Yet-to-be received USD 2 billion Russian loan was virtually spent

On April 2^nd, National Bank Chairman Nadezhda Ermakova said that the USD 2 billion Russian loan would be spent on economic modernization.

Belarus needs free cash to optimize the equipment procurement structure for industrial modernization. Preliminary outcomes of the negotiations with Russia are already considered as a guarantee of funds’ allocation. It has already been decided how to spend these funds and de facto spending has started.

International loans are regarded as the main funding source for the Belarusian economy modernization. Under the existing loan agreements with China, Belarus is buying Chinese manufactured goods. The State Customs Committee reported about Chinese equipment supply growth, which has resulted in almost two-fold increase in imports from China in January-February 2013, while total imports dropped by 5.6% over the same period in 2012. China is Belarus’ the third largest supplier of goods.

Existing credit lines with China have restrictions on their expenditure. As a rule, Belarus can use these funds only for purchasing Chinese equipment. Quality of the supplied manufactured goods raises concerns. Deadlines for the cement production plants modernization using Chinese cement production lines were shifted several times, equipment supplies for Belarusian power plants raise many concerns. In order to optimize the technological equipment purchases from other countries, Belarus needs free financial resources that would not be limited by the contractual terms of expenditure.

Deputy Prime Minister Prokopovych confirmed certain arrangements concerning a USD 2 billion loan from Russia. Belarus justified the need for the loan by economic modernization and joint projects within the Common Economic Space. The loan’s allocation date has not been agreed, but Belarus has already started purchasing capital equipment with a clear anticipation to receive the loan in the near future. This factor strengthens Russia’s negotiating position, enabling her to put forward additional counter-claims for the allocation of the requested funds.

Thus, Belarusian government has actually started spending yet not allocated funds, thereby worsening the international trade situation. Belarus reckons it will receive the funds soon, which is a miscalculation. Recent example with the EurAsEC ACF loan has demonstrated that Russia will use the Belarus’ need in funding for her own purposes and will strengthen her negotiating position on privatization in Belarus.