Belarus seeks new IMF loan to ease debt pressures

By bne IntelliNews February 24, 2012

Sergei Kuznetsov in Minsk -

An International Monetary Fund (IMF) mission started working in Belarus on February 22 to prepare the second monitoring review of the $3.6bn stand-by loan agreed in 2009. The Belarusian authorities make no secret of their plans to use the visit of IMF experts to negotiate a new loan that could be used to refinance the original one.

On January 30, Nadezhda Ermakova, governor of the central bank of Belarus, told reporters that, "the application for a continuation of the IMF programme has been filed and we will be negotiating this possibility in February... Our proposal is to refinance the current debt to the IMF," she said.

Belarus' foreign debt repayments will peak in 2013-15 - the country will require about $3bn annually to repay earlier loans from the IMF, Russia, Venezuela and service its Eurobonds. In 2012, a smaller sum will be required, some $1.6bn, which includes $563m to repay and service the IMF loan.

As of February 1, the country's international reserve assets stood at close to $8bn. The central bank projects Belarus' international reserve assets at around $7bn at the end of the year. Under the circumstances, the willingness to borrow again to refinance the old IMF loan is understandable - a new loan would give Belarus more comfort room during the period of peak payments.

Sergei Mukhanov, director of international and investment banking with Alfa-Bank in Belarus, tells bne that Belarus has sufficient international reserves to repay the IMF loan. "I don't think that the country is in a crucial need of refinancing of the IMF loan at the moment," he says.

Even so, he says the refinancing of the loan would enable Belarus to continue more comfortably its policy aimed at ensuring macroeconomic stability. "Therefore, if asked whether Belarus should seek refinancing of the earlier IMF loan, I'd say that it is not indispensable, but advisable - the more so, because loan rates under IMF programmes are lower than those in the debt financing market, ie. if Belarus decides on another Eurobond issue," he adds.

Moreover, Mukhanov notes that the first IMF stand-by agreement was a short-term one and did not presuppose buoyant economic conditions that would enable the country to complete the structural changes of its economy assuring the full repayment of the debt upon completion of the programme. "So refinancing of IMF loan was implied from the very beginning," he explains.

Privatisation quiz

To see its international reserve assets rise to around $7bn by the end of 2012, Belarus will have to meet some demanding economic targets. They include a foreign trade surplus at year-end amounting to $1.3bn-1.5bn, and net foreign investment inflow of $3.7bn. Belarus will probably face difficulties in meeting these targets, especially the latter.

The Belarusian government plans to raise $2.5bn from the sales of state companies to foreign investors throughout 2012, and are drawing up a list of assets for privatisation that could provide this revenue. However, even a preliminary list of such assets has not been published yet, though a source close to the government tells bne that the preliminary list included, among others, the state shareholdings in cellular operator MTS, Krinitsa brewery, Belarusian Metal Plant foundry and three cement plants.

After the Belarusian government approves the final version of the privatisation list, it will then be forwarded to President Alexander Lukashenko. What will be left on that list after the president makes his feelings known is an open question.

The annual privatisation of $2.5bn worth of state assets in 2011-13 is also one of the conditions that the government agreed to as part of the $3bn loan from the Eurasian Economic Community (EurAsEC), which Belarus needs to fulfill in order to draw the remaining installments of the stabilisation loan.

However, Alfa-Bank's Mukhanov says that the current global economic environment is rather unfavorable for the privatisation of Belarusian state property. "If the macroeconomic situation indicates that the offered price is not the best that Belarus can get, whereas in a different macroeconomic environment the price may be better, then the material privatisation may be postponed on a reasonable basis, and may be limited to several 'pilot' projects of a smaller size," he says.

Political risk

Any new IMF loan could also be held up for political reasons. "Even if we meet 100% [of all the lending terms], then political moments will remain," central banker chief Ermakova told a news conference in October. According to her, there may be problems with the approval of the loan by the member states with representatives on the IMF Executive Board, "who see more politics in Belarus than economics and partnership."

It is safe to assume that Ermakova is referring primarily to the US and EU, which froze cooperation with the Belarusian authorities in many spheres after the disputed December 2010 presidential election and have constantly demanded the release of opposition activists who have remained in prison since the election.

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