BELARUS NEWS AND ANALYSIS

DATE:

11/03/2009

China sets 20 bln yuan currency swap with Belarus

BEIJING, March 11 (Reuters) - China's central bank said on Wednesday it has agreed a three-year currency swap with Belarus worth 20 billion yuan ($2.93 billion).

The People's Bank of China (PBOC) said on its website, www.pbc.gov.cn, that the deal aimed to promote economic growth in the two countries by facilitating trade and investment.

The swap, which may be extended, complements a $2.5 billion loan from the International Monetary Fund approved last year to help the ex-Soviet state overcome the global economic crisis.

Belarus has already received the first $788 million tranche of IMF funding, and the rest will be disbursed by next year if the government meets agreed policy targets.

In Minsk, a central bank spokesman said the purpose of the operation was to simplify trade by eliminating the need for third currencies, like the dollar and euro.

'This was the aim of completing an exchange of deposits that could be put to good use,' Anatoly Drozdov told Reuters. 'This is a measure aimed at stimulating trade.'

Funds received from China, he said, would become part of Belarus's reserves.

'This means in practical terms that our reserves have nearly doubled,' he said.

'It does not mean that the funds will be used. But it is important that they have a psychological effect on the currency market. In any case ,it is an increase only in national terms as the IMF does not take yuan into account.'

Belarus's reserves hit a high of $5.7 billion last August, but have been declining since as the central bank spends to support the Belarussian rouble.

TOUGH TIMES FOR BELARUS

At the end of its latest mission to Minsk, the IMF said on Tuesday that Belarus was introducing appropriate measures but was facing tougher economic conditions than earlier anticipated.

At the beginning of January, Belarus proceeded with the IMF's recommendation for a 20 percent devaluation of the Belarussian rouble and tied the currency to a basket of currencies made up of the dollar, euro and Russian rouble.

The Fund had previously said that Belarus could restore high growth rates if it implemented an anti-crisis programme. It forecast a decline in growth to 1-2 percent of gross domestic product in 2009 and 2010 from 10 percent last year.

Belarus has also received credit of $1 billion from Russia and anticipates getting a further $500 million soon.

The swap is the latest example of China using its financial clout for diplomatic ends.

China lent Pakistan $500 million last year to build up its foreign reserves and it has bought $300 million of Costa Rican government bonds as part of an agreement by the central American country to cut diplomatic ties with Taiwan in favour of Beijing.

The PBOC in December established a 180 billion yuan swap line with the Bank of Korea and said it was exploring possible deals with other central banks.

Belarus imported $1.415 billion of goods from China in 2008, an increase of 73.4 percent, and exported $624 million of goods to China, up 22.5 percent from the year before, according to the Chinese Ministry of Commerce.

($1=6.838 Yuan)

(Reporting by Jason Subler and Zhou Xin and Andrei Makhovsky in Minsk; Writing by Alan Wheatley; Editing by Victoria Main)

Source:

http://www.forbes.com/feeds/afx/2009/03/11/afx6153483.html

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