“Lukanomics” is on the verge of collapse again

The authorities require new loans in exchange for reforms that will lead to increase in the price of everything.

The Belarusian authorities have warned the Anti-Crisis Fund (ACF) of the Eurasian Economic Community about the expected decrease gold reserves to 6.4 billion dollars on October 1, 2012, reports "Interfax".

"Given the need for timely repayment of internal and external loans of Republic of Belarus in foreign currency, the level of gold reserves of the state on October 1, 2012 will be at least 1.6 months of imports, at January 1, 2013 - at least 2.0 months of imports", - is said in a letter about intentions of the government and National Bank of Belarus to the ACF, which the authorities ask to consider as a basis for making decisions about the allocation of the 4th and 5th tranches of the stabilization loan of the ACF. The letter is dated with 13 June and published on the ACF website.

The letter notes that on February 1 Belarus gold reserves amounted to 7.98 billion dollars, or 2 months of imports. Thus, the amount of gold reserves, which corresponds to 1.6 months of imports, amounted to 6.4 billion dollars, taking into account the average monthly imports in January-May of this year at 4 billion dollars. On July 1 gold reserves amounted to $ 8.3 billion (2.1 months of imports).

The document says that the economic authorities "will continue to increase gold reserves of the state up to a level that ensures the economic security of the country. This will be achieved through foreign direct investment and the accumulation of privatization revenues in the amounts, agreed under the program, supported by the ACF credit".

In addition, in the area of the monetary policy the authorities take the commitment to curb credit expansion and monetary offer. Thus, the increase in total bank loans to the economy will not exceed 12% on 1 October 2012 and 15% on January 1, 2013. The letter informs that in case of attraction of external resources, amounting to 250 million dollars, an increase of banks' loan portfolio can be adjusted accordingly in consultation with the ACF.

The volume of reserve money (monetary base) on October 1, 2012 and January 1, 2013 shall not exceed 23 trillion BYR (on 1 July it virtually amounted to 26 trillion BYR - IF). The net domestic assets of the National Bank will amount on October 1, 2012 to no more than 36 trillion BYR, on January 1, 2013 – to less than 33,5 trillion BYR.

The letter said that the BNB and the government will continue to keep rates at positive level in real terms on annualized basis. This will be done through regular review of the refinancing rate based on the inflation forecast for the next 12 months.

As part of the budgetary policy the authorities declare their intention to maintain a balanced budget at the results of the year. The expenditures on financing the budget sector salaries will be carried out in the framework of the approved budget and on the results of 2012 and will not exceed the level of 2011, constituting 24% of consolidated budget expenditures.

The level of the net lending to government programs through the resources of the government will amount at the results of 2012 to no more than 7 trillion BYR (at the results of the first half of the year- 4,2 trillion BYR - IF).

The letter also confirms the authorities' intention to increase tariffs on utility services to a level that will recover their cost by 35%. According to ACF, this rate amounted to 23% at the end of June.

Tariffs for transportation at the end of 2012 have to provide at least of 85% of the cost of providing such services. According to ACF, in April 2012 the figure was 34.2% in Minsk and 53% in regions.

The document also states that the measures, proposed in the letter, are mainly contained in the basic documents of the government and the National Bank of this year and are basically measures of monetary and fiscal management.

The authorities recognize that "Budgetary and monetary risks still present in Belarus economy and associated with both external and internal factors". Among the key risks they call worsening conjuncture of external markets and trade conditions, lack of foreign direct investments (including incomes from privatization), limited access to external financing.

"The vulnerability of the structure of external debts due to predominance of short-term loans, as well as the presence of the mentioned risks create an objective need to maintain external support of the program of the government and the National Bank from the side of the EurAsEC Anti-Crisis Fund in previously agreed amounts", - is said in the letter, signed by Prime Minister Mikhail Myasnikovich and the head of the National Bank Nadezhda Yarmakova.

In the assessment letter of intents of the Belarusian authorities the AKF proposed to approve this document as a basis for monitoring and decision making on the allocation of the next two tranches. The new version of the letter of intents on 2013 is suggested to prepare by the time of allocation of the fourth tranche in November 2012.