Belarus Turns to Moscow for Bailout

Bloomberg: Belarus Delays Additional Steps on Ruble, Seeks Russia Loan
FT: Belarus Devalues But Not by Enough
WSJ: IMF: Belarus Needs 'True' Devaluation to Save Shrinking Reserves
WSJ: Belarus Rejects Sharp Devaluation
National Bank Declares Temporary Moratorium on Additional Foreign Exchange Restrictions
Is Belarus on the Brink of Financial Collapse?

One day after making a statement vowing to do everything in its power not to devalue, the Belorussian central bank devalued the Belarussian ruble by 10%. Belarus is not unfamiliar with devaluation. After receiving a $2.5 billion loan from the IMF in 2009, it had to introduce several economic reforms including a 25% devaluation.

The Belarussian ruble has long been overvalued, and experts doubt that the 10% devaluation is sufficient. Several foreign investment banks predict that Belarus will need at least a 20% devaluation, and the IMF also agrees that further devaluation and reform is necessary. The government is again denying the need for steeper reforms. Citizens appear not to believe the government, however, as many have begun to stock up on basic necessities in expectation of further devaluation.

In the past, the Belorussian economic survival depended on cheap oil and gas from Russia. When Russia raised its prices in 2007, Belarus’s oil refining business lost major profits. Only a short while later, the global financial crisis lowered demand for other Belarussian exports. Lower exports and higher spending—imposed by President Lukashenko to build support for his re-election campaign—led to a growing trade deficit. Standard & Poor’s and Moody’s rating agencies downgraded the country’s debt ratings, leading to a decrease in foreign investment. Due to the combination of all of Belarus’s recent problems, the country has been tapping into its foreign currency reserves. The central bank has lost 20% of its foreign currency reserves this year, leaving only enough to sustain the country for another month according to the Royal Bank of Scotland. The country will probably need some source of alternate financing as well as devaluation in order to save its reserves from further depletion.

Moscow is rumored to have responded to Belarus’s economic troubles by committing a much-needed $3 billion loan to bail out the nation. Like the IMF’s loan policies, however, Moscow will likely push for economic reforms that would lower the risk of default. The reforms could include repealing recent wage increases that reached an average of $500 a month, or selling some of their national enterprises to private parties.