A Political Crisis Has Gripped Belarus. Is An Economic Crisis Next?

As political protests sweep across Belarus following a presidential election that the opposition has called rigged, citizens aren't only lining up in the streets to show solidarity with opponents of the country's strongman leader.

Nearly three weeks into the turmoil, Belarusians are starting to line up for a different reason: to withdraw or buy foreign currency amid concerns the standoff with President Alyaksandr Lukashenka could doom the economy and the national currency.

The protests, which are the largest of Lukashenka's 26 years office, have already resulted in at least six deaths and the detention of thousands. They have also caused new friction between Russia and Europe, adding to the economic uncertainty.

In recent days, a growing number of reports on social media and Telegram channels have pointed to a shortage of U.S. dollars and euros at ATMs in various cities.

On top of that, the official Belarusian ruble rate has lost about 11 percent since mid-June, when signs appeared that the August 9 election could turn out to be troubled. On August 27, the currency closed on August 27 at 2.66 per $1, a historic low.

A week earlier, on August 20, the Telegram channel Nexta, a popular opposition-aligned channel, claimed the government was considering freezing deposits in state banks to stop foreign currency withdrawals.

There was no independent confirmation of the claim, but it appeared to spook some Belarusians, as ATM shortages were reported.

First Deputy Prime Minister Nikolai Snopkov sought to calm concerns, saying the next day that there would not be any limits imposed on withdrawing funds.

Lukashenka reiterated that message a week later, as the Belarusian ruble hit another historic low versus the dollar and euro.

"We won't allow a collapse of the national currency. If the people want to buy dollars, go ahead, they cost what they cost today. We aren't clinging on to the [Belarusian] ruble exchange rate trying to restrain it," Lukashenka said.

Crisis? What Crisis?

Dzmitry, an IT specialist in Minsk who continues to convert his salary from Belarusian rubles into foreign currency, said people "long ago" stopped taking Lukashenka's statements seriously. He asked that his last name not be used amid concerns over a state crackdown against people who criticize the president.

"Before every economic crisis, Lukashenka says there will not be a crisis and then [after it occurs] he pretends there isn't one," Dzmitry told RFE/RL.

An RFE/RL Belarus Service correspondent who visited about 10 bank branches in Minsk on August 26 said some were imposing limits on currency conversion.

In the Tekhnobank branch inside a Minsk shopping mall, clients could use rubles to buy a maximum of $300 and withdraw a maximum of $300 from their foreign currency accounts.

Clients seeking to withdraw more need to order the hard currency in advance and wait from one to five business days. Other bank branches in Minsk were only selling foreign currency that other clients had sold them earlier in the day.

One bank manager told reporters that "all the money" was being withdrawn from ATMs every day. (file photo)

Meanwhile, demand for dollars at some Belarusian ATMs has jumped as much as five-fold, far surpassing the typical supply, a top manager at a Belarusian bank was quoted as telling the Russian newspaper Kommersant on August 24.

"Thus, all the money is withdrawn each day" from the ATMs, the manager was quoted as saying.

Outside of Minsk, banks are reportedly selling U.S. dollars at rates significantly higher than the official one. People looking to buy dollars at branches of Tekhnobank and Fransabank in Brest, on the western border with Poland, have to pay more than 3 Belarusian rubles, or 10 percent above the official rate.

Worker Walkouts

Since the protests erupted after the August 9 vote, many workers at the nation's largest companies, including state-owned enterprises, have walked off the job in solidarity with the protesters, halting operations, and jeopardizing budget revenues for the government.

Belaruskali, the world's largest producer of potash and a major source of foreign currency earnings, will only produce about 70 percent of planned output in August due to striking workers, the Naviny.by news agency reported on August 27. The company claimed the following day that its output has not been impacted.

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Workers at Grodno Azot, another fertilizer producer, and Naftan, an oil refinery, have also walked off the job.

Anders Aslund, an economist at the Washington-based Atlantic Council, said a major, extended work outage would put severe pressure on the Lukashenka government.

"A prolonged strike at any of these four state-owned companies would collapse Belarusian export revenues and the Belarusian ruble, bringing Lukashenko to his knees," he wrote in an August 27 blog post.

Elina Ribakova, an economist at the Washington-based International Institute of Finance, said the Belarusian central bank doesn't have the reserves to defend the currency.

The central bank has about $4.3 billion in foreign currency reserves, equivalent to 5 weeks of imports, according to the institute.

Economists track the ratio as one possible sign of an impending currency crisis and say less than three months of central bank coverage is inadequate.

Ribakova said the ruble could weaken as much as 20 percent by the end of the year amid the political turmoil.

However, if Lukashenka seeks to placate the striking workers with aggressively higher wages, leading to greater conversion, it creates a "proper crisis," she said.

Average Belarusians aren't the only ones likely putting pressure on the national currency. More than 50 percent of corporate loans are denominated in foreign currencies, according to IIF.

Belarusian firms that earn revenue in local currency but have foreign-denominated loans could seek to quickly convert rubles to avoid a sharp increase in their debt levels.

Tough Year

Even prior to the election turmoil, Belarus's economy was already struggling. The country has historically depended on cheap energy from Russia to prop up its outdated, Soviet-style economy.

But Russia has been gradually raising prices for the oil it sells to Belarus, crimping budget revenues and growth, and using that leverage to push for a union state with Belarus.

The coronavirus pandemic dealt a further blow, causing demand for exports to decline. As of August 29, Belarus had reported more than 71,000 cases and 667 deaths from the novel virus, though the accuracy of the government data is questioned.

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The currency crisis is just the latest one since Lukashenka came to power in 1994. The country suffered a large devaluation in 2011.

And the Kremlin has helped bail the country out in the past. Russia owned nearly half of Belarus's $16.6 billion in external public debt as of March, according to a June document published ahead of the country's bond sale.

Lukashenka said on August 27 that Russian President Vladimir Putin agreed to refinance a $1 billion loan to help shore up the economy

If the West doesn't come up with a solution to the problems in Belarus, "the alternative might be the economic capture of a weakened Belarus by the Kremlin," Aslund said.

With reporting by RFE/RL's Belarus Service