Looking for USD 2 billion for modernization

On March 15^th, 2013, Russian Finance Minister confirmed the Belarus’ request for a USD 2 billion loan.

Belarus’s economy balanced development is impossible without external support. Modernization is considered a way out of a devaluation loop. Belarus plans to gain funds via new concessional loans and ad hoc assets’ sales.

On March 15^th, 2012 balance of payments data was published. In Q4 international trade in goods and services was negative. In Q4 2012 the current account deficit was USD 1.775 billion. Russia’s support – reduced natural gas supply prices somewhat improved the situation, but in order to maintain the current consumption level, Belarus needs international loans in pecuniary or commodity form.

Production modernization could help to solve the problem. Additional investment imports for the modernization in 2013 are estimated at USD 1.6 billion. The National Bank is skeptical about the feasibility for a new IMF loan, which could provide the necessary funds at a preferential interest rate (IMF loans interest rates range around 4% pa).

Bearing this in mind, Belarus requested a new loan from Russia. It is assumed that by the end of the modernization Belarus will reduce the imports volumes in woodworking, engineering, petrochemical industries and will improve export opportunities, which will result in improved international trade balance and will generate the foreign exchange inflow sufficient to service the public debt. Russia’s international reserves as of March 1^st, 2013 were USD 526 billion and USD 2 billion is insignificant amount. However, if Russia decided to open a new credit line for Belarus, it would furnish it with additional terms related to privatization. Some Belarusian assets, put up for privatization, oil refinery in particular, have a limited number of buyers. The sale of other assets is complicated by excessive demands by Belarus, both in financial terms and in terms of guaranteeing certain social benefits to enterprises’ employees.

Thus, Belarus resumed to searching for international loans to sustain current operations. Deeper involvement in the integration processes, both in financial and economic terms, has narrowed the number of potential donors to a single country, which weakened Belarus’ negotiating position and forced to start negotiations about the sales terms for some enterprises. Belarusian authorities do not have any trump cards left for the forthcoming negotiations, other than continued membership in the Customs Union.