Belarus quadruples debt plan to fight stagnation

By Lidia Kelly and Andrei Makhovsky

MOSCOW, Dec 11 (Reuters) - Belarus on Friday quadrupled its 2010 Eurobond plan to $2 billion and pledged to sell a key oil plant to Russia as it seeks to raise cash to fight economic stagnation after years of explosive growth.

The government also said it wants to raise another $400 million from the Russian bond market, only a day after getting a promise from resource-rich Russia that it would continue subsidising the Belarus economy with cheap energy in 2010.

Belarus, whose export-oriented economy has been run along Soviet-style command lines by President Alexander Lukashenko since 1994, has been hit by the global crisis alongside its bigger neighbour Russia.

But while Russia and other countries in the region saw a tenth or so of their economies disappear in gross domestic product terms in the first half of the year, GDP in Belarus has declined only 1 percent in the first 10 months.

Alexander Morozov, chief economist at HSBC in Moscow, said the modest contraction was due to the fact that the government has been forcing its companies to produce and increase stock of finished goods without being able to sell them.

"But this cannot last forever. They cannot compensate for the loss of demand that they saw before the crisis," Morozov said.

Next year promises to be tough, and economists say one government scenario for the economy to grow 11-13 percent is simply unrealistic.

The World Bank sees the country's economy growing 2 percent next year. The budget deficit is forecast to reach $1 billion.

On Friday, Belarus' prime minister Vladimir Semashko said the government would sell oil refinery Naftan to a Russian company, possibly to Russia's No.2 oil producer LUKOIL , in the near future.

This follows Thursday's news of the approved sale of state-run BPS Bank to Russia's largest lender, Sberbank , for slightly over $280 million.

Last week, Lukashenko sacked his government's economy, trade and tax ministers in a reshuffle aimed at tackling economic stagnation.

The World Bank said last week it is prepared to boost its financial aid to Belarus.

The country's finances have also been supported by a $3.63 billion stabilisation programme issued by the International Monetary Fund late last year and disbursed in tranches.

But Belarus is increasingly bowing to its mighty neighbour Russia again. On Thursday, Lukashenko won a pledge of support from President Dmitry Medvedev during a visit to Moscow.

On Friday, Semashko said Belarus wants Russia's Sberbank to organise the Eurobonds issue with a maturity of three to five years and of the rouble bond issue for up to 15 billion roubles ($411 million).

State-controlled Sberbank will also syndicate loans for $300 million and 5 billion roubles, Semashko said, giving no further details.

On Friday, Belarus also said Russia has agreed to supply the country with 8 to 9 million tonnes of oil duty-free in 2010.

"This is really good news for Belarus .... Russia is the key market for Belarus," HSBC's Morozov said. "The more liberalised the trade with Russia is, the more benefits Belarus will be able to extract from that."

(Reporting by Lidia Kelly in Moscow and Andrei Makhovsky in Minsk; writing by Lidia Kelly; Editing by Hugh Lawson)


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