Success in Moscow, failure with the IMF

The International Monetary Fund (IMF) has no plans to negotiate another loan for Belarus before the end of 2011 due to the lack of progress in macroeconomic performance. For the time being the gold reserves of the country will cover the servicing of the debts and reduce the pressure on the currency market.

The International Monetary Fund will not enter into talks with the Belarusian authorities this year to discuss their request for a bailout loan, said the Belarusian representative of the IMF Natalya Koliadina. “While the authorities have implemented some measures which could help [in] achieving macroeconomic stability, we have not seen sufficient evidence of strong commitment, particularly at the highest level, to macroeconomic stabilization and structural reforms,” she said.

Comment

As anticipated, Lukashenko chose the less “dependent”, in his view, way of filling the funding gap.

The IMF loan could have been larger than the current revenues from Russia however it was preconditioned with economic and political requirements unacceptable for Lukashenko. Lukashenko is afraid that the implementation of the IMF requirements of structural reforms, fiscal and social policies will immediately reduce the dependence of the economic players from the President and will result in recession, unemployment and de-industrialization. At the same time, he believes that financial flows from Russia will strengthen his authority in the short term.

The sale of the “Beltransgaz” to “Gazprom”, lower prices and debt restructuring, a USD 1 billion loan secured by the shares of Novopolotsk refinery, the second tranche of USD 400 million of the ACF of the EurAsEC loan – all that replenished the gold and currency reserves to the level that allows to service debts and to reduce pressure on the foreign exchange. The leadership of the country has regained its control and in the short term will continue implementing its socio-political model to a large extent.

In 2012 or its first half one should expect stabilization with the inflation rate around 20-50% and gradual devaluation of 10-30%, depending on how far Luakashenko advisers will go in fulfilling his ambitious orders about the GDP growth. Regardless of all declarations about liberalization and de-bureaucratization, the economy will switch to manual management mode once again.

Nevertheless the spiral of inflation-devaluation in one way or another forces the Belarusian government to tighten monetary and social policy. Moreover, the loss of control over a strategic asset (Beltransgaz) leaves Lukashenko without a lever to pressure Russia for the “first aid” assistance and becomes a threat to the energy security of the country.

In the long term the presidential authority is bound to weaken due to commitments of Belarus to gain USD 2.5 billion annually from privation of assets during the three year-period, to reduce subsidies for agriculture, industry, housing, etc., to improve access of Russian goods to the Belarusian market.