Currency run, amid plunging sums
Debts go round and round
IMF's on my mind...
One of the most insightful books I've read concerning the remarkable durability of anti-developmental regimes is Nicolas van de Walle's African Economies and the Politics of Permanent Crisis, 1979-1999. Why is it that so many regimes are able to cling to power despite providing so little in terms of delivering a higher standard of living? Foreign Affairs provides a cogent summary of this book's main idea that international lenders inadvertently keep this situation going:
Then, in a devastating analysis of international aid programs, [Van de Walle] demonstrates how Western donors and lenders, including the World Bank and the International Monetary Fund, have systematically if unwittingly undermined the institutional capacity of African states to manage reform and growth. Nondevelopmental regimes, he argues, have thoroughly mastered the art of bait and switch, swallowing just enough reform medicine to keep aid flowing but not enough to end the "permanent crisis" of underdevelopment. Entrenched patterns persist even in states that have undergone promising democratic regime change. Genuine economic transformation, Van de Walle hypothesizes, ultimately depends on fundamental political changes that must come from within; meanwhile, the present aid regime remains counterproductive.From here let us turn to a decidedly nondevelopmental regime in Belarus. Fresh from receiving emergency IMF funding at the end of 2008 when the global financial crisis was in full swing, it is once again lurching from one bad situation to another.
At present, Belarus has next to no foreign exchange reserves. It has a current account deficit that's 16% of GDP. Its currency has been devalued by 36% in an attempt to stave off the inevitable. In a little over two years, it has once again sought IMF support. You would think that such terrible economic stewardship would have ejected strongman Alexander Lukashenko by now. But no. As in many African nations, Belarus has its own version of the politics of permanent crisis that, contrary to what you would expect, may only serve to secure his position as it has in the past. Despite obvious financial mismanagement, Lukashenko manages to stay in power by keeping some semblance of reform.
Note that Belarus is also approaching Russia for emergency funding, though Russia is keen on promoting state asset sales before lending that one suspects would ultimately benefit Russian interests. Hence the IMF is oddly more attractive at present to a leadership keen on keeping its possessions intact. Conversely, you wouldn't expect the IMF to force privatizations given the criticisms it endured during the Asian financial crisis. End result? Don't expect Lukashenko to go despite everything. If push comes to shove, there's still Russia even with its "conditionalities":
Belarusian opposition members whose family members and colleagues have been sentenced to years in prison for protesting elections said a worsening economy may not herald the end of President Alexander Lukashenko’s regime. “If the economy crashed, Lukashenko wouldn’t have to turn to the West -- he could turn towards Russia instead,” Andrey Dmitriev, who was chief of staff for presidential candidate Vladimir Neklyaev in the run-up to the December 19 elections, said in an interview in Warsaw.Despite a misfiring economy largely of his own making, Lukashenko is blaming foul play to eject him:
The IMF has warned the country must curtail spending, raise interest rates and liberalize its managed exchange-rate system as foreign reserves slide and the current-account deficit soared to 16 percent of gross domestic product.What has happened in the arena of international politics? The IMF team which descended on Minsk recently as Belarus cried for help noted that the problems which beleaguered the country a few years ago that necessitated IMF help remain unresolved:
Lukashenko, in an April 21 speech, said there were “efforts to spur panic buying in the foreign exchange and consumer markets, with the assistance of domestic and foreign analysts.” “It’s obvious that someone is eager to destabilize the country, and sow chaos and distrust of the government, and after the problems that ensue could later strangle our country and our independence,” Lukashenko said.
What should be in the plan? The origins of the crisis lie in excessive credit growth and wage increases that the economy could not afford. The solutions lie in the same places [my emphasis]. The National Bank should restrain credit and money creation. This means limiting credit under government programs and increasing interest rates to at least the level of the expected rate of inflation, so that people can be confident that their savings are not being eroded. The government should reduce the fiscal deficit-—we would recommend bringing the budget into balance—-and should not increase government wages this year. It should also discourage large state enterprises from increasing wages. We know that prices are going up, and it is hard to manage without wage increases. But high wage increases will just drive prices even higher and the rubel lower in a vicious spiral.Then there are the specific politics of permanent crisis wherein Belarus does just enough to keep the IMF sticking around and not abandoning it altogether:
The foreign exchange market is not working. Very few people are willing to sell foreign exchange at the official rate, and most people who want to buy foreign exchange have to pay for it at a much more depreciated exchange rate. We recommend floating the exchange rate—-allowing the official exchange rate to be set by market forces and allowing free trade in both the interbank market and the cash market.
The main purpose of this mission has been to assess the authorities’ economic policies. We have been pleased with some of the economic measures the government is taking [my emphasis]. The government is doing a good job in limiting the budget deficit and in setting limits to lending under government programs. We also welcome the government’s plans to help people who are unemployed and who are poor and are suffering from the effects of the crisis. We also welcome some of the steps the National Bank has taken, including increasing policy interest rates and the recent decision not to provide commercial banks with cheap loans to support their lending under government programs. But we think that both the government and the National Bank need to do more to promote economic and financial stability.And so the familiar cycle is set to begin anew: same problems, same actors, same prescriptions. Meanwhile, in the absence of real institutional reform--the sort of which should really come from Belarus' citizens instead of from IMF conditionalities--I remain pessimistic that the circle will be broken. Not that such action is likely forthcoming; when even Russian state media says so, you know Belarus is in deep trouble. If' I'm still blogging in a few years' time, I suspect that I'll be writing about very much the same things as Belarus heads for yet another crisis. These are not called the politics of permanent crisis for nothing.
We have also initiated discussions on a possible IMF program. This has only been the beginning of our discussions and we still have a long way to go. We need to have further negotiations on macroeconomic policies. We will also need to agree on structural reforms to improve the efficiency of enterprises and the financial system so that in future growth will be strong and durable. Above all, the authorities have to be committed to macroeconomic stabilization and structural reforms. We will have to agree on strong stabilization and structural measures which would be implemented prior to the program and would demonstrate their commitment. The IMF staff will continue to work with the government and the National Bank to reach a strong agreement which would help the people of Belarus.”
It's a fine line: when does lending with conditionalities become intrusive a la the augmented Washington Consensus? Should encouraging regime change in cases such as Belarus be an objective of emergency lending? There's a path to negotiate between prodding a country in a desired direction and interfering with its internal affairs. Lest we forget, there's also Russia willing to help out; perhaps China as well that gives similarly short shrift to attaching strings concerning governance matters. Push too hard and the likes of Belarus may avoid IFIs altogether. Heaven knowns modern-day Russia and China have money to burn.
Somehow I'm sure the IMF doesn't look forward to the joy of rediscovering, er, Belarus.
Somehow I'm sure the IMF doesn't look forward to the joy of rediscovering, er, Belarus.