At least you’re not in Belarus
Country asks for another IMF bailout, after screwing up the first one. There are few signs of spending coming under control. The neighbour which really holds the purse strings demands ever more privatisation.
. . . Not Greece.
Not Greece at all. Belarus has fallen even further into currency crisis since FT Alphaville last looked – and it really is metastasising into an even worse political meltdown.
The economy’s still reeling from an attempted devaluation of the Belorussian rouble through the country’s various fragmented FX markets instead of in one go, leaving the country starved of foreign currency. Import prices have exploded. President Lukashenko has also exploded, generally in the direction of the Russians and his own officials, after bailout talks failed. So now it’s the IMF’s turn.
Here’s Nomura’s Tatiana Orlova to fill in the rest of the story:
In the run-up to the IMF assessment, the monetary authorities hastened to fulfil some of the recommendations expressed in the IMF’s March staff report. Earlier this week, the NBRB hiked the official rate from 14% to 16%. This followed three other hikes since mid-March which have already lifted the rate by 550bp. As the official rate has little significance, this was the easiest of all measures for the authorities to implement to follow the IMF’s recommendations. There have been no signs yet of the government reining in fiscal expenditure which boosted households’ spending power and their demand for imports.
Due to the absence of other official statistics, it is hard to estimate the impact of the botched devaluation and “starving” the economy of FX liquidity. However, it is becoming increasingly clear that the country is entering a recession. The depth and length of the recession will depend on the speed of the country receiving assistance from Russia and/or other donors and privatising its state assets. First of all, the authorities need to stabilise the FX rate at which economic agents would be willing not only to buy but also to sell FX in the market. This would allow resumption of imports of consumer goods and components for industries operating with imported inputs. This would also reduce the risk of hyperinflation. Last week, President Lukashenko ordered that all price increases need to be approved by the authorities. On Tuesday this week, the government issued an official decree freezing prices for staple foods such as fish, tea, coffee and some meat and dairy products. The price freeze will probably result in an even worse shortage of goods and a thriving black market, and may make official inflation statistics irrelevant.
Despite the economic instability, there have been hardly any signs of the rising political temperature in society at large…
Although it’s a different story within the regime itself, with a few incipient signs that the elite is backing away from Lukashenko. As Nomura write:
Political risks also seem to be increasing, and this makes us view holding Belorussian debt as a risky strategy over the medium term. We see relative economic stability as the main factor supporting the current oppressive regime and the current crisis increases the risk of a regime change in the near future. With no reliable opinion poll data, it is hard to say how much Mr Lukashenko‟s rating has deteriorated, but the crisis is too acute to leave the population indifferent. It may be too early to speculate on possible changes to the political set-up in the coming months, but the Russian authorities certainly seem less keen on keeping Mr Lukashenko in power. Russia’s approaching election season diminishes the likelihood of the current Russian government intervening in the affairs of its neighbour to support a dictator. Although a regime change does not seem imminent, we cannot exclude the possibility of a new government coming to power in the short to medium term which may decide not to honour the obligations of the previous regime.
To reiterate — the amazing thing here is that this is all coming one year after Belarus finished its last”‘successful” IMF programme. It really is a striking precedent in Fund history.
To go with that other precedent being set in, er, Greece.