Sergei Kuznetsov in Minsk -
In their efforts to secure the support of the International Monetary Fund (IMF) and the World Bank, the authorities of cash-strapped Belarus have proposed to these multinational lenders a “road map” of structural reforms to be undertaken over the next five years. In the meantime, the country remains reliant on new Russian loans to refinance previous borrowing.
Vladimir Zinovsky, the minister of economy, tells bne IntelliNews that the document, which includes measures to “eliminate imbalances that have accumulated in the country’s economy”, was filed to the IMF and the World Bank in April. The “road map” was not published, but, according to Zinovsky, it is “a five-year plan of short- and medium-term measures with specific deadlines”.
According to the “road map”, the government intends to abandon price regulation for “socially important goods” in Belarus, one of the least reformed economies in the region. It will also introduce full liability to housing and utilities payments for the general population. With the aim of softening possible shocks that could result from the reforms, the country’s authorities are planning “to improve the system of targeted social support for vulnerable groups and support mechanisms for unemployed people”.
Belarus has been trying to negotiate a new support programme with the IMF since late 2010, when the previous $3.46bn aid programme for the country expired. However, the Washington-based multinational lender has repeatedly stated it wants to see a credible commitment to a comprehensive package of consistent and strong macroeconomic policies and deep, front-loaded structural reform in Belarus. “One of the major problems to be resolved by the reform programme is how to improve the corporate governance of state-owned enterprises and banks. Ultimately, we plan to separate the functions of the state as a regulator and as an owner,” Zinovsky tells bne IntelliNews.
However, the IMF’s reaction to the Belarusian government’s offer has so far been muted. According to a statement published by the lender on May 19, it “noted the authorities’ interest” in a new IMF-supported programme. “Recognising the benefits it could bring to the country, [the IMF’s executive] directors underscored that any future arrangement would require a credible and strong commitment at the highest level to a comprehensive package of deep structural reforms and consistent macroeconomic policies. They looked forward to continued close engagement with the authorities on these issues.”
According to Zinovsky, the privatisation of state-controlled small and medium-sized enterprises within the next three years through tenders is “a major area” of the structural reform programme. In addition, the government intends “to restructure and optimise business processes” on a number of strategic enterprises in 2015-2016. “To this end, we plan to attract external consultants with the necessary experience, and investors,” the minister says.
“The state does not block privatisation. Rather, it is trying to ensure three fundamental requirements: the transparency of the process, the transparency of a potential investor and fair competition for the right to acquire an enterprise,” Zinovsky explains. “When we formulate these requirements, we believe that our goal will be neither to expand the private sector in the economy, nor to get short-term benefits. We are striving to find thorough investors who know how to run a business, who are willing to work in Belarus productively and in the long term.”
According to the World Bank, state-owned enterprises account for over 50% of the country’s output and two-thirds of employment. For years, Belarus has avoided privatising its major companies, the only significant exception being the sale of its gas pipeline system under Russian political pressures to Gazprom for $5bn in 2007-2011.
Zinovsky underlines that the government “feels responsibility for the fate of large industry” in Belarus. “It is not just an issue of ownership, of capital preservation, but also an issue of the intellectual and technological knowledge and skills of people,” the minister says. “These considerations have led to some ‘caution’ on the part of the state in the privatisation process.”
In the case of SMEs, the Belarusian authorities have typically been unable to agree on a price of assets. The social and production conditions set by the authorities are another sticking point, because they often have made any acquisition uneconomical for potential investors.
Privatisation could provide desperately needed cash to Belarus at a time when the country is reaching a peak in its foreign government debt repayments and the government is facing a serious shortage of funding. The country is required to pay $4bn this year, while its foreign currency reserves stood at just $4.6bn as of the beginning of May.
However, it seems the government still prefers to rely on loan support from Russia instead of embarking on privatisation. On April, 16, Prime Minister Andrei Kobyakov said that Russia is ready to refinance state debt repayments that are scheduled for 2015. “We have made arrangements with Russian partners to fully refinance the repayments that we are going to make to Russia this year,” Kobyakov said, pointing out that restructuring includes both “inter-state debts” as well as the money owed to the Russia-led bailout fund of the Eurasian Economic Community, which rescued Belarus from a severe balance-of-payment crisis in 2011 by issuing a $3bn support package.
Earlier in April, the bailout fund published a statement according to which the lender agreed with the Belarusian government to prepare a programme of macroeconomic stabilisation and structural reforms that could be backed by a new loan.
Alongside debt pressures, Belarus has been badly hit by the crisis in Russia. “A decline in economic activities in Russia, which accounts for a significant share of Belarusian exports, has led to a contraction of the Russian market for products. Together with the fall in prices of essential goods, this has led to a decrease in exports and, accordingly, to a reduction in industrial output in Belarus,” Zinovsky says.
According to official statistics, Belarus’s GDP fell by 2.6% in January-April of this year compared with the same period in 2014. Exports to Russia fell by 40.8% in January-March. However, the Belarusian government is trying to put on a brave face on it. “We are making efforts to avoid a recession,” the minister says.
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