IMF: External Constraints Likely To Hinder Belarus Growth

WASHINGTON (Dow Jones)--Belarus isn't likely to return to the high growth seen before the global financial crisis and needs to make changes to improve its business climate, including privatization, according to a report released Tuesday by the International Monetary Fund.

The IMF has provided aid to Belarus, saying an end to large energy subsidies from Russia and a sharp decline in demand for its exports put Belarus in "a highly vulnerable position" at the start of the 2008 collapse.

Belarus has done better than its main trading partners as strong domestic demand helped limit the decline in the Belarus economy to 0.5% year-over-year for the first eight months of 2008, according to the IMF. But the IMF raised concerns about an aggressive expansion of government programs and credit, saying they have lowered Belarus's reserve levels and increased its debt load.

The Belarus government disbursed 40% more in the first half of the year compared to the first half of 2008, and its central bank provided liquidity support to banks on non-market terms, the IMF noted.

IMF directors urged Belarus to gradually phase out generous support for state-owned banks and endorsed its plan to maintain high interest rates and restrain fiscal spending.

"The decision to postpone the increase in public sector wages and to increase charges for transportation and utilities would help rein in spending," the IMF said. It added that limiting Belarus's consolidated budget deficit to the equivalent of 1.7% of its gross domestic product in 2010 should help it meet goals of boosting reserves and containing inflation.

Since Belarus isn't likely to see a return to its pre-crisis boom, the IMF said it needs to pursue ambitious reforms, including privatization, to generate new sources of growth. It also encouraged Belarus to develop nonbank financial institutions and increase the commercial focus of its banks.

On currency, IMF directors said they generally supported recommendations from the IMF staff to permit more flexibility in the exchange rate and for Belarus to consider moving in the medium term toward a more flexible exchange rate regime.

-By Judith Burns, Dow Jones Newswires, 202-862-6692;


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