BELARUS DIGEST

Belarus, a small post-Soviet state once hardly distinguishable from Russia and chronically misspelled in the Western press, has been making more and more headlines lately. And if the Russian-Belarusian military exercises with deployment of Russia’s most advanced S-400 air defense system weren’t enough, the 2010 Russian-Belarusian oil row is bound to make the West anxious.

Moscow and Minsk failed to close a new deal after Russian-Belarusian agreement on crude oil export tariffs expired on the New Year’s Eve. As the two states argued over pricing, Russia had briefly halted supplies to the Naftan and Mozyr refineries to show Minsk who the boss is.

Flows were restarted on Jan. 3. To pacify its customers in the EU, Russia promised that the export flow would continue with no further interruptions. Western Europe is slow to celebrate, however; it remembers that last January similar steps preceded a complete shutdown of gas flow through Ukraine. The dispute has already pushed oil prices up to $81 a barrel, their highest in nearly 15 months.

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The Belarusian-Russian oil conflict once again demonstrates the fact that relations between both countries are far from what could have been called friendly. All the declarations of “eternal Slavic brotherhood” vanish once real money gets involved. The fight about eventual Russian oil duties has burst out just several days after the pompous establishing of the Customs union of Belarus, Russia and Kazakhstan. This may only be a signal that this post-Soviet integration initiative is the same farce as its uncountable predecessors.

Russia wants to reshape its relations with Belarus and make them more market-based. The Belarusian officials are trying to retain Russian financial preferences that create a huge annual flow of cash into the pockets of the Belarusian government. In any case, in the mid-term Belarus will inevitably have to accept that expensive oil and gas is the price it has to pay for a real and sound independence from Russia.

MINSK, Jan 5 (Reuters) – Belarus sent a delegation to Moscow on Tuesday for talks to resolve an oil dispute that has disrupted crude shipments to Belarussian refineries and raised the spectre of winter supply problems for the European Union.

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An International Monetary Fund (IMF) mission competed its third review of the country’s Stand-By Arrangement (SBA) in Minsk on Nov. 10-19. The mission scrutinized the implementation of the economic program tied to IMF’s loan to Belarus.

Chief of IMF mission in Belarus Chris Jarvis concluded the country’s performance has been good and IMF benchmarks and criteria have been met. Upon the review by the IMF Executive Board in late- December, Belarus will receive an amount of US$700 million.

Jarvis said “monetary policy would continue to support the credibility of the exchange rate regime” and “prudent fiscal and monetary policies would narrow the current account deficit and bring inflation to single digits.” The IMF experts also discussed “the issues that would strengthen the financial system and the independence” of the National Bank of Belarus.

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President Alyaksandr Lukashenka’s playing Moscow against the West is turning a profit in the midst of global economic crisis. Having received $1.5 billion from Russia and $1.5 billion from the International Monetary Fund, Belarus will soon close its financial gap for the current year. Pending are a further $1.36 billion from the IMF, $200 million from the World Bank and $500 million (the last tranche of a $2 billion credit) from Russia.

Although the demand for its goods from Russia and Europe plummeted, Belarus is faring quite well in crisis. Less dependent on external financing, its financial and banking sectors won’t take long to recover. Minsk is even confident enough to seek accession to the WTO, as a participant in a customs block with Russia and Kazakhstan. While becoming a WTO member is a long shot for the country with an old Soviet-style economy and a foreign trade turnover of modest $50 billion, the whole gambit will certainly boost Minsk’s ego and attract Western investors.

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Apparently, the IMF mission to Belarus was satisfied with the efforts the country is making to tackle its worst economic crises since early 1990-s.

The fund agreed to extend the second tranche of the financial aid package for Belarus:

WASHINGTON — The International Monetary Fund said Wednesday it will lend an additional $1 billion to cash-strapped Belarus, bringing the total provided by the Washington-based institution to $3.4 billion.

“This increase is justified because Belarus’ financing needs arising from the global financial crisis have increased, and because the government and the central bank are making strong efforts to solve their problems,” the IMF said.

Belarus President Alexander Lukashenko accused Russia of punishing Belarus, its largest trading partner, for refusing to recognize the independence of rebel-held regions of Georgia. Russia denied any link and said the money was withheld for lack of a currency agreement.

Read more at Forbes.com.

Washington – According to Belarusian news agency Belta, the World Bank and Belarus have agreed on a $125 million draft loan for a new energy-effectiveness project.

The draft loan agreement is subject to approval by the Board of Directors of the World Bank before it will be officially signed. Belarus has not gained much aid from the World Bank in recent years and, if approved, this will be one of the largest projects sponsored by this intergovernmental organization in Belarus.

