Belarus Must Accept Structural Change for New Aid, IMF Says

Belarus must agree to structural changes in its economy before receiving additional aid from international lenders as the nation struggles to meet its financing needs, the International Monetary Fund said.

Belarus should let the exchange rate float and boost interest rates to slow the expansion of credit, said Chris Jarvis, head of the IMF mission in Belarus. Any new program would be for at least three years, compared with the 15-month, $3.5 billion loan Belarus received in 2009, he said, adding that there have been no “substantive discussions” on the amount.

“The Belarusian economic crisis is serious, but there is a way out,” Jarvis told reporters in Minsk, the capital. “The main thing that is necessary is agreement on a strong program that is sufficient to fix the problems Belarus faces. We would also have to be sure that all actors -- the president, government and national bank -- are committed to that program.”

Belarus said June 4 it was seeking a new bailout from the IMF to help cover a current-account deficit that reached 16 percent of gross domestic product last year. The government devalued its currency by 36 percent against the dollar on May 23 after the world’s highest benchmark interest rate failed to stem the ruble’s plunge. The central bank raised the benchmark rate by 2 percentage points to 16 percent on May 30.

The government believes that it is entitled to additional aid from the Washington-based IMF, Prime Minister Mikhail Myasnikovich said in a statement after the news conference.

‘Right’ to Aid

“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.

Belarus’s appeal for financial assistance may be complicated by Belarusian Alexander Lukashenko’s clampdown on the opposition and his reluctance to transform the state-managed economy to a market-driven one.

Lukashenko, dubbed Europe’s last dictator by the administration of former U.S. President George W. Bush, imprisoned opposition presidential candidates 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.

Moody’s Investors Service rates the country’s sovereign debt B2, five steps below investment grade and on par with Honduras and Venezuela. Belarus’s sovereign bond due 2015 rose to 92.533 as of 4:49 p.m. in Minsk, pushing the yield down 20 basis points to 11.04 percent.

Inflation Concern

Belarus should hold government salaries flat this year because higher wages will spur inflation and drive the ruble lower, Jarvis said. Allowing the markets to set the exchange rate will also result in lower real wages, he said.

“But people are already experiencing lower wages and uncertainty,” he said. “The foreign exchange market is not working. Very few people are willing to sell foreign exchange, and many more who want to buy it have to pay much more.”

The primary goal of the current IMF mission is to assess the government’s economic policies, Jarvis said.

While Belarus has done a “good job” in controlling the budget deficit and limiting credit, the government and central bank “could do more,” he said.

“I think that Belarus does have capacity to pay its debts,” Jarvis said. “The government and national bank assured us they can do so, and there are good objective reasons to believe they will do so.”

Russia-Led Funding

Russia and Belarus’s other former Soviet partners in the Eurasian Economic Community agreed June 4 to provide the nation with a $3 billion “anti-crisis” loan for 10 years. Belarus’s government said June 9 it got an additional $1 billion bailout from an unidentified donor, which will arrive “shortly.”

Belarus expects to receive the first $800 million of funds from its former Soviet partners in the middle of this month, the Finance Ministry said June 9. A second tranche of $440 million may be distributed by the end of the year, Russian Finance Minister Alexei Kudrin said June 4.

The loan came with conditions. Belarus agreed to sell $7.5 billion of state assets to help boost capital inflows, a move formerly criticized by Lukashenko.

The Russian-led Eurasian Economic Community’s other members are Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE