BELARUS NEWS AND ANALYSIS

DATE:

21/12/2007

Russia Offers Belarus Big Aid

Belarusian Finance Minister Nikolay Korbut was called to Moscow and literally dumbstruck when he got here and heard of Moscow's unexpected generosity. The total state credit Russia is promising to Belarus for 2008 has been raised from $1.5 billion to $3.5 billion, that is, 7 percent of the expenditures in the Belarusian federal budget for the year. Deputy Prime Minister, realizing the attraction of such unheard-of generosity, then offered Belarus a loan for 10 billion rubles on the intra-Russian market. Belarus wanted to take less but, swept along by Russia's desire to pay to orient its economy toward its senior partner, is obviously giving in.

Yesterday Belarus received the money it had been asking for from Russia since the end of last year in an interstate credit to cover losses from the rising price of Russian oil and natural gas supplies. Deputy Prime Minister and Finance Minister Alexey Kudrin and Belarusian Finance Minister Nikolay Korbut, summoned to Moscow unexpectedly, signed an agreement at government headquarters on the provision of a $1.5-bilion state credit to Belarus. They did not stop there, though. Kudrin promised another credit for $2 billion, and then Belarus was offered the chance to place 10 billion rubles in securities on the Russian market and, if those securities met with a demand, to place as many securities as necessary. They literally poured money onto the country. The Belarusian finance minister even misspoke and said that his country "had the desire to have less" when it asked for the credit.

Kudrin said in the summer that the technical parameters of the first loan, for $1.5 billion, had been agreed upon. But the money was not issued to Belarus during prime minister at the time Mikhail Fradkov's visit to Minsk in September or during Russian President Vladimir Putin's visit to Minsk during the December 14 session of the Supreme State Council of the Union of Russia and Belarus. Last week, the president only signed a memorandum that acknowledged the possibility of granting a loan.

The Russian Finance Ministry, did not wait for the next formal occasion to get a signature on the agreements to give Belarus the credits. That would have been the council of ministers meeting of the Union State of Russian and Belarus in Moscow on December 26. Until yesterday's events, not even prime ministers were scheduled to take part in it. When asked by Kommersant directly how the form and term of the loans was decided on, Kudrin gave an elusive answer, citing "delays in specifying the further steps of the partners."

Kudrin explained that $1.5 billion was being provided by Russia for a term of 15 years at an interest rate of LIBOR+0.75%. A five-year grace period was also foreseen under the agreement, during which interest would not be paid. At the current LIBOR rate of 5 percent, Kudrin estimated the cost of the loan at "about 6 percent" for Belarus. But immediately after the signing of the agreement, the deputy prime minister announced that Russia was prepared to provide another credit to Belarus in 2008 for $2 billion. Korbut tried to object that it should be a commercial credit from Russia to Belarus, but Kudrin insisted that the form of the loan, whether a state loan or commercial credit, "will be studied." Kudrin revealed one more secret of Russian-Belarusian financial relation, Before that, "one of the next steps will be the placement of a public loan to Belarus on the Russian market." The Russian minister said that "the Russian side has already received a request for the registration of that loan." After that, Korbut could only admit that the volume of the placement could be up to 10 billion rubles in 2008. He specified that "it won't be a single placement, but tranches."

The first $1.5 billion Russia will provide altogether. Korbut said that the country is counting on receiving all the money in that portion before the end of the year. He said it would be used against the deficit in the Belarusian budget, which will be 1.9 percent of the GDP, or $1.2 billion, in 2008. The credit for $1.5 billion, according to Kudrin, will be used to expand Belarusian gold and currency reserves and will enter the Belarusian budget converted in Belarusian rubles. What use the other $2 billion will be put to, or the money from the Belarusian securities, was not revealed. For Belarus, $3.5 billion in credits in 2008 is a macroeconomically significant sum. It is about 7 percent of the expenditures in the country's $24.4-billion consolidated budget for 2008 and a little less than the $5.6-billion 2008 social support fund (a combination of part pension fund and part social insurance system).

Before Putin's visit to Minsk, analysts suggested that the Russian credit might be payment for Belarusian President Alexander Lukashenko's agreement to the Russian proposal for a union state. Now though, when the stakes have been raised 2.5 times, the reason seems to be different. Andrey Fedorov, director of the Fund for Political Research and Consulting, suggested that "Most likely, they reached an agreement with Lukashenko on broad Russian access to the country's economy, not only Russian participation in Belarusian privatizations, but also broader cooperation. Plus agreements on security - Belarus border on Poland. Finally, maybe, it is payment for the possible conversion to the Russian ruble." Vyacheslav Igrunov, director of the International Institute for Humanitarian-Political Studies, thought, "The sum shows that Russia has serious plans for its cooperation with Belarus. The visit of Vladimir Putin was the first step, the credit the second, and the third is still hard to guess." Political scientist Stanislav Belkovsky suggests that the $3.5 billion is payment to Belarus for a guarantee that there will be no economic conflicts before the Russian presidential elections in March 2008.

Kudrin offered his own variant. He said the credits will allow "all Belarusian economic subjects that have trade deals with Russia, including deals with Gazprom, to have a good supply of gold and currency reserves, which will ensure the foreign trade turnover between Russia and Belarus."

Kudrin refused to discuss any political background to the credit, but could not resist commenting altogether, stating that the low cost of the credit "takes into consideration our relationship and the creation of the Union State." All things considered, Russia seems to have decided to change its tactics in relations with Belarus after the lengthy negotiations in Minsk on February 14. If Belarus does not the cheap Russian money, which is highly unlikely, the degree of economic integration between the two countries will unavoidably increase, as will Belarus's ties to Russian financial and stock markets. Where political arguments fail, with money, and a sum that is not all that large for Russia. It is only a question of how Lukashenko can resist such unorthodox economic pressure.

Petr Netreba, Dmitry Butrin

Source:

http://www.kommersant.com/p838631/r_528/foreign_relations/