May 27, 2011 / 3:48 PM / in 7 years

UPDATE 3-Belarus FinMin defies Lukashenko on Russian bailout

* Finmin says will stick to loan agreements with Russia

* Russia insists on privatisation to complement loan

* Lukashenko says will not sell state assets cheaply

* Lukashenko accuses Russian media of sowing panic

(Adds FinMin statement)

By Andrei Makhovsky

MINSK, May 27 (Reuters) - Belarus’ finance minister openly defied President Alexander Lukashenko on Friday, saying the country will not back down from loan agreements with Russia and will continue with its privatisation plans.

Lukashenko had warned key creditor Russia earlier on Friday that Belarus would not sell off state assets cheaply to secure an emergency loan, and said Russian media should be expelled for sowing “hysteria” about his currency.

“We have a full mutual understanding with the Russian side and we are not going to back down from previously reached agreements,” Finance Minister Andrei Kharkovets was quoted as saying by the state BelTA agency.

Lukashenko, whose government has struggled in vain for months to overcome the crisis, said Moscow officials were suggesting Minsk should sell state assets at bargain prices while Russian media were sowing panic about Belarus.

“Some foreign politicians ... are saying that Lukashenko is starting to sell stakes in liquid companies and have even named the $7.5 billion figure,” Lukashenko told a government meeting, in a clear reference to an estimate made last week by Russian Finance Minister Alexei Kudrin. [ID:nLDE74I0N6]

The comments could jeopardise Minsk’s plans to secure $3 billion from a Russian-led bailout fund next week and deepen a currency crisis that threatens to overwhelm the former Soviet republic, which also faced a fresh debt rating setback.

“I’d like the first person in that line to tell others ‘Leave. There is no sale’, especially at bargain prices as suggested by some of those waiting to grab (assets),” state news agency BelTA quoted him as saying.

But Kharkovets said the privatisations would go ahead.

“It (Lukashenko’s statement) meant first of all that there will be no giveaway of the country’s most liquid assets even in difficult times for the country. But it does not mean that privatisation will be abandoned,” he said later in the day.

Lukashenko also threatened to sack Prime Minister Mikhail Myasnikovich and central bank chairman Pyotr Prokopovich.


Kudrin said last week that Belarus could get a $3.0-3.5 billion loan from a regional bailout fund led by Russia on June 4. But Minsk would need to sell $7.5 billion in state assets to complement it, he said.

On Friday, Kudrin reiterated that large-scale privatisation was a necessary condition for the bailout loan.

“Privatisation is one of the key sources of foreign currency which is needed to support the balance of payments and resolve Belarus’ currency woes,” he told reporters.

Separately, Russian Prime Minister Vladimir Putin said on Friday that talks were at a “finishing” stage on Gazprom’s (GAZP.MM) acquisition of the Belarussian government’s 50 percent stake in Belarus’ gas pipeline network for $2.5 billion.

    Analysts say other assets that could interest investors include potash miner Belaruskali, a mobile telecom company jointly owned by Belarus and Russia’s MTS (MBT.N) and heavy industry companies such as truck makers MAZ and BelAZ.

    At the same meeting, Lukashenko also ordered the government to expel some foreign media, accusing Russian journalists of sowing panic about his ex-Soviet republic.

    “Do everything to make sure those media are no longer present on our territory,” Lukashenko told officials. “Russian media were the most hysterical.”

    Belarus’ central bank devalued the country’s rouble BYR= by 36 percent this week in an attempt to reduce a large current account deficit.

    Standard and Poor’s on Friday put Belarus’ ‘B’ long-term credit rating on a negative outlook saying the devaluation had significantly increased the government’s debt burden.

    Belarus’ 2015 Eurobond <0#BY052939470=> dropped 3.0 points to its lowest point since early April following Lukashenko’s speech and the S&P announcement. The 2018 bond was down 1.8 points.

    “The situation has clearly taken a marked turn for the worse over the past 24 hours, and we would expect further downside pressure on Belarus asset prices, pending clarity on the state of relations with the country’s key strategic partner, Russia,” RBS analyst Tim Ash said in a note on Friday.

    Gabriel Sterne, an economist at the Exotix brokerage, said the bailout deal could now fall through.

    ”The... possibility is they can’t reach any agreement with Russia and the crisis goes from bad to worse and they edge to hyperinflation in a Zimbabwe kind of scenario.

    “That’s a very plausible scenario that markets until today haven’t really been factoring in.”

    The devaluation has nearly wiped out generous wage increases made by Lukashenko’s government in the run-up to the December 2010 presidential election. Lukashenko secured a fourth term in office in a vote criticised as fraudulent by Western monitors.

    Consumer prices have soared in the nation of 9 million, prompting people to hoard staples from sugar and sunflower oil to salt and vinegar. Officials say inflation could reach 39 percent this year.

    Lukashenko on Friday also ordered officials to introduce price controls and said only local governors and the prime minister could now authorise price increases for consumer goods.

    Writing by Olzhas Auyezov; Editing by John Stonestreet

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