Russian Subsidies are Not Enough: Belarus Seeks a New IMF Loan George Plashchinski

Later this month Belarusian authorities plan to negotiate with the IMF a new $3,8 bln loan to refinance its existing debt to the organization. With generous subsidies from Russia, the government managed to stabilize the situation in the Belarusian economy after the 2010 crisis, but this had harsh consequences for public welfare.

Nadzeya Ermakova, Central Bank Chief

Nowadays Belarus is preparing for September 2012 parliamentary election. President Alyaksandr Lukashenka may not be confident in the level of electoral support of his regime when the average salary is around $250. Therefore he promises Belarusians to raise the salary to the pre-crisis level by the end of 2012. The IMF loan is needed as a ‘security cushion’ to implement this task. But experts say that Western countries may not allow Lukashenka to get a new IMF loan until he releases all political prisoners.

Belarus-IMF Cooperation Prior to 2010

Belarusian government did not seriously consider cooperation with the IMF between 1995 to 2008 when it benefited from heavily discounted prices on Russian oil and gas. The Fund allocated only $289 mln in this period. However, in 2009-2010 Belarus received its first big stand-by loan of $3.46 bln. That happened because of the engagement policy conducted by the EU and US after the Russian-Georgian conflict and the start of Belarus-Russia trade wars. Western countries tended to encourage economic liberalization.

On May 31, 2011 Belarus sought a new stabilization loan of $3,5-8 bln from the IMF, but Belarusian appeal was rejected. Head of the IMF in Belarus Natalya Kolyadina stated in December that the Fund did not want to conduct negotiations with Belarus till the end of the year because it failed to demonstre its dedication to reforms.

In fact, Belarusian authorities fulfilled almost all the conditions laid down by the IMF. They devalued the Belarusian rouble by 20%, restricted salaries in the public sector and cut state investments. However, when Belarus received the last tranche of the loan on March 31, 2010 it started large emission of money. The National Bank tried to fulfill Lukashenka’s promise to raise the average salary to $500 before 2010 presidential election and thus violated one of the major IMF conditions. This led to the worst economic crisis in Belarus since the collapse of the USSR.

New Loan: Conditions and Probability

The IMF does not plan to allocate a new loan for refinancing of the previous one. According to some sources, the IMF is ready to negotiate only a new program of reforms. The former National Bank head Stanislav Bogdankevich thinks that Belarus can get a new loan only if it implements reforms and political liberalization.

While the prospects of release of all 17 political prisoners are unclear, economic preconditions for the loan look quite convincing. For example, the Belarusian parliament approved a deficit-free budget. Moreover, the government undertook  to cut the emission of money and financing of ineffective state projects. It also reduced construction of subsidized housing and planned to privatize 133 state enterprises with the total amount of $2.5 bln.

Finance minister Andrey Kharkovec thinks that amount of an IMF loan will depend on the Belarusian trade balance. Whereas traditionally it was the most negative parameter of the Belarusian economy, this year the National Bank estimates the first trade surplus in the decade on the level of $1.5 bln.

Why Belarusian Authorities Need this Loan

Today Belarusian foreign exchange reserves reached their all time maximum, exceeding $7.9 bln. Belarus received $2.5 bln when it sold Beltransgaz to Russian Gazprom in November 2011. After that it got $440 mln as a second tranche of the Eurasian Economic Community loan and $1 bln loan from Russian Sberbank in December 2011. Besides, it will get additionally $880 mln as the third tranche of the EurAsEc loan in 2012. Then what is the purpose of a new IMF loan?

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George Plashchinski is an associate analyst at the Centre for European Transformation in Minsk
Belarus Digest