EBRD dismayed as Belarus stalls on privatisation

By bne IntelliNews August 8, 2012

Sergei Kuznetsov in Minsk -

Belarus is one of the most complicated countries for the European Bank for Reconstruction and Development (EBRD) to deal with and the multilateral lender has been forced to roll back its cooperation with the Belarusian authorities due to the significant deterioration in the human rights situation and the lack of progress in privatisation efforts.

In April 2011, the EBRD board decided to recalibrate the bank's operational approach to Belarus following the disputed December 2010 presidential election and the continuing violations of democratic norms by the Belarusian authorities. This recalibration meant the EBRD will concentrate on developing the private sector and would not give any support - financial or technical - to the central authorities.

Paul-Henri Forestier, the EBRD's director for the Caucasus, Moldova and Belarus, tells bne that about 90% of the Belarusian economy remains in the public sector, so there should have been a lot of room for the EBRD to work in developing the private sector. However, earlier this year the EBRD was forced to halt its pre-privatisation efforts in Belarus, which envisaged helping to prepare Belarusian state-owned assets for privatisation. "If we really want to be effective, really want to help the country and its government, we should be more involved in privatisation, but this year we decided to discontinue pre-privatisation efforts in Belarus," he says. "We are not going to be involved in a situation where there is no key shift of management and ownership control to the private sector."

Indeed, Belarus stalled all state-owned property privatisation efforts this year, even though the country had committed itself to selling off state assets as part of its $3bn bailout loan programme for 2011-2013 from the Eurasian Economic Community (EurAsEC). Specifically, in 2012 Belarus is supposed to privatise $2.5bn worth of state-run assets.

Forestier adds that the "EBRD sees some small signs of improvement" in the situation in Belarus in the last few months, without elaborating. "Hopefully, we will see more of that, because our new strategy is a long process," he says.

He expects the final approval of the EBRD's revised approach to cooperation with Belarus in January or February 2013. "So hopefully the things are evolving, and it will allow us to get an approval from our board of directors in order to be more open in Belarus, a bit more aggressive and, maybe, to get back to pre-privatisation," he says.

IMF suspicions

Meanwhile, the outlook for Belarus' cooperation with another multilateral finance institution, the International Monetary Fund (IMF), also remains vague. Belarus applied in 2011 to the IMF for a new stand-by loan worth approximately $3.5bn, however the lender says that the new programme depends on the degree to which the Belarusian authorities are committed to structural reforms.

The IMF has its suspicions. Fund officials have referred to President Alexander Lukashenko's repeated adjustments to the government's economic plans for 2012. Specifically, the president demanded that the government increase its original 1.5% GDP growth target for the year towards 5.0-5.5%. The IMF does not see the reasons for such an increase.

That said, the economic situation in Belarus has certainly improved since a balance-of-payments crisis last year forced the currency to be devalued three times in the space of a year, inflation reached hyper levels, and bank runs drained the country of much of its hard currency reserves. In July, the EBRD, contrary to what's happening elsewhere in Emerging Europe, raised its 2012 growth forecast to 4.5% from the 2.5% it was predicting in May.

There are also hopes that at least some assets could be sold this year to help further improve Belarus' finances, such as state-owned Paritetbank, a medium-sized bank that the central bank plans to auction in 2012. Forestier hails the intention of the Belarusian authorities to sell Paritetbank. "We were discussing its sale with the Belarusian authorities when we did pre-privatisation in Belarus. We were informed that the private sector was interested in acquiring this bank. We think it's a very good thing," he says.

Forestier also wouldn't rule out the EBRD working with the bank once it becomes private. "But the process of privatisation has to be fair and open, and if we like the new management and new ownership, then we'll look at it."

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