The $125 million World Bank loan will be used to assimilate energy-effective technologies at municipal boiler plants and at major power installations. The project envisages modernizing energy generating equipment in Barysau, Mahiliou, Ruba, Ashmiany, and Rechytsa.

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WASHINGTON – Eurasia Daily Monitor has published an article about the impact of economic crises on Belarus and whom Belarusians tend to blame for the crises:

Economic Problems Beset Belarus
March 13, 2009

To date, there has been little other than optimistic prognoses from Belarusian government circles about the state of the economy. Unlike the situation in neighboring states, Belarus is not facing recession, and economic growth continues. Moreover, President Alyaksandr Lukashenka has assured citizens of government protection, should the situation become difficult. The Belarusian economy has a unique structure, in which state intervention has been common until recently; and the official media has proclaimed a specific Belarusian path to prosperity. Is it possible that the country has been unaffected by the international recession that is affecting its neighbors such as Poland, Ukraine, and Russia so strongly?

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WASHINGTON – The economic situation in Belarus has worsened since the eastern European country signed a $2.46 billion loan agreement with the International Monetary Fund in January, the IMF said Tuesday.

“The fall in demand in major trading partners, including Russia, has hit Belarus’s exporters hard,” Chris Jarvis, the IMF’s Belarus mission chief, said in a statement following a weeklong visit to Minsk.

Additionally, “The devaluation of the ruble on January 2 and the peg to a basket of currencies have reduced Belarus’s vulnerability to the external shocks it is facing,” Jarvis said.

The IMF already has disbursed $800 million in loans to Belarus. The remainder is scheduled to be disbursed by early 2010.
“We believe that with the right policies Belarus can meet the challenges it faces,” Jarvis said.

IMF officials are scheduled to return to Belarus in late April or early May.

Source: Dow Jones Newswires (March 10, 2009)

WASHINGTON — In the annual ranking of economic freedom in the world of the Wall Street Journal and the Washington-based Heritage Foundation Belarus ranked as the worst economy in Europe. Being 43 of 43 in Europe, Belarus is number 167 in the world, just behind the Republic of Congo, but ahead of Iran. Belarusian authorities recently vowed to liberalize its economy. But it remains to be seen whether this time the promises will translate into real reforms needed to improve the country’s image in the world.

Belarus’s economic freedom score is 45, making its economy the 167th freest in the 2009 Index. The persistence of Soviet-era policies and practices continues to deny Belarus the benefits of economic freedom now enjoyed in most other former Soviet republics. Its already low score underwent another deterioration of 0.4 point due to reckless and inefficient government spending that overshadowed gains in trade and business freedom. Belarus is ranked last among the 43 countries in the Europe region.

The majority of Belarus’s 10 economic freedom scores are significantly worse than the world average, though moderate tax rates and low tax revenues put its fiscal freedom score in the top half. Weak economic institutions create major barriers to development. Financial freedom, investment freedom, property rights, and freedom from corruption are 20’40 points below the world average. The government controls many financial institutions, either directly or partially. Foreign investment in all sectors faces hurdles ranging from outright restrictions to bureaucratic incompetence. Weak rule of law allows for significant corruption and insecure property rights. Large state-owned enterprises still generate considerable output, and privatization lags well behind other countries in the region.

Read full report at heritage.org.

WASHINGTON (AFP) — The International Monetary Fund gave final approval Monday to an emergency loan of 2.46 billion dollars to help Belarus cope with the global financial crisis.

The IMF said the 15-month standby credit was approved by its executive board “in support of the country’s efforts to adjust to external shocks” and will allow the eastern European nation to draw some 787.9 million dollars immediately. The remainder will be made available subject to quarterly reviews.

The IMF loan is unusually large, representing about four times Belarus’s quota, the maximum amount an IMF member country pays to finance the Washington-based institution. Normally an IMF member country can draw up to 100 percent annually of its quota, and 300 percent cumulatively. However, the IMF has granted exceptional access to financing to distressed countries, such as a loan to Georgia in September after its armed conflict with Russia.

“Belarus is experiencing serious economic problems,” said Takatoshi Kato, IMF deputy managing director. “External vulnerabilities have been exposed by adverse terms of trade movements, falling demand from trading partners, and difficulties in securing external finance, leading to a decline in international reserves. In the face of these shocks and the adjustment needed to contain them, the economy is likely to slow in 2009.”

Officials in Minsk have said the IMF loan was needed to make up for lost export revenues because foreign countries were having trouble paying for its goods amid the global credit crunch.

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