Transcript of a Conference Call on Belarus With Juha Kahkonen, Senior Advisor, European Department, and Neven Mates, Mission Chief for Belarus, European Department

Washington, D.C., January 12, 2009

MS. GAVIRIA: Good afternoon, everyone. My name's Angela Gaviria. I'm with the External Relations Department. Welcome to this conference call on the IMF's Executive Board approval of a Stand-By Arrangement for Belarus. Here with me are Juha Kahkonen, who is Senior Advisor in the IMF's European Department, and the person with the overall responsibility for Belarus. And also here is Neven Mates, who is the Mission Chief for Belarus. Juha Kahkonen will make some brief remarks and then they both will be happy to take your questions.

MR. KAHKONEN: Thank you. The IMF's Executive Board has today approved a $2.5 billion loan for Belarus under a 15-month Stand-By Arrangement. This loan is meant to support the Belarusian authorities' economic program.

By way of introduction, I'd like to explain the economic problems Belarus is facing, how the authorities' program will address these problems, and why we in the IMF think that the program is strong and likely to succeed.

First, the program. Like many other countries in Eastern Europe, Belarus is facing serious economic problems. The global economic and financial crisis is reducing demand for Belarus' exports and limiting the financing it receives. This comes on top of some problems that are more specific to Belarus. Imports have greatly exceeded exports during the period of rapid economic growth, creating a balance of payments deficit and leaving international reserves low. And the subsidy on gas imported by Belarus from Russia is scheduled to fall.

Now, what is the program doing? Belarus' authorities are tackling these problems by adjusting the exchange rate, increasing interest rates, to make it more attractive for people to hold the ruble, and keeping to tight budget and wage policies to limit demand in the economy. The authorities are also reforming the country's banks, cutting back directed lending, and shifting to a more market-based financial system.

In our view, these measures that the authorities have put in place are important and effective. The 20 percent devaluation that was announced at the beginning of this month will make Belarus' exports more competitive. Pegging the ruble to a basket of currencies means that Belarus is less likely to need to adjust its exchange rate again in response to movement in other currencies. Setting interest rates at levels above the expected rate to inflation should give people confidence that their savings will maintain their value. And maintaining a balanced budget and limiting wage increases should ensure that the inflation is kept low. I should add that under the authorities' program, despite the tight budget, spending for the vulnerable groups will be protected.

All in all, the IMF believes that the Belarusian authorities have put together a strong economic program. If implemented consistently, it will help Belarus to make a speedy return to stability and rapid growth. It is for these reasons that the IMF is supporting the authorities' economic program with this $2.5 billion loan, of which $800 million is disbursed immediately.

MS. GAVIRIA: Thank you, Juha. We are ready for questions now.

QUESTIONER: Thank you for holding the briefing first of all. Sir, as compared even to some corporate bailouts here in the US and elsewhere, the amount that the IMF is providing is relatively small. First, why is it specifically this amount that's been disbursed? Secondly, do you believe it will be enough? And also, you mentioned the 20 percent devaluation of the ruble in a positive light. Does that mean that the IMF is not asking the Belarusian government for any more movement in that direction?

MR. KAHKONEN: About the amount of loan, $2.5 billion, it has been determined taking into account the financing constraints that Belarus faces and also what the strong economic measures the authorities have put in place are expected to do.

It is our assessment that the strong measures that the authorities are taking plus the financing the IMF is providing together will enable both the very low reserve level to be raised to safe levels during the 15-month program and for there to be sufficient financing to allow the program's macroeconomic targets to be met.

Now, on the 20 percent devaluation, it's our assessment that this amount of devaluation is appropriate given that the Belarusian currency was somewhat overvalued, and this devaluation, together with the accompanying wage restraint and tight fiscal and monetary policy, will correct the overvaluation and set the stage for an improvement in the current account and the competitiveness of the economy. So we do not expect another devaluation.

QUESTIONER: Just to clarify. The amount of the program was what the Belarusians themselves asked for, or did they ask for more? And, if so, why were they rejected?

MR. KAHKONEN: The access in the program, the amount the IMF provides, is decided based on various factors depending on each country's specific circumstances. At the beginning of the discussions, the authorities requested $2 billion. But the country's economic situation got more difficult as the discussions continued, and in the end the amount was raised to $2.5 billion.

QUESTIONER: I was wondering if you could give us an outlook for Belarus as far as growth goes. And the other question is, how quickly do you see Belarus coming out of this, and what are the factors that could influence it on the upside and downside?

MR. KAHKONEN: Growth is going to suffer, and it's not because of the program, but because of the very difficult situation Belarus is in.

Growth has been very high in Belarus, averaging as high as 9 percent since 2002. In the current situation, when there are very serious external shocks that Belarus is facing, the financing constraints are such that it's not possible in the short term to maintain growth at anywhere near those levels. Even with the program and the financing provided under the program, we estimate that growth next year will only be in the 1-2 percent range.

We expect the program to allow Belarus to grow at more rapid levels once this adjustment period is over. But in the short term, because of the financing constraints and the severity of the shocks, growth inevitably will suffer.

Now, there are risks, both on the upside and downside. Clearly, it's possible that the authorities will be able to get financing that is not counted on under the program, including from other international financial institutions. The program then provides for the budget to be somewhat looser in that eventuality, and that should allow growth to be higher. But, as in all IMF programs, there are also provisions that mean that if downside risks materialize, there needs to be willingness for the authorities to consider measures to tighten policies.

But, as I mentioned at the beginning, the IMF believes that this is a strong program, and it's likely to succeed. And we think the program designed by the authorities is appropriate to the challenges of the situation. And the program's off to a good start.

MS. GAVIRIA: If there are no more questions, we conclude the conference call here. Thank you very much, everyone, for participating.



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