Belarus’ Devalued Dogma Dash
Belarus’ just-issued $800 million Eurobond after a debut last year reeled on an 8 percent formal devaluation of the currency, and subsequent free-float move, as one-fifth of foreign reserves were depleted to hold the previous band and cover the 15 percent of GDP current account deficit. A $3.5 billion IMF arrangement expired in mid-2010 and any new request will be complicated by US and EU sanctions imposed against the Lukashenko regime after he again took the presidency in a widely-condemned contest accompanied by opponent arrests and attacks. Alternative support may be forthcoming from Russia and Kazakhstan after they joined in a Common Economic Area to succeed the old CIS. Moscow already subsidizes energy imports and has extended commercial loans. The new 5-year plan calls for increasing the private sector presence which is only one-third of output, but objectives are “multiple and inconsistent,” in the opinion of the IMF’s Article IV report. It declares that “loose pre-election policies created urgent domestic and external imbalances” while bringing 7.5 percent growth and an average wage hike to $500/month. Net reserves sank $6 billion despite the cross-border borrowings, and credit expansion for the priority agriculture and housing sectors was 40 percent last year. Interest rates were cut and the budget gap hit 3 percent of GDP. The central bank conducted $4 billion in murky “deposit exchanges” with local banks swapping hard currency for liquidity lines, with over half that sum completed in the final quarter as trade and financial pressures mounted against continued authoritarian rule. Monetary policy has since tightened, and recapitalization has raised the system-wide ratio to a reported 20 percent of assets, although non-performing loans have yet to apply revised classification criteria. Legal and institutional frameworks for privatization were approved, but only a few companies have been offered that investors spurned.
The Fund warns of an unsustainable path as gross external debt heads toward 75 percent of GDP and of unrealistic near-term estimates for asset sales and export penetration to expedite adjustments. FDI in particular is still hampered by lagging structural reforms that would modernize regulatory and dispute-resolution approaches. Tax changes are needed to bolster competitive strengths in equipment and machinery. In the financial sector, state control may be reinforced with establishment of an umbrella Development Bank, and non-bank securities market progress has been slow. The analysis praises a new “bill of rights” for entrepreneurs, while citing “retrograde elements” in other presidential decisions mirroring the consensus from a purely diplomatic perch.
