Russia Has No Money for Minsk

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May 16 – Moscow is not planning to lend Minsk money, Russia’s Finance Minister Alexei Kudrin has been reported as saying. He also advises Belarus to turn to the International Monetary Fund instead, while the IMF in turn urged Minsk to speed through reforms to overcome a currency crisis.

“We’re considering a US$1 billion loan (from the Eurasian Economic Community Anti-Crisis Fund) this year,” Kudrin told reporters in Moscow. “We think that these funds – if they are approved – will not be enough and thus we think it would make sense (for Belarus) to turn to the IMF.”

The International Monetary Fund said the real reason for a gap in Belarus’s current account was Lukashenko’s “unsustainable” spending last year before he won a fourth term in the December elections. So, Belarus needs now to avoid defaulting on US$2.1 billion of foreign bonds.

The election has been heavily criticized as illegitimate and fraudulent by Western states and analysts say the United States and the European Union could block any IMF aid even if Belarus applied for it.

“Belarus, which has retained a Soviet-style economic system dominated by state-owned companies, could also raise US$2 billion through privatization,” Alexei Kudrin said.

The former Soviet republic had hoped to get a total of US$3 billion in loan from Moscow after its current-account deficit reached 16 percent of gross domestic product.

A huge current account deficit has plunged Belarus into a deep economic crisis. Minsk has lost some 25 percent of its foreign currency reserves in the first three months of the year to less than US$4 billion trying to support the ruble in the face of a large trade deficit, and has been using a dual exchange rate system since April.

The exchange rate of the national currency plunged by 30 percent from some 3,000 rubles to 4,000 – 5,000 Belarusian rubles against the U.S. dollar after the government completed its devaluation, a move that cause price hikes in the country and would erode people’s savings.

Many imported goods, such as medicine, are now in short supply. Prices for some imported goods have nearly doubled in Minsk while the prices for a domestic product like bread and milk rose up to 30 percent last Tuesday and staples such as sunflower oil and sugar are vanishing from stores.

The Russian cop-out came in spite of Belarus’ decision to ease restrictions on the foreign currency exchange rate, which Moscow had asked for, and raise the central bank’s refinancing rate by 100 basis points.

The country’s National Bank said on Wednesday that money changers on the street can now buy and sell currency at any rate they want. This, however, has not helped people demand for foreign currency.

The currency crisis, which many analysts attribute to pre-election overspending by President Alexander Lukashenko last year, has led to crowds at street exchange points as Belarusian’s queue, sometimes through the night, to snap up the few available dollars, Reuters reports.

“We still have no foreign currency available,” Oleg Zagorelskiy, a 35-year-old owner of a small computer hardware importer in Minsk, who needs foreign currency to pay his foreign suppliers told the Associated Press. “My plans are ruined. I’m forced to wind up my business.”

Lukashenko, who has been in power since 1994, always relied on Russia, which was its main sponsor and ally. But the Russian subsidies have dwindled recently as Moscow pushes for control over Belarus’ most prized economic assets, such as oil refineries and chemical plants, in exchange for more loans.

“I would say that the Russian position is justified because if it lends US$1-2 billion to Belarus it would be a waste of money. Unless such a loan is accompanied by very strong policy conditions it would be wasted on (supporting) the currency,” Alexander Morozov, chief economist at HSBC in Moscow, said to the Reuters. “This tougher position is better for Belarus because it forces them to move forward.”

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