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Emerging Markets

Belarus struggles to avoid another devaluation

Belarus needs to keep its IMF programme on track, and the oil price to stay above $50/barrel, if it is to avoid a further devaluation, bankers working in the country believe.

The National Bank of Belarus devalued the rouble by 20.5% against the US dollar, 20.3% against the euro and 17.3% against the Russian rouble on 2 January – and said last week that the currency depreciated in real terms by another 9.15% in the first quarter of this year.

The devaluation was undertaken at the insistence of the IMF, which approved a $2.46 billion standby arrangement for Belarus on 12 January. So far $800 million has been disbursed.

Bernd Rozenberg, deputy chief executive of Priorbank, Belarus’s largest privately-owned bank, told Emerging Markets that there are “various scenarios” for Belarus’s finances. “If the remainder of the IMF programme is implemented, and if the oil price stays at $50/barrel or more, then – with the appropriate monetary and fiscal policies – Belarus could avoid a further sharp devaluation.” The conditions of the IMF programme allow for depreciation within a 5% corridor.

Rozenberg said that the January devaluation, and the prospect of further falls in the rouble’s value, has implications for social policy. “The government’s policy has been aimed at steadily increasing the value of salaries in dollar terms. This is a key issue.”

Maintaining increases in living standards will be difficult or impossible this year. In November the government promised state employees an increase in salaries, but cancelled it after its talks with the IMF.

Belarus’s banking system, which is relatively isolated from its international counterparts, has weathered the crisis well, although rouble deposits have been converted to foreign currency deposits on a large scale.

But exports, on which its economy depends heavily, has been hit from both sides. Exports to Russia, mainly of machinery, equipment and consumer goods, have fallen by 45% this year; revenues from exports of oil-intensive products such as petroleum, chemicals and fertilisers, mainly to the west, have sunk along with oil prices.

This has left the country with a deteriorating current account, which the government has tried to address with a $3 billion currency swap agreement with China, and with this year’s tranche of the 2007 deal under which Russia bought 50% of the gas transit company Beltransgaz. But support from the IMF was still needed.

An IMF mission visited Minsk this month prior to review of the programme. Belarus’s economic situation had become more difficult in the last two months. Chris Jarvis, the mission chief, said talks had focused on “how to respond to the problems that the worsened global outlook has caused for Belarus”.

Bankers argue that Belarus, led by president Alexander Lukashenko, should respond to the crisis by redoubling its efforts to liberalise the economy, which remains three-quarters state controlled.

Christoph Pasternak, vice president (eastern Europe) at Bayern Landesbank, a major partner to Belarussian banks, said that he saw the main danger in the economy coming from the impact of the Russian crisis on Belarussian exports.

“Belarus cannot become more competitive without very deep-going reforms. The tendency [in government and business will be to stick to old methods as long as possible. Much of what has been said about liberalisation was a facade.”


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