WSJ: Belarus's Isolation Hammers Ruble

Belarus's currency continued to fall Monday, bringing its drop against the dollar in recent weeks to more than 50%, as the authoritarian regime of Alexander Lukashenko struggles to plug financial holes after Russia backed away from providing billions of dollars in aid.

The decline of the Belarussian ruble has created a devaluation that some analysts say is sufficient to restore the country's competitiveness on export markets. But the steep drop has destroyed the global purchasing power of Belarussians who saved in rubles, and has jeopardized the future of businesses that depend on dollar or euro imports from international suppliers.

The ruble sank to 6,500 to the dollar over the weekend, from 5,800 on Friday and 5,300 on Thursday, according to a market participant. In recent weeks, the central bank had required that the ruble be traded at or near its official exchange rate, currently pegged at 3,120 to the dollar.

Individual retail customers in theory can buy the dollar for 4,500 Belarussian rubles because the central bank has recommended that banks maintain the level for street-level currency-exchange windows. But in reality, customers often have to wait in long lines at banks until someone disposes of dollars before others can buy them. Some international food and beverage brands have disappeared from shops in Minsk, the capital.

Marina, a 62-year-old retiree, earlier this year switched to saving her pension in dollars rather than Belarussian rubles on the advice of her children. But she said Monday that with the currency regime in such a confused state, she can't really convert her salary to dollars any more, and will instead leave the pension in a local-currency bank account and accept high interest rates as compensation for the risk.

Economists don't expect Belarus's problems to spread to other Eastern European countries because of the small size and isolation of the country's economy. But the increasingly acute financial problems have called into question Belarus's ability to repay its debt and attract new financing.

Last week, Russian Finance Minister Alexei Kudrin said Belarus might receive only $1 billion in aid this year, rather than the $2.7 billion loan from a Russia-led group as originally discussed. Mr. Kudrin suggested that Belarus accelerate the privatization of state assets and turn to the International Monetary Fund.

Russia's move was likely motivated by Belarus's reluctance to offer Russia ownership of some of its strategic assets in sectors such as the energy industry, which Russia has previously sought, said Royal Bank of Scotland analyst Timothy Ash said.

The IMF has recently backed a deeper ruble devaluation as a way to boost Belarus's exports, including potash fertilizer and tractors. Belarus devalued its currency by 25% in 2009, fulfilling a requirement of an IMF program, and received a $2.5 billion loan from the fund. This year the central bank has boosted policy interest rates to 13% in hopes of luring domestic depositors.

"Belarus needs to be much more competitive, and this will help in that process," said Charlie Robertson, chief economist at Renaissance Capital, a Moscow-based emerging-markets investment bank.

Belarus's foreign reserves have dwindled this year as Russia increased energy prices and Minsk grappled with increased isolation from Europe as well as from its former Soviet neighbors.

The U.S. and the European Union threatened to expand sanctions against Belarus after a Minsk court sentenced the runner-up in the disputed December presidential election to five years in prison. Moscow has also voiced discontent with the crackdown.

On Monday, a Belarus court gave the wife of the runner-up a two-year suspended prison sentence for taking part in an antigovernment rally, the Associated Press reported.