Belarus on track to receive $2.5bn IMF loan

Belarus, the authoritarian state headed by President Alexander Lukashenko, is set to secure a $2.5bn (£1.7bn, €1.8bn) International Monetary Fund emergency loan to help it weather the global economic crisis.

The country would be the fifth former communist state to obtain IMF support in recent months, following Georgia, Hungary, Ukraine and Latvia. Unlike those countries, which were hit by the international credit crunch largely because of their reliance on foreign loans, Belarus has been driven into the IMF’s arms because of a sharp decline in Russian economic aid and exports to Russia.

Nor is Belarus likely to be the last state in the region to seek IMF support. A Fund delegation is expected in Turkey this week to discuss a new loan to replace the $10bn programme that expired last May.

The IMF board is set to approve Belarus’s 15-month programme this month, following a preliminary agreement in Minsk last week in which the government committed itself to wide-ranging economic adjustments, including an immediate 20 per cent devaluation in the Belarusan rouble, implemented on January 2.

The devaluation is a political embarrassment for Mr Lukashenko, Belarus’s dictatorial leader, who has based his rule on guaranteeing economic stability to the country’s 10m people. But the 20 per cent reduction in the currency against the US dollar is smaller than the recent 50 per cent decline in the Ukrainian hryvnia and the 30 per cent drop in the Russian rouble.

With a state-dominated economy that has had limited contact with world financial markets, Belarus is less dependent on international credit than other east European economies. But since 2005 it has been hit by a sharp decline in the Russian economic subsidies that for many years supported the country, and by sharp declines in exports to Russia, its biggest market.

Mr Lukashenko has since early last year responded to a cooling in relations with Moscow by trying to improve ties with the US and the European Union, including trade and investment links. But the global crisis has complicated the approach, for example, by hitting potential international investor interest in planned privatisations.

Dominique Strauss-Kahn, IMF managing director, said in statement: “Belarus faces a difficult economic situation. Its economy has been growing at an impressive rate for several years but has recently shown signs of overheating. Belarus has also been hit hard by the global economic crisis, adverse terms of trade movements, falling demand from trading partners, and difficulties in accessing trade.”

In addition to the devaluation, the government will raise interest rates this week, with the key central bank rate rising on Wednesday from 12 to 14 per cent. Minsk is also committed to strengthening monetary policy controls, cutting public spending, refinancing banks and replacing the Belarusan rouble’s peg to the US dollar with a peg to the dollar, the euro and the Russian rouble.

RZB Group, the Austrian bank with a big network in eastern Europe, including Belarus, said in a report that the programme “should help Belarus to achieve an orderly adjustment to the external shocks and offer protection against its most pressing vulnerabilities”.

Copyright The Financial Times Limited 2009