Russia delays loan to Belarus on credit worry

By Dasha Korsunskaya and Andrei Makhovsky

MINSK, May 28 (Reuters) - Russia's finance minister said on Thursday Russia had shelved a $500 million loan to Belarus, citing doubts about the Belarussian economy which he said could become insolvent by the end of the year.

The unusually harsh remarks by Russian Finance Minister Alexei Kudrin appeared to reflect growing frustration with Belarus, a close ally whose loyalty is now caught in a struggle for influence between Russia and the European Union.

"We can see the insolvency of the Belarussian government and of the economy as a whole due to insufficient reserves, possibly as early as at the end of this year ..." Kudrin told reporters ahead of a meeting in the Belarus capital Minsk.

However, Prime Minister Vladimir Putin told reporters after the talks that, "such extreme assessments are inappropriate."

"If Belarus needs a shoulder, Russia is always ready to offer one," he added, without mentioning the shelved loan.

Putin and Kudrin held talks with Belarussian President Alexander Lukashenko and Prime Minister Sergei Sidorsky.

Russia, with good reserves following a decade of economic growth, has promised nearly $5 billion of rescue credits to ex-Soviet allies, including Belarus, Kyrgyzstan and Armenia.

Belarus received the first tranche of $1 billion late last year followed by another $500 million earlier this year.

Kudrin said additional financing was halted because Moscow was unhappy with Lukashenko's economic policy.

"The Belarussian government is trying to artificially disguise the crisis by introducing limitations on the conversion of its national currency," he said. "Market mechanisms have been replaced by administrative mechanisms." Russian ambassador in Belarus Alexander Surikov told Reuters the future of the loan would depend on Minsk's talks with the International Monetary Fund, which is still considering a $400 million credit. "We decided to hold more consultations," he said. "We need coordination with the IMF."

Sidorsky told reporters that Russia had earlier been happy with Belarus's economic policy. "When Russia allocated the first tranches of the loan, it was happy with the way we follow IMF recommendations," he added.


Strains in relations between Russia and Belarus became acute after a 2007 row over gas prices.

Russia has also been alarmed by rapidly warming relations between Belarus and the European Union, which the Kremlin fears could threaten its national interests and give Lukashenko new bargaining power with Moscow.

Accused by the West of flouting human rights, Lukashenko has taken steps towards deflecting EU criticism by releasing the last of what the EU called political prisoners.

The EU suspended a travel ban on him and Belarus was invited to join the bloc's "Eastern Partnership", an initiative to bring former Soviet states apart from Russia closer to the EU.

"We don't mind Eastern Partnership, but do not want it to become an alliance against Russia," Russian President Dmitry Medvedev said last week.

Belarus was the second ex-Soviet state refused a loan from Moscow. Ukraine, whose pro-Western President Viktor Yushchenko wants his country to join the EU and NATO, was also turned down.

(Writing by Oleg Shchedrov; editing by Myra MacDonald)



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