Will Belarusian Authorities Survive Oil Maneuver?

Siamashka was absolutely right in his revelation.

A remarkable confession was recently made by Deputy Prime Minister of Belarus, Ambassador of Belarus to Russia Uladzimir Siamashka to Russian television channels and, at the same time, to the whole world.

According to Mr. Siamashka, the second stage of the tax maneuver conducted in the Russian Federation, “will be very heavy for us, if we do not take measures”. Then came the wonderful: “We will not survive the tax maneuver. Do you want to take an additional 3 billion dollars from us? ” Further, the Deputy Prime Minister clarified that $ 3 billion is 5% of last year’s GDP of Belarus.

Oh, how awful, thought a significant part of the public (and some people said). For some, the horror is that we will perish, since such big bosses speak so directly. For others, the horror is that such big bosses talk nonsense, and even publicly. Somehow it is unpleasant if a person invested with such high powers knocks a tear out on TV from allies and partners in supplies and negotiations.

After all, he loses not just his own face, but the face of the country he represents. A weird kind of diplomacy. Even if the issue price is 5% of GDP. However, these percentages are no big deal for our thriving economy. Only the cost of 12 European Games. Or 2000 armored Mercedes cars. Or the state support of agrarian and industrial complex for 3 years. Or about half of the net profit of Belarusian enterprises over the past year. Or maybe, to “raise” the woodworking, cement, or some other industry once again (although this is likely to be more expensive). Or, if you believe the research of Global Financial Integrity - a little more than 1/3 of the capital annually withdrawn from Belarus to offshore.

Choose what you like.

Well, maybe, it’s not that awful? For so many years, the IMF, the “top three” in the rating, and local specialists have been telling the authorities: we must get off the oil needle! The oil and gas and credit dependence on Russia will not bring any good! Periodically, these screams did go into one ear of the authorities. Then they started fussing around, looking for ways to diversify oil supplies. But it’s too far to deliver it from Venezuela, as for Azerbaijan or Kazakhstan, although it’s closer, but still expensive. Because there are the world prices. For example, in 2012, we bought oil in Russia at an average of $ 402 per ton, and sold ours at $ 783, that is, at world prices. So the warnings quickly went out the other ear.

For the difference, including the proceeds from the sale at the world prices of gasoline produced at our refineries from preferential oil, it was possible to live well. To build ice and other palaces, raise the village, celebrate “Dazhynki”, organize parades and fireworks, shuffle under the rug privatization and market reforms. However, Russia has gradually reduced the dose of the preferential price. For example, in January-April of this year, oil had to be bought in the Russian Federation for $ 381 per ton, and we sold ours only for $ 456.

It turns out that the world prices have fallen, and the “delta” has shrunk almost 5 times. Then came the “tax maneuver”. Its authors coldly declare that it’s a purely interior Russian business how to tax their oil industry, allies are not entitled to any compensation for this, and the agreements on the union state and the EAEU do not provide for this. In addition, cheeky Moscow accountants calculated that they helped us for $ 5-6 billion annually. After such assistance, they hint in Moscow, it’s time to move on to closer integration. The Kremlin does not directly recognize that there could be a damage to our sovereignty under such conditions, but does not deny it either. So, down the plughole we go.

Once, American economists Dornbush and Edwards came up with an amusing theory of “macroeconomic populism” systems. These are economies in which the authorities, at the expense of some free resource, hand out to the population a lot of various exemptions - pensions, benefits, cheap housing, etc. Then the resource dries out, and the means for the distribution of social benefits disappear - along with the nationwide support of the regime.

Something similar is happening with the “unique” Belarusian “market socialism”. Its difference from the systems described by Dornbusch and Edwards is only in the fact that our “resource” was not minerals, but integration promises and assurances of brotherly love, which they so skillfully monetized in Minsk for many years. However, all this beauty comes to an end. They have to cut benefits, increase the retirement age, look for new loans.

I have no doubt that Belarus and its population will survive the “tax maneuver”. As they experienced invasions from the east and west, Polonization and Russification, voluntaristic experiments of the authorities, devaluations and crises. After all, the loss of the notorious 3 billion is also no big deal, compared with the collapse of the country's GDP from 78.8 billion in 2014 to 47.7 billion in 2016. This is 10 “tax maneuvers” in just 2 years. And all the losses fell on the shoulders of the population and the business. They survived.

As for the “vertical”, the upcoming loss of oil rent promises serious trouble to them. In terms of both personal wealth and retention of power. They surely don’t want to reduce the first one, the population is getting less and less for handouts, and more and more will have to be ripped off.

Only an increase of the tax burden could compensate for the losses, and it is already rather big - not counting preferential enterprises and sectors. But if they start to abolish benefits there, they can stay with nothing. Because, the super-objects of the IT-country do not provide for some big cuts for the bureaucracy. This is not industry or trade. In addition, IT-companies prudently keep most of their capital away from the tentacles of the officials.

So Mr. Siamashka is absolutely right in his revelation. Those “we” who are the regime of the “market socialism”, together with the “vertical”, can really not survive the “tax maneuver”.

Leanid Frydkin, lbf-blog