IMF assesses Belarus bail-out plea

Alexander Lukashenko has managed to stay in power for 17 years thanks in part to his ability to play Russia and the west off each other, a technique he returned to this week with Belarus’s request for a fresh IMF bail-out worth as much as $8bn.

If the IMF grants the request, it could increase the Belarusian autocrat’s bargaining power with Russia, which is also offering help, though with onerous conditions attached.

But this time Mr Lukashenko’s manoeuvrings may not be enough to extricate the former Soviet republic from a growing economic crisis that has seen the current account deficit widen to 16 per cent of gross domestic product, foreign reserves dwindle and the rouble plummet in value.

The problem is that the IMF has been burnt by Mr Lukashenko before. The fund agreed to a $3.5bn standby loan to help Belarus in the wake of the 2008 global financial crisis. But much of the positive effect of the programme was wasted by Mr Lukashenko, who ramped up public spending and eased credit conditions for state companies on the eve of last December’s presidential elections.

“They are going to have to look at the lessons of the programme,” said Gabriel Sterne, an economist with Exotix, a firm specialising in emerging markets. “It is pretty unusual for the IMF to come back to a country a year after a fairly successful programme and see such a shambles.”

As the IMF noted in its assessment of the programme, the biggest problem was that senior officials never really accepted the medicine that the IMF was applying, especially the need to limit directed lending to state-owned companies which make up 70 per cent of the economy. “Even though the authorities adhered to the letter of the programme, the spirit was not met,” noted the IMF.

Any future aid programme would have to ensure that loopholes were eliminated. “The IMF would need strong assurances from the very top that those unconventional policies are permanently ended,” said Mr Sterne.

US and European IMF members are unlikely to be lenient with Belarus in light of the regime’s crackdown on the democratic opposition following the December elections which has seen dozens of activists, as well as several presidential candidates, sentenced to long prison terms.

That will lessen Mr Lukashenko’s bargaining power with Russia.

Belarus is already in line to get a $3.5bn loan spread over three years from a grouping of ex-Soviet states. But Russia is reportedly demanding that the aid be linked to economic reforms and a radical privatisation programme that could see many key assets snapped up by Russian companies.

“Belarus has to do something,” said Anastasiya Golovach, an analyst with Renaissance Capital. “It has to be either further devaluation, aid from Russia or aid from the IMF, and the optimal solution is the IMF.”