Belarusian President Alexander Lukashenko may be forced to do what he has tried to avoid in order to win further aid from the International Monetary Fund: relinquish control of the nation’s centralized economy.
The IMF said yesterday that the government must agree to “structural reforms,” including allowing the Belarusian ruble to trade freely, to qualify for more international aid. Lukashenko told a government meeting June 9 that he wouldn’t let the retail and currency markets “slip from state control.”
“It’s inevitable for Belarus to do the reform,” said Sanna Kurronen, a Helsinki-based economist at Danske Bank A/S. “If they accept the IMF advice, their position will improve. The IMF would be a more benevolent companion” than Russia.
Belarus asked the IMF for its second bailout in two years on top of a 10-year, $3 billion loan from its former Soviet partners led by Russia, which demanded the country sell $7.5 billion of assets to receive the financing. Lukashenko, dubbed Europe’s “last dictator” by the administration of former U.S. President George W. Bush, has ruled Belarus since 1994.
Belarus is seeking help to cover a current-account deficit that reached 16 percent of gross domestic product last year. The government devalued the ruble by 36 percent against the dollar May 23 after the world’s highest benchmark interest rate failed to stem its plunge. A week later, the central bank raised the rate by 2 percentage points to 16 percent.
The country needs $5.5 billion to defend the currency and provide foreign exchange for priority needs such as natural-gas imports, medicine and debt service, Jacob Nell, a Morgan Stanley economist in Moscow, said in an e-mailed note dated June 7.
‘All Actors’ Needed
The IMF and Belarus have begun talks on a new stand-by loan, though there have been no “substantive discussions” on the amount, Chris Jarvis, head of the IMF mission in Belarus, told reporters yesterday in Minsk, the capital. Any new program would be for at least three years, he said. Belarus received $3.5 billion in 2009 under a 15-month program.
“The main thing that is necessary is agreement on a strong program that is sufficient to fix the problems Belarus faces,” Jarvis said. “We would also have to be sure that all actors -- the president, government and national bank -- are committed to that program.”
In addition to permitting the currency to float, Belarus should freeze government salaries this year, sell state assets, ease price controls, create a “well-functioning” development bank and promote private enterprise, Jarvis said.
“In our view, the government has too many targets, some of which are contradictory and overlap,” he said. “We would like to see more freedom for enterprises and more incentives to work with profit.”
‘Right’ to Support
Lukashenko, 56, boosted the salaries of public workers by about 50 percent and increased spending by 38 percent before the December presidential election.
Belarus is entitled to additional aid from the IMF, Prime Minister Mikhail Myasnikovich said in a statement after the Washington-based lender’s news conference.
“We, as legal IMF members, have the right for the specific support in difficult times,” Myasnikovich told Jarvis, according to the statement posted on the government’s website.
Moody’s Investors Service rates Belarus’s sovereign debt B2, five steps below investment grade and on par with Honduras and Venezuela. The Belarusian government’s dollar bond due 2015 rose today, pushing the yield down 14 basis points to 11.04 percent as of 7 p.m. in Minsk.
‘Earth on Fire’
The country’s economic hardships are “of a structural nature” and one-time loans of $3 billion won’t solve its liquidity shortage, said Barbara Nestor, an emerging-markets economist at Commerzbank AG in London.
“The earth is on fire under their feet,” Nestor said. “A better quality solution would involve the IMF and rebalancing measures, which would also achieve better asset valuations. Low asset valuation from Russia’s side is justified by the risk of investing in a dysfunctional economy.”
State-owned assets that may be sold to satisfy Russia’s demands include Belaruskali, a fertilizer maker, and OAO Belinvestbank, the country’s fourth-largest lender by assets.
Belarus’s appeal for IMF aid may be complicated by Lukashenko’s clampdown on political opponents.
Opposition presidential candidates were imprisoned after last year’s election, prompting sanctions from the U.S. and European Union. The government last week fined five demonstrators after a protest against high fuel prices.
Regime Versus People
David Lidington, Britain’s minister for European affairs, told parliament the government and its international partners are considering their response to Belarus’s request.
“We have to take account of the need to get the balance right between harming the regime and not trying to impoverish further people who are already oppressed,” he said today.
The IMF board indicated in March that it would be willing to approve a new program for Belarus that include “very strong economic and structural measures,” Jarvis said.
“Let me say that the IMF set no political conditions for its loans,” he said.
Lukashenko may be using the IMF request to drive up the price of Belarusian assets for Russian buyers and other possible bidders, said Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London.
Belaruskali is worth $30 billion, Lukashenko said June 10. OAO Uralkali, Russia’s biggest fertilizer producer, was valued at $18.9 billion at yesterday’s close.
“I cannot see Lukashenko doing what the IMF wants or the IMF really trusting Lukashenko to deliver,” Ash said. “I also wonder whether the fund will be more sensitive to criticism that it is bailing out dictators who are not prepared to give concessions on political reform.”
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