2009-09-09 | Kamil Kłysiński

The second IMF mission tasked with assessing the implementation of the stand-by programme granted to Belarus early this year completed its work on 2 September. Despite numerous reservations, the IMF experts have expressed a generally positive assessment of the measures undertaken by the Belarusian authorities, on the basis of which another tranche of the loan is to be paid out shortly. Moreover, it is possible that next year the Fund will extend the programme's duration. The IMF has thus become the main source of credit support for Belarus and the main guarantor of the stability of the country's finance system. Even though the Belarusian authorities have already implemented some provisional measures recommended by the Fund, and have committed themselves to implementing more thorough changes by the end of the year, it should not be expected that the commitments will be realised in full, because of the regime's aversion to thorough reforms. Besides, even with the conditions imposed on Belarus, the IMF's position towards Minsk is relatively mild, possibly because of the geopolitical interests of some of the IMF member states.

The stand-by programme

As Belarus' economic situation deteriorated in late 2008, the government was forced to seek external sources of financing. The Belarusian leadership applied to the IMF for a stabilisation loan. On 12 January, the IMF Executive Committee approved the stand-by programme for Belarus to the amount of US$2.46 billion, to be paid out over 15 months (in June, the programme value was increased to US$3.5 billion). As of this writing, Belarus has received two tranches of the loan worth a total of US$1.47 billion. Despite many reservations, the first report on the programme implementation, published on 19 August, contains a positive assessment of the Belarusian government's anti-crisis policy. A similar opinion has been expressed by the IMF mission to Belarus which completed its work on 2 September. As a result, Belarus will shortly receive another tranche of the loan (the third) worth US$683 million.
Meanwhile, due to numerous disagreements between Minsk and Moscow, Russia has recently considerably reduced its support for Belarus: since the end of last year, Belarus has received only US$1.5 billion out of the US$2 billion pledged under the stabilisation loan from Russia, and requests for further loans have not yet been considered. In this situation, the IMF has become Minsk's main credit provider.

The IMF's influence on Minsk's economic policy

The IMF's credit support is essential for the Belarusian economy. With the stand-by loan, the Belarusian government is able to maintain financial liquidity and keep the rouble exchange rate within a range of +/- 5%. The IMF funding is an important instrument to stabilise the finances of Belarus. The IMF has effectively forced the Belarusian authorities to implement a number of economic policy measures. In January, the central bank conducted a devaluation of the rouble (by 20.5%). An amendment balancing the 2009 budget was adopted, salaries in the public sector were frozen, and public subsidies to municipal service charges were reduced. However, these measures did not significantly impact the functioning of the Belarusian economic system; they were only provisional remedies, some of which would have had to be implemented irrespective of the IMF's pressure.
As part of the monitoring of the programme's implementation, two IMF missions visited Belarus in August and September. Their recommendations for the Belarusian authorities were as follows: less state interference with the economy, reinforcement of the central bank's independence, and a stricter credit policy. Furthermore, the head of the IMF's European Department, Marek Belka, who visited Minsk on 24-26 August, identified the dangerously low level of currency reserves as the main threat to the stability of the Belarusian government's finances. Despite the major credit support from abroad, the reserves have risen by a mere US$100 million since the beginning of the year (from US$3.061 million to US$3.161 million as of 1 August).
Responding to the IMF's earlier recommendations, Belarus sent a letter to the Fund on 19 July in which it committed itself to implementing further measures by the end of 2009. Changes will be introduced in the tax system whereby the profit tax rate will be reduced from 24% to 20% and the VAT rate raised from 18% to 22%. Belarus has also decided to change the rules concerning mandatory reserves in the banking sector, and accelerate the reforms intended to improve the balance of payments in the medium term by alleviating administrative controls of prices and remunerations. The Belarusian authorities will also stop imposing minimum salaries on operators other than state-run companies. They have also committed themselves to establishing a Privatisation Agency by 30 October and compiling a list by 30 November of five major state-owned companies to be sold in open tenders. Finally, the Belarusian government is also looking for investors to purchase controlling stakes in two state-owned banks, Belpromstroibank and Belinvestbank, and minority stakes (25%) in Belarusbank and Belagroprombank.
Although the measures which the Belarusian authorities have undertaken to implement might have a major influence on the Belarusian economic model, it seems that the government will avoid implementing them in full, and will take only partial action in order to obtain the successive tranches of the IMF loan. The relatively soft position taken by the IMF, which has so far refrained from using all its options to influence the regime, favours the interests of Minsk. This may be the result of the Fund's geopolitical intentions, stemming from the fact that Western states with major influence on the IMF's governing body are interested in strengthening Minsk's capacity of coping with economic pressure from the Kremlin. This may be why the IMF has not imposed any particularly drastic measures, such as another devaluation of the Belarusian rouble, which could destabilise the social situation one year before the presidential election.

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