Economist: Panic May Start In Foreign Currency Market Of Belarus

• 20.12.2021, 15:17

The National Bank is already preparing for a very hard time.

One of the possible methods of sanctions against "rogue countries" by civilized countries, already applied to North Korea and Iran, is disconnection from SWIFT. The need to disconnect the Belarusian banking system from SWIFT in response to the repression by the regime against the citizens of the country has been repeatedly stated by the leaders of the Belarusian opposition.

Uladzimir Kavalkin, an expert on civil service reform and head of the Kosht Urada project, told Charter97.org how the U.S. sanctions differ from the EU sanctions and how to make economic pressure on the dictatorial regime more effective.

- Recently, the National Bank has been converting foreign financial assets into foreign currency in cash. Experts believe this is the second sign of preparation to disconnect from SWIFT. What else can it mean and whether foreign currency accounts of Belarusian banks can be blocked abroad because of sanctions?

- Theoretically, foreign currency accounts could be blocked. The National Bank may cash out foreign currency from the accounts, fearing not only that. There could well be a panic in the foreign exchange market, and in this case the National Bank would need to find a large amount of currency very quickly to, roughly speaking, load ATMs and take it to exchange offices. Perhaps the National Bank is already preparing for some really hard times. First, it may be impossible to get the transfer because of sanctions. The second point is that if there is a panic among individuals and people start to exchange rubles, buying currency, it will be necessary to provide exchange offices with this currency to reduce panic.

- In recent online conversations, Vladimir Putin urged Xi Jinping to stop using SWIFT. How might this affect Belarus?

- In this case, the authoritarian dictatorial international is trying to create its own alternative because it understands the vulnerability of its own currency and banking system. In fact, they now live upon SWIFT and the Western systems, and this is a real threat to them. They want to secure themselves somehow, so their attempts to create analogues of these systems are quite understandable. It is clear why Russia and China need it - these are quite large dictatorial countries. If they create something like that, they can be somewhat autonomous from the entire civilized world and conduct transactions bypassing Western banks. Given that Russia is a commodity country, and China is a manufacturing one, then in principle they can somewhat organize their mutual trade in this way.

- The EU countries have announced the preparation of new sanctions against the Lukashenka regime. What other sanctions against the banking system, finances and public debt of Belarus are possible?

- It's difficult to say what is currently on the table of the European Union. The fact is that everything that could and should have been done was prepared by experts and analysts about a year ago. However, not all of these proposals have been put into practice. For various reasons: because some European politicians are corrupt, because of the activities of lobby groups, and so on. So what will happen there is hard to say. But the sanctions have to be synchronized between Europe, the United States, and Great Britain and affect the banking sector, and the commodities sector. This is what has to be done, and what will be done, it's hard to say at this point.

- Could you explain how U.S. economic sanctions differ from European sanctions?

- For instance, take the trade in petroleum products. At the moment, the European sanctions do not contain a direct ban on a large number of different oil products, so the Belarusian authorities continue to export them through Latvia and Estonia. In this respect, the sanctions resemble a sieve full of holes, when the U.S. imposed sanctions and the EU did not. This presented Lithuanian politicians with a choice: either to remain loyal to their morals and declarations, to stand in solidarity with the people of Belarus and support the U.S. sanctions, or to comply with the sanctions as they are now and help their businesses to develop. This dilemma has led to an internal political crisis in Lithuania.

And if the sanctions continue to be imposed in this way, if they resemble a patchwork quilt, the Lukashenka regime will look for holes in this quilt and use the contradictions between the sanctions policy of the EU and the United States. This will lead to crises both within the EU countries and between the countries themselves. This should definitely be avoided. I would recommend to politicians, officials in EU countries - to take a normal consolidated position after all, to stop creating a patchwork quilt out of sanctions and to work on this subject in a clear, understandable, purposeful and, most importantly, coordinated manner. One should not pretend to be a powerful negotiator, while creating holes that can be used by the Lukashenka regime.

- What changes can expect the common citizens if the planned sixth package of sanctions includes a clause about excluding Belarus from SWIFT or some other restrictions against the financial sector?

- Ordinary citizens will not be affected much, because domestic payment systems will continue to work, but there will be problems with international transfers. Cutting off SWIFT will definitely create a problem for foreign trade in Belarus. However, there are much more understandable, adequate sanctions tools than disconnecting from SWIFT. For example, take the foreign trade balance of Belarus with the countries of the EU, Britain and the United States and see where the money flows there. And they are tied up in financial markets and commodities: oil products, potash fertilizers and everything related to potash, timber and other raw materials. If we're talking about services, then it's the IT services and the services of the transport companies and carriers, which make up a huge positive balance for Belarus. And if we look at what of these can be included in the sanctions, the situation will be quickly resolved without any disconnections from SWIFT. There are much tougher sanctions than disconnection from SWIFT.

- Disconnection from SWIFT has not often been used in international practice. How effective is it, and why do some experts compare it to a nuclear strike?

- In Iran, for example, only some banks were disconnected. And if Belarusbank, Belahraprombank and Belinvestbank, three major state-owned banks, are disconnected from SWIFT, money can be transferred through other banks. So, I do not see the point in such sanctions, when on the one hand you impose restrictions, but on the other, you create a lot of opportunities to bypass them. It's like putting up a gate, but not building a fence. When it comes to Western business, it's a problem for them if you're under sanctions and can't do business, because they have such a concept as reputation.

The state business in Belarus and the private oligarchs have long forgotten about their reputations. You impose sanctions against one legal entity, they'll open three new ones and will trade via them. This requires a completely different approach and a different understanding of the reality.