Russia screwing Lukashenka’s arms

Minister of finance of Belarus Andrei Kharkavets and Russian vice premier Aleksei Kudrin signed an agreement on granting a loan on hard terms. Belarus is getting a $2 billion credit from Russia for 2008–2009 and agreed to switch to rubles when trading in oil and gas from 2009.

Yesterday in Moscow minister of finance of Belarus Andrei Kharkavets and Russian finance minister and vice premier Aleksei Kudrin signed an agreement on granting a $2 billion intergovernmental credit to Belarus. It was unknown if a deal will take place some hours before the signing of the document: Kommersantdaily’s sources in Belarus stated Kharkavets would deny the loan. However, the document was signed, and the Belarusian finance minister announced a cost of the deal: Russian and Belarus agreed on settling oil and gas trades in rubles. “It will be our contribution to giving a status of regional reserve currency to ruble,” Kharkavets said when signing the agreement.

The first tranche of the loan, worth $1 billion, will most likely to be given in the nearest day. Another $1 billion will be given in the first half of 2009. The credit terms are the same that the $1.75 loan 2007 has. The first tranche is given at a rate of 3 percent over LIBOR and for a period of 15 years with deferred payment for 5 years. An agreement on the second tranche will be signed by the beginning of February 2009. Besides, the parties signed some more agreements, which seem to be the cost of the Russia’s loan. These are a memorandum on mutual understanding between the governments on “concerted measures to increase competitive abilities of national economies”, and a protocol of talks between the delegations of Russia and Belarus on “development of credit and financial cooperation”. The contents of the documents are unknown.

Gas is the main item of export to Belarus. Gazprom plans to supply about 21.6 billion cubic meters of gas in 2009. Since January 1, Belarus has been paying for gas according the agreed formula, but the exact prise for the next year is still unknown. Sources from Gazprom estimate it at $200–250 per 1,000 cubic meters for the beginning of 2009, which will amount t o $4 billion. In 2008, Belarus’s expenses for imported Russian gas (21.2 billion cubic meters) were about $2.5 billion at effective price of $120 per 1,000 cubic meters. Gazprom buys gas transmission services from Belarus at dollar;, dollar is also a means of settlement with Russian companies, selling oil to Belarus. So, at least 40 per cent of the foreign trade operations will be settled to rubles.

This will inevitably make Russian ruble a reserve currency for the National Bank of Belarus. It should be noted that it has switched to ruble after decreasing of gold reserves to $4 billion (according to national definition, they are $400–500 million higher than according to the definition of the International Monetary Fund). Belarus could have chosen resistance to pressure and getting a credit from the IMF instead of a Russian loan. However, the IMF delegation just extended terms of its work in Minsk for a week but didn’t take a definite decision on granting a $2 billion loan to the country.

Russia’s profit from expanding ruble zone to Belarus is yet unclear: ruble won’t become much stronger and Gazprom and Gazprom Export will find their risks of transactions with Belarus, caused by exchange rate movements, changed a little. While Belarus will in fact become a hostage of currency rate in Russia in 2009 that will reduce chances of conducting an independent currency policy for Belarusian ruble.