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Will the Belarusians Pay for Lukashenka's Loans?

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Will the Belarusians Pay for Lukashenka's Loans?
PHOTO BY BELAPAN

It is the first time when Belarus is to meet commitments of two creditors.

In the near future official Minsk plans to adopt new credit programs totaling up to $6 billion. The intrigue is that no one has voiced conditions yet.

The National Bank accepts conditions of creditors

On November 19 Economy Minister Uladzimir Zinouski stated that "we almost reach a new programme with the IMF." All the past few days, he said, negotiations with the Fund lasted for 14-16 hours a day, and soon the parties plan to reach decision on financing of Belarus.

By the way, in the first decade of December there can be reached another similar agreement - a loan to Belarus by the Eurasian Fund for Stabilization and Development. As in the case of the IMF, it is about a loan to Belarus up to $3 billion.

Thus, if two programs with creditors are signed, Belarus may get new loans of up to $6 billion. Not at once, but by tranches. Money will be allocated, if all parameters of the loan programs are fulfilled. Official Minsk does not yet reveal all details for new loans.

The one thing is clear: government's obligations will affect social, industrial, and monetary policy.

So, according to the BelaPAN, the project of main directions of monetary policy for 2016, prepared by the National Bank, takes into account recommendations of creditors.

Next year the National Bank plans to target only two indicators - money growth at 16-20% (to reduce inflation up to 12%) and foreign reserves (latter ones are assumed to increase up to $300 million).

The National Bank does not want to take commitments for refinancing rate reduction, as it used to be, but also set a standard to growth of lending in the economy.

The National Bank's position is that additional targets (regarding lending growth and refinancing rate reduction) could be negatively taken by creditors.

Therefore, defining tasks for 2016, the National Bank has not taken steps that could be negatively taken by international financial organizations.

"Next year the National Bank plans to continue its monetary targeting policy to control inflation. If inflation slows down in 2016, we may have a natural refinancing rate reduction. At the same time, if the forecast for inflation reduction does not come up to expectation, refinancing rate will not be decreased," Iryna Tachytskaya, Scientific Director of IPM Research Center, notes.

According to the expert, the targeting of the refinancing rate and lending growth could raise suspicion among creditors that the authorities were going to ease monetary policy in upcoming year, and therefore the National Bank has not prioritize these options for 2016.

Will population pay for new loans?

Along with obligations in the monetary sphere, Belarus will have to fulfill other conditions of creditors, Director of the IPM Research Center Aliaksandr Chubryk believes.

"It is about a loan of the IMF within the so-called expanded financing mechanism, it assumes a wide range of structural changes. In our case, this means that there must be commitments to restructure problem companies, restrict directed lending, as well as to reform labour market," Chubryk says.

Given the scope of assumed reforms there must be provided measures for social protection, the economist is convinced.

"We will probably have to take social obligations for protection of vulnerable segments of the population planned reforms are likely to affect," Chubryk assumes.

In his view, given the planned reforms unemployment benefits should be raised to living wage budget.

When restructurisation is expected, people must be protected, because they may lose their job through no fault of their own, but in the context of ongoing reforms," Aliaksandr Chubryk believes.

However, despite delicate moments, yet officials do not reveal the content of negotiations on a new program, and it leaves representatives of business community perplexed.

"Society needs a plan of further steps in the economy. If such plans today are prepared without the presence of public representatives, there could be problems with interests of the State and the society while implementation of such instruments," Viktar Marhelau, Co-Chairman of the Republican Confederation of Entrepreneurship, is assumed.

Economic reforms plan, which the Government attempts to negotiate with creditors, may lead to a piecemeal reforms, economist Siarhei Chaly predicts.

"The core issue is related to restructurisation of the real sector and increase of its effectiveness. All businesses must operate in market conditions, and those who cannot work without subsidies, should leave the market," the economist believes.

In his opinion, the State is not ready for a fundamental reform in the real sector, and it is likely to take a tariff reform that will cause an increase of fee-based services for population.

"The risk of such piecemeal reforms is that they will not solve core problems, but will knock society's faith in better life. Piecemeal reforms could be even worse than their absence," Chaly summed up.

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