Belarus Devalues Currency 10% to Shore Up Finances

Belarus allowed its ruble to slide 10% against the dollar Tuesday, a day after promising not to let its currency devalue, even as economists said the move isn't likely to solve authoritarian President Alyaksandr Lukashenka's deepening economic difficulties.

Belarus has lost 20% of its foreign currency reserves this year after a sharp rise in the price of Russian oil imports and a boost in government spending left the country with a large trade deficit.

The government, considered a pariah after last year's harsh post-election crackdown, has turned to Russia for a bailout loan of $3 billion. But the Kremlin is likely to offer a hard bargain, demanding an agenda of reforms that may include a rollback of the wage increases and credit expansion introduced by Mr. Lukashenka in his pre-election campaign last year, as well as other austerity measures.

The National Bank of Belarus said Tuesday that banks are permitted to buy and sell foreign currency at an exchange rate deviating by no more than 10% from the official rate. Previously the regulator had recommended that banks stay within 2% of official rates. The move will apply only to the interbank market, and not to retail exchanges.

Earlier this month, the central bank said it would roll back restrictions requiring financial institutions to book purchases of foreign currency 30 days in advance.

Belarus devalued its currency by 25% in 2009, fulfilled an International Monetary Fund program, and received a $2.5 billion loan from the IMF. In recent weeks, however, the fund said the Belarusian ruble is "significantly overvalued" and advised the country to devalue its currency and introduce economic reforms.

During a Monday conference call with clients of SpA, officials from the Belarusian finance ministry and central bank said the country would be introducing a restructuring program that included wage freezes and tariff rises, but that a devaluation wasn't on the agenda, a participant in the conference call said.

"It's certainly positive that they've realized their current situation is not sustainable," said Tim Ash, an economist at RBS. "Longer-term currency trends will depend on how rigorous the government's reform efforts are."

Those efforts, however, could be painful for Mr. Lukashenka, who has called his nation "an island of peace and stability" and provided the population with a generous social safety net—including an increase of the average wage to $500 a month—while keeping an iron grip on the country's political life.

While foreign currency was available in limited quantities in several Minsk banks, Belarusians questioned whether this devaluation was only the beginning of what could be a long and painful process.

"On television they keep telling us to stay calm and that everything will be okay," said Marina, who asked for her last name not to be disclosed. "Just last week they told us not to worry. How am I supposed to believe them now?"
Wall Street Journal