EDB attempts to precondition loan with ability to influence Belarus’ economic policy

The Eurasian Development Bank (EDB) is considering changes in the terms of credit to support the Belarusian economy due to Belarus’ failure to fulfil previous loan commitments. EDB might request that Belarus waived control over imports and some monetary policies to the Eurasian Economic Commission. The parties are very likely to reach an agreement in this regard, however Belarus is very unlikely to fulfil the new commitments.

On August 24^th – 28^th, Eurasian Fund for Stabilization and Development experts will be on a mission in Minsk in order to negotiate the conditions for a new loan for the Belarusian economy.

According to EDB Chairman of the Board Dmitry Pankin, prior to transferring the remaining tranche of the loan worth USD 440 million and negotiating terms for a new loan, the Fund would look into reasons why Belarus had failed to fulfil her obligations vis-a-vis the Fund under the current loan agreement. “The mission of our experts would be to look in detail at each indicator, which has not been implemented by Belarus in order to receive the last tranche of the loan. This concerns gold and currency reserves, and compensations for utility and transport tariffs”, Pankin said.

The conditions relating to compensation of utility and transport tariffs have not been implemented due to the ongoing presidential campaign amid falling incomes. In the current circumstances, raising the tariffs would create additional threats to social stability; therefore, the government had postponed the decision about the tariffs for post-election period. Belarus’ international reserves have shrank due to the efforts of the financial authorities to maintain a relatively stable exchange rate of the national currency against the background of increasing payments on foreign debts, decline in exports and devaluation of the national currency of the major trading partner – Russia.

In addition, Belarus had informally committed to so-called ‘five integration projects’. Minsk is considering any form of loss of control over economic entities, large enterprises in particular, as the most serious threat to the central government. In order to clearly define Minsk’s position on this issue and to gain a sort of “people’s mandate” in negotiations with the EDB, Alexander Lukashenka visited MKZT last week and promised not to sell the company.

The EDB cannot insist neither on the growth of tariffs or gold reserves, nor on the implementation of the ‘five integration projects’. Any other major creditor, including the IMF, will set the first two conditions. As regards the ‘five integration projects’, the EDB has no instruments to coerce Belarus to implement this commitment except for termination of credit support. However, the Fund’s major task is to facilitate integration of the EEU economies and by depriving Belarus of EDB funds, it seriously reduces its value for the Kremlin, which may lead to cuts in the funding, or to the replacement of its leadership. In addition, the actual value of the ‘integration projects’ is uncertain amid the fall of production in Russia.

In the given circumstances, the EDB has two options: either to insist on fulfilment of these obviously unrealistic conditions and damage own reputation for the Kremlin; or, to propose new conditions. One of them was partially voiced by Pankin: coordination of the monetary policy, which means tightly tying the national currencies of Belarus, Kazakhstan, Armenia and Kyrgyzstan to the Russian rouble. The second proposal was put forward by Rosselkhoznadzor: to introduce Russian electronic system to control imports in the EEU partner countries, inter alia, in order to identify products from the sanctions list. If implemented, both conditions would significantly limit the economic sovereignty of the EEU countries.