IMF urges Belarus to pursue structural reforms

WASHINGTON, Dec 15 (Reuters) - Belarus will not likely resume the high growth rate it saw before the financial crisis and must pursue structural reforms, including privatization, to improve its business climate, the IMF said on Tuesday.

The International Monetary Fund said that this year it had provided a $3.63 billion stabilization loan program to Belarus, which helped the former Soviet republic escape a severe drop in output.

Belarus has fared better than its trading partners, seeing just a 0.5 percent drop in gross domestic product in the first eight months of 2009, with the IMF projecting a full-year output drop of 1.2 percent. Belarus' economy grew 10 percent in 2008 and 8.6 percent in 2007.

Strong domestic demand for housing, aided by government lending programs, had helped Belarus offset a sharp drop in external demand, the IMF said.

In a report following its annual consultations with Belarus officials and institutions, the IMF board of directors encouraged Belarus to gradually phase out central bank liquidity support to banks and address "vulnerabilities" in state-owned banks, the fund said. "Directors agreed that priority should be given to the objectives of building reserves and supporting the exchange rate regime and therefore endorsed the authorities' plan to restrain credit for the remainder of the year, accompanied by strong fiscal and monetary priorities," the IMF said.

The IMF said directors applauded Belarus' spending restraint, including delaying a wage increase for public sector workers.

"Directors considered that limiting the consolidated budget deficit to the equivalent of 1.7 percent of GDP in 2010 provides a strong basis for a macroeconomic framework consistent with the objectives of increasing reserves and containing inflation," the fund said. The IMF directors supported recommendations to permit more flexibility in Belarus' foreign exchange rate within a widened trading band that assures targets for international reserves are met. "Over the medium term, consideration could be given to moving toward a more flexible exchange rate regime," the report added.

The IMF also said it was important for Belarus to pursue an ambitious structural reform strategy aimed at generating new sources of growth and improving its business climate.

"Privatization would play an important part in easing external financing constraints and promoting technological development," the fund said, "Further measures are also needed to reduce the burden of regulation and quantitative targets on the private sector."

(Reporting by David Lawder; Editing by James Dalgleish)


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