December 23, 2010 7:33 pm

Belarus’ Lukashenko re-election roils but economic liberalisation key to future

This article is provided to readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world.


In the run up to Sunday’s presidential election in Belarus, long-time President Alexander Lukashenko successfully squelched disputes with Russia and began mending relations with the European Union. Now he has to start correcting the country’s most pressing matter, its fiscal imbalances, several credit market participants and local experts told Debtwire.

According to preliminary results announced by Belarusian authorities, Lukashenko gained 79.68% of votes at the presidential elections on Sunday. Thousands-strong protests gathered in Minsk that evening to contest the ballot result, prompting a brutal police response and detention of seven presidential candidates from opposition, according to international media reports.

Few doubt however that Lukashenko will retain the presidency and in doing so extend his 16-year rule until 2015. His major challenge then will be to liberalise the Belarusian economy and draw in foreign investment by kick-starting a stalled privatisation programme.

Welcoming foreigners

Economic conditions in the landlocked Eastern European country bordering Russia have slowly improved following the government’s decision to fully draw down a USD 3.6bn standby loan from the IMF last year. The country is projected to shrink its current account deficit from 13% in 2009 to 9.7% this year. Nevertheless, it has needed to venture into the international capital markets to bolster reserves.

Belarus completed its debut issuance of a USD 1bn 8.75% 2015 Eurobond in two parts earlier this summer. The government also approved another funding programme worth up to USD 2bn that will remain valid until the end of 2011. Despite the public unrest, Belarus’s sovereign Eurobond, the USD 1bn 2015s, have remained unchanged at 102-103 since Friday, said a London-based trader.

The B+/B1 rated sovereign also successfully placed an RUB 7bn (USD 227m) two-year bond with an 8.7% coupon in the Russian domestic market on Tuesday, pricing within the 8.5%-8.75% guidance thanks to a slight oversubscription.

Belarus does not have any major short-term debt repayments to make, with its first major redemption of USD 2.5bn due in 2013, according to Siargey Chaly, a Minsk-based economist. The country’s foreign debt, which consists mainly of inter-governmental agreements, is quite cheap and pays an average of 300bps over Libor, he said.

Despite its successful fundraising this year, Belarus still needs to find ways to boost its gross domestic product and attract foreign capital, agreed the credit strategist and the two debt investors.

In order to do so, the government expressed its intention to start a major programme of privatisation and economy liberalisation at the start of the year, but little progress has been made so far despite Belarus having invited Rothschild to advise on its privatisation process.

Privatizing state enterprises through competitive tenders should bring more benefits to the government than direct sale negotiations, said Giovanni Salvetti, Rothschild‘s managing director overseeing Central and Eastern Europe. “If privatisation is handled in a ‘Western’ way [via competitive tenders] I would expect significant interest from foreign investors in certain sectors,” he added.

High stakes

But privatisation will be a painful process without measures to create additional jobs and a more liberal economic climate, said Ramanchuk. “The Belarusian economic situation mirrors the Soviet Union in the year 1985,” he added, noting that one of the chief points of his election programme was support for small and medium-sized businesses.

Lukashenko has held back from unpopular moves to privatize state enterprises until after the election, but a source close to the Belarusian government said the president will have to re-start plans next year. “Belarusian enterprises are 30%-40% over-employed. Politically speaking, privatisation is a very bad move, but the government does not have a choice. It needs to do it to get foreign funding,” the source said.

Belarus may decide to privatise companies within the financial, construction materials, consumer goods, pharmaceutical and energy sectors, among others, according to Salvetti at Rothschild.

Belgosstrakh, Belinvestbank and Belagroprombank could be up for sale, along with pharmaceutical company Borimed, refinery Naftan Novopolotsk and various cement plants, said the source close to the government. The state would consider full sales, or the disposal of majority or 25% stakes, he added. Belarus also negotiated to sell fertiliser producer Belaruskali to a Chinese buyer at the start of the year but could not agree the price.

“Lukashenko is simply afraid of privatisation; he does not understand it and avoids it,” the source continued. “There are three or four people that make decisions in Belarus and only one that signs them. All of those people prefer to do it [privatisation] in the more familiar way of one-on-one negotiations.”

But one way or other, Belarus has to start opening its doors to foreign investors, the sources agreed. The question, according to Siargey Chaly, is how quickly the government and the Soviet-style bureaucracy from which the president derives his power can adjust to a new-found openness.


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