Belarus hits up Russia for $2bn loan; EBRD cuts Minsk from strategy

By bne IntelliNews March 12, 2013

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Belarusian President Alexander Lukashenko flew to St Petersburg this week to meet with his Russian counterpart Vladimir Putin in an effort to get a $2bn loan to modernise the country, just as the European Bank for Reconstruction and Development (EBRD) announced it won't invest money in any Belarusian government projects as part of its new country strategy due to be released this week.

Belarus has already released a copy of the draft agreement for the Russian loan that matures in 2027 with the first payments due from 2018. Minsk will use the money in five joint integration projects that that have already been agreed with Moscow. These are likely to include the joint ventures with leading Belarusian companies such as giant truck maker MAZ, fertiliser producer Grodno Azot and machine builder Gomselmash.

The EBRD is not being so unstinting, saying this week that it was basically cutting off ties with Minsk after a long, trouble relationship. "The Bank will ensure that no support, either financial or technical, will be extended to the Belarusian central authorities or central state in any manner," the EBRD says in a draft country strategy for Belarus for the period between 2013 and 2016, which is expected to become official policy on March 12.

The EBRD said the only investments it would consider would those into municipal infrastructure projects. The decision will be painful for Minsk and is a stinging rebuke to Lukashenko. THE EBRD is a big investor into all the countries in which it operates and in Russia it remains the largest single direct investor, pumping in at least $1bn of capital a year into the country. In addition to providing valuable technical support, the EBRD underpins privatisation and its bank-lending programme for small business has been an enormous success.

Belarus has been an EBRD member since 1992 and the bank has invested a total of €839m in 42 projects, but now the lender appears to have run out of patience with the lack of progress.

The EBRD "remains seriously concerned about the uneven progress Belarus made toward the application of principles of multiparty democracy and pluralism during the previous Strategy period," the bank said in a statement. "The Belarusian state continues to play a dominant role in the country's political and economic life. Political power is highly concentrated in the presidency. International observers from the OSCE and Council of Europe have judged successive elections as deeply flawed. The authorities' commitment to political pluralism, media freedom, the independence of civil society and the legitimacy of political opposition is uncertain."

However, the bank will continue to invest in the private sector, such as it is: "The Bank will continue to focus on promoting private sector development across all sectors of the economy, both directly and indirectly, with a particular emphasis on manufacturing and agribusiness."

"To promote commercialization of the financial sector, the Bank will support the operations and growth of private and foreign-owned banks and consider supporting non-bank financial institutions to further broaden access to finance by private sector players," the EBRD says.

This rebuff will only drive Minsk closer to Moscow, which is pretty much its only friend these days and, more importantly, one of its few sources for financing.

Prime Minister Dmitry Medvedev was in Minsk on December 12, in what now looks like a window-shopping trip for attractive assets. He told a meeting of the Council of Ministers of the Union State that Belarus should choose five companies and breathe new life into them. "It doesn't matter whether it will be Belarusian or joint Belarusian-Russian companies. We should breathe new life into them and show the results to people," Medvedev said at the time.

Two months later, on February 12, Russian Deputy Prime Minister Arkady Dvorkovich followed up and named the companies that Russia is interested in, including: MAZ (Minsk Automobile Plant), Grodno Azot, Gomselmash and Minsk Wheel Tractor Plant, which are the likely targets for the Russia modernisation loan. Belarusian PM Mikhail Myasnikovich assured Dvorkovich that five joint ventures could be created in 2013, but gave no other details.

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