Belarus Asks IMF for Credit Line as Economy Falters
Combined Report
In spite of Russia’s promise of a $2-billion credit, the Belarusian National Bank has asked the International Monetary Fund for a loan in the same amount.
An International Monetary Fund mission is to visit Belarus from October 27 to November 6 to examine the country's request for a credit, the Fund's office in Minsk said on Thursday. The office gave no further details of the mission, announced within hours of Belarus's acknowledgement on Wednesday that it was seeking the loan. IMF Managing Director Dominique Strauss-Kahn had announced the imminent dispatch of the mission in a statement issued in Washington on Wednesday.
“The Belarusian economy and its access to external finance,'' have been hurt by the credit squeeze, IMF Managing Director Dominique Strauss-Kahn said in the statement. ``At the same time, changing conditions in trade have negatively affected the country's balance of payments. A Fund mission will begin discussions with the authorities in the next few days.''
President Alexander Lukashenko is more willing to balance ties to Russia and closer relations with the European Union and the U.S. The nation has promised to insure all banking deposits, similar to offers within the EU, to restore confidence in the economy.
Belarus is the latest emerging market economy to announce it is cash strapped as a worldwide credit shortage disrupts trade, making it harder to service foreign debt and forcing them to seek international aid.
Iceland's economy collapsed this month after its weakening banking system froze its foreign-exchange market, making it harder to pay for imports. Hungary may tap funds from the IMF and the European Central Bank to stave off a collapse.
Russia has already pledged to lend Belarus $2 billion, granting half the loan this year and half in 2009, Russian Finance Minister Aleksey Kudrin said on October 21. Alexander Lukashenko acknowledged that Western sources may also be tapped. “I have already said that if Europe takes two steps in our direction, we are ready to take five toward her,'' Lukashenko said during an October 7 meeting with Finnish Foreign Minister Alexander Stubb, who currently chairs the Organization for Security and Cooperation in Europe.
Belarus's foreign currency and gold reserves fell 12 percent to $4.94 billion in September, according to the National Statistics Committee. The country has $4.19 billion in foreign reserves, IMF data show.
Belarus may face a growing budget shortfall because of decreasing prices for its oil-product exports to Europe, the inability to raise funds from selling state assets and slowing demand in Russia for Belarusian consumer goods, said Pavel Daneiko, an economist at the Belarusian Institute for Strategic Studies in Minsk. “State loans will be the only way to meet financing needs for next year,'' Daneiko said in a phone interview. He estimates the government will need as much as $6 billion in additional funds to shore up the economy next year alone.
“We confirm that we have approached the International Monetary Fund to provide credit to support financial stability, create a cushion of security, and maintain growth rates in the economy,” Belarusian central bank spokesman Mikhail Zhuravovich said. "The amount of the credit depends on the IMF," he told Reuters.
The bank's chief spokesman, Anatoly Drozdov, described the request as a “precautionary measure.” “As the economies of our neighbors and trading partners are affected by the crisis to some extent, we are taking precautions to ensure their problems don't become ours,” Drozdov said. "Belarus has not suffered directly from the crisis," he added.
“It is a very challenging time for emerging markets,'' said Joseph Tan, the chief economist for Asia at Credit Suisse Private Banking in Singapore. Countries that have asked for aid have “very small foreign exchange reserves and it isn't sufficient to ride them through this whole process.''
Discussions with Belarus will start in the “next few days'' and the amount of the assistance hasn't been decided. Belarus requested assistance that could be supported by a stand-by arrangement, or line of credit that doesn't necessarily have to be used.
Belarus' current-account deficit widened to $986 million in the second quarter from $424 million in the first three months of the year, according to the National Bank of the Republic of Belarus, the nation's central bank.
The economy expanded 10.4 percent in the first half of the year, the second fastest pace in the Commonwealth of Independent States, a grouping of post-Soviet nations, after Azerbaijan, according to the Inter-state Statistics Committee of CIS. EU countries account for more than half of Belarusian foreign trade, according to the Belarusian central bank.
Ukraine said this week it may sign a loan worth as much as $15 billion with the IMF next week as it seeks to inject cash into domestic banks. Pakistan is also seeking money after the credit crunch depleted its foreign reserves and inflation at a 30-year high is smothering economic growth.
A member of the IMF since 1992, Belarus received a total of $294.6 million in loans: two loans - $108.6 million in August 1993 and $108.6 million in February 1995 - under the systemic transformation facility, and a stand-by loan of $77.4 million in September 1995 to stabilize its account balance and national currency. Belarus had repaid the loans by February 2005.
The Fund shifted focus to technical assistance in February 2004, after the NBB announced that it would no longer borrow from the IMF. The IMF withdrew its resident representative from Belarus in 2005, when the government failed to implement the fund's recommendations on reforms.
The government raised its inflation forecast for this year to 14 percent after Russia hiked gas prices, but growth rates remain high with a 2008 target of 8.5-9.5 percent. Minsk also suspended its privatization program a week ago, saying there was little point selling state assets at discount prices. It has been unable to issue a debut Eurobond this year as planned.
Dmitry Gourov, an analyst with UniCredit Bank in Vienna, said the request was logical to cover all short-term government and corporate debt, which amounts to about 60 percent of total debt of $14 billion. "They are trying to prepare themselves for the worst case scenario. If they were to cover all this short-term debt on the government and corporate sides, they would need additional reserves," Gourov said. "Everyone is still predicting robust growth for next year, only a slight mark-down from this year."
Belarus has a Ba2 rating from Moody's Investors Service, two levels below investment grade. The Belarus ruble has declined 1.8 percent against the dollar in the past year.