BELARUS NEWS AND ANALYSIS

DATE:

21/10/2008

Russia to lend Belarus $2 bln, resume currency talks

By Gleb Bryanski

MOSCOW, Oct 21 (Reuters) - Russia will issue a $2 billion loan to Belarus and resume common currency negotiations with its ex-Soviet neighbour, Finance Minister Alexei Kudrin said on Tuesday.

Russia and Belarus had declared an intention to create a unified state in 1996. Customs as well as immigration agreements are already in place but limited progress has since been achieved as both sides appeared to have cooled to the idea.

Belarus leader Alexander Lukashenko sought to improve its isolated country's relations with the West and open up its markets after a row with Russia over energy prices.

But plans for a Eurobond faltered due to global financial turmoil, pushing Minsk back towards the Russian bear's orbit.

Last year Russia gave Belarus a 15-year stabilisation loan for $1.5 billion at a rate of 0.75 percent over LIBOR. Belarus used the money in part to pay for Russian energy supplies and said it wants more money on similar terms.

"Last week a decision was taken to grant Belarus a $2 billion loan -- $1 billion will be issued this year and $1 billion next year," Kudrin said, adding that the terms of the loan were still under discussion.

"During this time we decided to draft a joint action plan to create a common currency," Kudrin said after a meeting with the finance ministers of ex-Soviet countries in Moscow.

Belarus requested the first loan after Russia more than doubled gas prices for Minsk in 2007 to $100 per 1,000 cubic metres. Prices will rise further to $119 next year.

Discussions over a monetary union between Russia and Belarus began in Sept. 1993, shortly after the break-up of the rouble zone. But talks stalled as Russian reforms advanced and Belarus' economy stayed along Soviet-era command lines.

Belarus, upset by Russia's decision to sharply rise gas prices, cancelled the peg of its currency to the Russian rouble, pegging it to the dollar. It now plans to peg it to a basket of currencies which includes the dollar, euro and rouble.

During a visit of Prime Minister Vladimir Putin to Belarus earlier this month he suggested Belarus should use the Russian rouble as a reserve currency as part of an effort to boost the international standing of the rouble.

Economists have said a monetary union with Russia may amount to shock therapy for Belarus' state-protected economy with immediate curtailment of fiscal subsidies and support for enterprises and banks. (Additional reporting by Sabina Zawadzki) (Reporting by Gleb Bryanski; editing by Patrick Graham)

Source:

http://www.guardian.co.uk/business/feedarticle/7902855

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