The National Bank of Belarus allows applying contractual exchange rates for repayment of foreign currency loans in rubles

The National Bank of Belarus has de facto recommended banks to accept Belarusian rubles for interest payments and for the current (full) repayment of foreign loans using contractual exchange rates.

Comment

In its efforts to prevent the paralysis of the economy and mass bankruptcy under the existing constraints (lack of foreign currency) and tasks (maintaining gold and foreign currency reserve), the National Bank is developing “quasi-market” solutions and provides commercial banks with more flexibility.

Clearly, given the circumstances when the government is not prepared to implement a package of harsh coherent structural reforms, the devaluation becomes virtually meaningless (costs are higher than benefits). Therefore the National Bank solves problems it faces (i.e. conservation of reserves) by means and tools it considers the “lesser evil”.

Therefore the multiplicity of currency exchange rates will be maintained in the course of the following 3 to 6 months, while it is likely that the mandatory sale of foreign currency earnings by the companies will be increased up to 30% and all related benefits abolished.

There is already lack of currency received under the mandatory sale of foreign currency earnings rule to pay for the “critical imports” (mainly so-called intermediate imports in the form of raw materials). Large state-owned factories of strategic importance enjoying the governmental protection are mainly exporters, which removes the urgency of the “currency issue” for them.

In the meanwhile it was decided to sacrifice the rest of imports (as well as business associated with it) in the name of saving the existing economic development strategy of the country. Currently, the black market for cash and non cash currency exchange rates is emerging, with US Dollar exchange rate fluctuating between 3500-4500 Belarusian rubles per USD. This policy would inevitably lead to substantial reduction in consumption of imported goods and to closure of a number of private enterprises, as well as to rising prices and declining incomes of the population.