BELARUS NEWS AND ANALYSIS

DATE:

28/02/2007

Lukashenko's Belarus scrambling for foreign money (News Feature)

by Tatiana Shebet' and Stefan Korshak

Minsk - Authoritarian Belarus is frantically shopping for cash or credit, having asked Russia for 1.5 billion dollars, China for 1.2 billion dollars, and even offered international business a crack at buying into Belarusian industry.

The measures, announced by strongman Belarusian leader Aleksander Lukashenko over the last three weeks, are a last-ditch move by the former collective farm boss to avoid state bankruptcy, industry analysts said Wednesday.

The problem is the 2007 19.4 billion-dollar national budget has been rendered dysfunctional by end-of-the-year Russian fuel price hikes doubling the cost of oil and gas sold to Belarus overnight.

By some estimates, government revenues could fall short by 50 per cent - a potential disaster for Lukashenko, who has maintained control on the strength of an expensive Soviet-style social support net of state-financed medical care, education, and cradle-to-grave jobs.

Lukashenko's solution - essentially, to pry money from foreigners to cover the gap - will be a complicated task, given his Soviet-style economy, complete with a five-year-plan and a pariah status among most Western governments, area analysts said.

The Russian money or 'stabilization credit', would go towards the purchase of high-profile government-run businesses, particularly fuel plants needed by Russia as energy supporter, to add value to crude oil travelling to Europe, according to Lukashenko.

The pitch to Beijing offers 'extremely competitive terms of taxes and labour costs' for businesses looking to enter markets in the former Soviet Union.

Lukashenko has also floated the idea of bonds for Belarus' external debt to the Russian market for an additional one billion dollars.

He came up with a plan to auction a host of Soviet-era Belarusian businesses, outfits such as the Minsk Tractor Factory and the Minsk Automotive Factory, and the national telephone monopoly Beltelekom.

'This is an open admission the country is facing severe macroeconomic problems, as a result of the increase of the price of Russian gas and oil,' said Stanislav Bogdankevich, a Minsk-based banker.

'What is needed is an overhaul of the economy, a shift from central planning to a market-based economy,' he added. 'And in this we have made little progress in recent years.'

Belarus' embattled small businessmen, citing Lukashenko's long- term policy of tighter administrative restrictions and increased taxes on private enterprise, agree emphatically.

'The government is systematically eliminating the small businessman,' said Anatoliy Shumchenko, a spokesman for the Perspektivi consumer rights group.

'What our leaders want is an economy with only a few large companies working that they can 'milk' easily, but you can't run an economy that way...nor can you attract investors,' he said.

Analysts differ on how long the presently uncompetitive economy has to wean itself from dependence on cheap Russian energy, before it crashes.

'I think, actually, things will be fairly stable for the next two or three years. The energy price pressure won't bite overnight,' said Yaroslav Romanchiuk, chairman of the Minsk Mizes Research Centre.

'Right now the foreign debt is very small, and a lack of funds really won't be a problem until servicing the foreign debt becomes difficult.'

'The economic reforms needs to happen now, or tomorrow it will be too late,' banker Bogdanovich said.

Experts agree that without a turnaround towards support of free enterprise by the government, the present search for funding will come up short.

'The Belarusian authorities have no intention of battling with the underlying reasons, that underpin the oncoming crisis,' Romanchiuk said.

'They (Belarus' leaders)...are trying to patch holes without any idea how to fix the problem.'

Sergei Sidorskiy, Belarus' Prime Minister and one of Lukashenko's senior lieutenants, on Wednesday gave support to arguments that the government has a long way to go, and a great deal to learn before it can attract the kind of money it needs from international capital markets.

'We will invite foreigners to bid on our companies, but if they think they will get our firms for a song, they are mistaken,' Sidorskiy was quoted as saying on Wednesday.

'We will price our companies at international levels, and we will not sell for a kopeck less.'

c 2007 dpa - Deutsche Presse-Agentur

Source:

http://news.monstersandcritics.com/business/news/article_1270900.php/Lukashenkos_Belarus_scrambling_for_foreign_money__News_Feature_