Vadzim Iosub: Usual denomination puts an end to the era of poor monetary and credit policy

A consensus appeared: reforms should happen and will happen – there is no alternative to them.

From July 1, 2016 denomination of Belarusan ruble is to take place in Belarus. Aliaksandr Lukashenka signed the correspondent decree on November 4. The current money will be cleared of four zeros; new money has been already printed back in 2008.

Why did denomination suddenly was needed? Will the “curtailment” of ruble make Belarusan economy healthier? Is it worthwhile to introduce denomination without reforms?

Vadzim Iosub, senior analyst of “Alpari”, answered the questions of the “EuroBelarus” Information Service.

- Does Belarusan ruble need denomination?

- It does: when the price level and salaries are counted by millions, it witnesses unhealthy face-value of national currency.

Time frame of denomination is a separate question that has been put up at least each half a year during the last five years. No one doubted the necessity of denomination; the only problem lied in time frame; former heads of the National Bank claimed that denomination should be carried out only when the level of inflation reaches less than 10%, whereas the current leaders of the national bank decided to introduce it in July of 2016.

- The majority of experts say that denomination has no sense without reforms; on the contrary, it will cause expenses for the budget, since production of new money will cost something.

- Denomination can be neither harmful nor useful – it is a technical measure. It isn’t an economic phenomenon; so it cannot neither improve nor worsen the state of the economy. There is one psychological detail: before denomination we own millions, whereas afterwards we will have much more modest sums.

The money is printed, the coins are minted back in 2008 – money is already spent. So we are not talking about new expenses apart from expenses for replacement of banknotes, which, on a national scale, is quite a modest sum of money.

- Is denomination without economic reforms worthwhile?

- The need for denomination says about the irresponsible monetary and credit policy, which led to a huge, inadmissible, improper inflation. A mere denomination puts an end to the era of poor monetary and credit policy and opens a new era of responsible monetary and credit policy that won’t allow former scales of inflation.

With the arrival of new leadership of the National Bank monetary and credit policy has significantly changed: money for the salary isn’t printed, changes in soft lending of state programs are already happening. New policy brings its results: National Bank is hoping that by results of 2015 inflation will be left within the frames of 15-18%; next year National Bank is awaiting lowering of inflation to 12%. Unless return to old practices of emissive lending and artificial excitation of unearned salaries happens, we can quite expect further lowering of inflation. National currency will be getting more stable. From this point of view introduction of denomination is quite justified.

- Denomination is an illustration of economy’s unhealthy state…

- Let me immediately argue with the wording of the question: denomination of currency is like rehabilitation of a previously ill person. Denomination states about hyperinflation in the past: for example, in 2011 inflation made more than 100%. It doesn’t tell anything about the problems that are here now.

- Nevertheless, the problem of reforms is very acute for Belarus. At the Economic Forum in October Kiryl Rudy, the assistant of the president, stated that in 2016 reforms in the country are impossible. In your opinion, is this an official viewpoint of the official Minsk or probe of public opinion into reforms?

- It’s neither the first nor the second.

I have been present at the Forum and heard Rudy’s words. I think that the speech was intended to be that provocative and wasn’t meant to tell that reforms are not needed. The presidential assistant listed the factors that are blocking the way for reforms and factors that are conductive to reforms. A quite honest talk happened; the only fact of recognizing the factors that block the introduction of reforms is worth a lot.

I wouldn’t make a conclusion about no reforms from the title of the article.

- What conclusion did you make?

- A consensus was reached – reforms should be and will be; there is no alternative to them. The consensus was reached not only in economic, academic community, and financial experts, but also in the presidential administration, National Bank, and Council of Ministers – no one argues with the fact of the need for reforms; it is tactics, speed, and details of their introduction that are discussed.

I would like to comment on one of the provisions of the report, according to which there is no clear demand for reforms on the part of the society and people. Propaganda has been presenting the word “reforms” as a swearword for several decades and deliberately associated them with wild 90s, with privatization, later – with Maidan and Orange Revolution. Obviously, numerous years of propaganda reached their goal. So now propaganda should be stopped and people should get explanations that reforms doesn’t mean going back to racketeering, but something that the country cannot move forward without.

- What scales of reforms should we expect then?

- No one has an answer to this question. Final decision isn’t made yet; discussions between the authorities and the expert community are going inside the authorities. A regular mission is coming soon; there are also scheduled consultations with the World Bank. That’s why is impossible to answer to the question when exactly do the reforms start.

It’s good that the reforms are discussed, as well as their succession, tempo, and quality.