June 8, 2011 / 2:46 PM / 7 years ago

UPDATE 1-Belarus slashes fuel price rise after protests

* President slashes price rise announced on Tuesday

* Currency crisis dents Lukashenko’s credibility

* Fixing the economy will require unpopular reforms

By Andrei Makhovsky

MINSK, June 8 (Reuters) - Belarussian President Alexander Lukashenko, responding to rare public protests, on Wednesday slashed a big rise in fuel prices announced only the previous day.

Mounting discontent over soaring consumer prices against the backdrop of a currency crisis is putting political pressure on authoritarian Lukashenko who has run the country since 1994, maintaining a Soviet-style government-dominated economy.

The government this week raised the cost of a litre of gasoline at the pump by roughly 30 percent to about $1 from $0.72, saying the move was necessary to protect the domestic market after a 36 percent devaluation of the rouble BYR= last month.

However, on Tuesday evening, hundreds of motorists staged a protest rally along Minsk’s main thoroughfare, hooting their car horns and raising the lid of their trunks to demonstrate dismay at the gasoline price rises.

“Let us agree that from tomorrow morning, gasoline will cost ... no more than 4,500 roubles ($0.81),” Lukashenko told a government meeting on Wednesday.

Before the price hike, the price per litre stood at about 4,000 roubles.

Lukashenko’s opponents said Wednesday’s move created a dangerous precedent for the government.

“People may ask themselves ‘If it worked with gasoline, why don’t we try the same with sugar and other foodstuffs and products’,” said Anatoly Lebedko, the leader of opposition United Civic Party.

The ex-Soviet republic of 9.5 million people has been fighting a deepening currency crisis for months.

It lost more than a quarter of its foreign currency reserves before devaluing the rouble in May. On June 1, reserves stood at $3.6 billion, down from $5.0 billion on Jan 1.

Consumer prices have risen by over 20 percent in January-May and officials say full-year inflation could reach 39 percent. The crisis has prompted panic buying of food staples such as sugar as well as durable goods.

Shortly after the rouble devaluation the government froze prices of key foodstuffs, but analysts say the measure may lead to shortages and prompt rationing, further denting confidence in Lukashenko’s government.


Minsk has requested help from its traditional ally Russia and, later, from the International Monetary Fund.

A Russian-led regional fund this month agreed to provide the government with a $3 billion loan over three years on conditions of cutting the budget deficit and carrying out a $7.5 billion privatisation programme.

Admitting that this will not be enough, Minsk has asked the IMF to provide a loan of up to $8 billion. But Belarus’s relations with the West have soured after Lukashenko’s crackdown on a protest against his re-election last December.

In addition, analysts say the much-needed rebalancing of the economy would require some painful steps since the crisis was largely caused by generous public spending, including wage increases, in the run-up to the December 2010 election.

“...To truly reverse structural deterioration, policies will have to focus on improving productivity and international competitiveness,” rating agency Moody’s said in its report on Belarus this week.

These must include introducing limits on real income growth and cutting “subsidies and amenities to which Belarusians have become accustomed”, according to Moody‘s, which maintained a negative outlook on Belarus’ B2 long-term rating.

“Such retrenchment would undoubtedly be unpopular and could jeopardise the seeming stability that has characterised Belarus’s authoritarian political environment for almost two decades,” Moody’s said.

Writing by Olzhas Auyezov; editing by Stephen Nisbet

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