Eurasian Fund for Stabilization and Development can also be a miracle (of lower grade, yet also desirable), especially if a plan of reform rather than concrete actions will be enough for the lenders.

Another miracle, which ranking managers particularly pray for, will happen if Russia will normalize relations with the European Union, the latter will lift sanctions and, consequently, the capacity of the Russian market will increase for the benefit of Belarusian suppliers of industrial commodities.

Since nothing suggests that these miracles will occur soon, the government is likely to dive into people’s pockets to pump up the national budget among other things by increasing taxes, excises and duties, utility rates and fines for violations of trade and public catering regulations, and budget cuts saving money in every possible way like an increase in the retirement age and a reduction in maternity leave.

The reformers will probably keep seeking support from international and some independent research organizations. Most likely, their efforts will be limited to public speeches, a variety of reform plans and proposals. The probability of implementing these proposals will largely depend on how desperate the situation with public finances in Belarus will be in 2016, and whether potential lenders (the IMF and Eurasian Fund for Stabilization and Development) will be able to insist on economic reforms as opposed to political directives regarding the allocation of loans.