Does political illegitimacy in Belarus imply new economic risks?
Researchers from BEROC - Lev Lvovskiy and Dzmitry Kruk - argues that resolving the political crisis in a way that revives trust and legitimacy is the only ‘good’ solution in the latest policy brief.
Short-term economic effects of political illegitimacy
Since August 9, 2020, Belarus has been widely discussed worldwide in mass media because of the country’s political crisis. Political scientists classify the current situation in Belarus as a case of political illegitimacy, i.e. there is no consensus in the Belarusian society concerning the recognition and acceptance of a new term for the governing regime.
In turn, the governing regime prefers to ignore the illegitimacy issue. There is an implicit assumption behind this illegitimacy is an intangible issue that can hardly result in any tangible threat to the sustainability of the governing regime.
Lev Lvovskiy and Dzmitry Kruk oppose this view and argue that, at least in an economic dimension, there are numerous channels through which illegitimacy transforms into tangible problems. Inasmuch as the stance of the economy affects political sustainability, it will undermine the latter.
From a short-term view, the issue of political illegitimacy has become a part of the information accounted for in the decision-making of economic agents in Belarus. Hence, in their economic decisions they either try to struggle against it, or at least to hedge against corresponding adverse effects, according to Lev Lvovskiy and Dzmitry Kruk.
Most evident, the adjustments in decision-making has already visualized in households’ savings behavior. Directly, illegitimacy considerations gave a rise to deposit withdrawals from the banking system and enlarged demand for hard currency. Consequently, this led to a rise in depreciation-/inflation-expectations and lowered public trust in the banking system, which in turn has amplified these patterns of households’ behavior. In August, Belarus experienced historical peaks in deposit outflows and depletion of international reserves as a result. This has substantially amplified the risks of financial turmoil, according to Lev Lvovskiy and Dzmitry Kruk.
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