IMF urges austerity on Belarus

The International Monetary Fund urged Belarus on Monday to greater austerity, including freezing wages and allowing the national currency to float freely, to justify emergency financing of billions of dollars.

The ex-Soviet republic wants up to $8 billion dollars from the Fund to help it keep the lid on a crisis that has forced a 36 percent devaluation of the rouble, hit living standards and forced people to scramble for dwindling supplies of imported goods.

Prime Minister Mikhail Myasnikovich declared on Monday that Belarus as a full member of the IMF ought to be able to count on Fund support “in a difficult moment”.

But at a subsequent news conference IMF mission chief Chris Jarvis gave only lukewarm support for Minsk’s anti-crisis policies and urged a programme of monetary tightening.

The financial market is not working,” Jarvis, whose mission was ending a two-week visit to Minsk, said.

He called on Belarus to scrap its multi-tiered system of varying exchange rates and allow the rouble to float freely. Wage levels should be frozen and interest rates should be raised, he said.

Belarus expects to receive $1.2 billion in loans from a Russia-led bailout fund this year.

But, under pressure from Russia to open up key assets for privatisation by Russian big business, the Minsk government says it also needs IMF support of between $3-8 billion dollars.

It hopes these funds together will help it avoid economic chaos, stabilise its rouble currency and tame runaway inflation.

The balance-of-payments crisis is threatening the authority of President Alexander Lukashenko who has ruled since 1994 and was re-elected last December for a fourth term in a vote denounced by the opposition as fraudulent.

On Sunday night, Belarussian police forcibly broke up a protest by scores of motorists at a border crossing point with neighbouring Poland. The protesters had demanded that authorities revoke a decision restricting motorists to carrying no more than five litres of gasoline in their tanks out of the country.

PRE-ELECTION SPENDING<

Much of the IMF’s recommendations ran counter to Minsk’s policies. Just last Wednesday Lukashenko was quoted as saying he saw no reasons for the rouble exchange rate to weaken beyond 5,000 to the dollar.

As well as the May devaluation, Belarus has frozen prices of key foodstuffs, prompting people to hoard staples such as sugar and queue in front of currency exchange points.

Analysts attribute much of the crisis to increased public spending and wage increases in the run-up to the December 2010 election which resulted in Lukashenko’s re-election.

Wages, Jarvis said, had been raised to a level that the economy simply could not support. Interest rates had to be raised above the inflation level to allow the state budget to get out of deficit.

Delivery of IMF aid is complicated by Lukashenko’s poor image in the West following his December re-election.

Police rounded up hundreds of people, including several presidential candidates, who denounced the vote as fraudulent. Western monitors also criticised the ballot and the United States and the European Union have since introduced travel bans against Lukashenko and his inner circle of associates. – Reuters

http://www.iol.co.za/business/international/imf-urges-austerity-on-belarus-1.1082949

 

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