CORRECTED-UPDATE 2-IMF tells Belarus fresh credit depends on reform

Tue Oct 18, 2011 10:35am EDT

* Belarus seeks up to $7 billion of new IMF credit

* IMF wants wage restraint, higher interest rates

* Ex-Soviet republic hit by high inflation

By Andrei Makhovsky

MINSK, Oct 17 (Reuters) - The International Monetary Fund on Monday stressed the need to restrain wage growth in Belarus and said the leadership of President Alexander Lukashenko would have to show clear commitment to reform if it hoped to secure new IMF credit.

The ex-Soviet republic is in the grip of a severe financial crisis which has drained its foreign currency reserves, forced a 65 percent devaluation in the national currency and pushed inflation up to 75 percent in the year to date.

Minsk has put out feelers for a possible new stand-by credit programme from the IMF of up to $7 billion, according to financial sources.

Chris Jarvis, head of a visiting IMF mission, said that while the Fund applauded the partial floating of the Belarussian rouble as "an important step forward" there was a danger that gains could be wiped out by high inflation.

Speaking to journalists, he said Belarus had to raise interest rates more sharply and the authorities should refrain from any further public wage increases.

The IMF wants Belarus, which is run for the most part on old Soviet lines, to carry out structural and economic reforms to fully liberalise the economy.

"The authorities should also continue with and accelerate their work on structural reform, especially enterprise reform, privatization, price liberalization and banking sector reform," Jarvis said in a statement.

"Deep structural reform is needed for Belarus to achieve strong and lasting growth and to increase living standards in a durable way," he added.

FOLLOW-UP ACTION NEEDED

In a comment angled at Lukashenko, Belarus's authoritarian leader, Jarvis said the country's "highest" authorities had to show a clear commitment to reforms and follow through with action if a fresh programme was to be forthcoming from the Fund.

"Before programme negotiations could begin, as a first step, the authorities will need to demonstrate a clear commitment, including at the highest level, to stability and reforms and to reflect this commitment in their actions," he said.

He implicitly criticised Lukashenko for raising public sector wages shortly before an election last December in which he won a fourth consecutive term in power, which is disputed by the political opposition and in the West.

"Wage restraint is ... crucial. The role of the November 2010 wage increase in contributing to the crisis ... is now widely recognised," he said.

After a previous IMF programme had been completed in 2010 there had been a softening in economic policy especially in credit policy and in the pay sector, he said.

Belarus has introduced special free-trade sessions for the rouble, while maintaining a separate official exchange rate tightly controlled by the central bank.

While this official rate stood on Monday at 5,692 roubles per dollar, it was down at 8,990 per dollar in the free-float trading session, up slightly from its low point of 9,010 last Friday.

The Fund wants the national currency to be able to trade freely across the board and authorities are indicating they may meet the IMF on this point.

A senior government official said on Saturday that Belarus would lift administrative caps and reinstate free currency trading.

"The government along with the National bank made the decision to carry out all currency trading in one session starting Oct. 20 ... with a flexible exchange rate regime," Deputy Prime Minister Sergei Rumas told Belarusian STV channel.

"The government will not use administrative measures to influence the currency exchange regime," he said.

The government curbed free currency trade in March in an effort to rescue the rouble, which nevertheless was subsequently devalued twice, losing 65 percent of its value in all against the dollar.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.