23 September 2017, Saturday, 3:22

Leanid Zlotnikau: Default Looks Possible


Lukashenka seems nervous as he must return half a billion dollars already in January.

On Monday, December 26, Lukashenka has held a meeting dedicated to attracting external funding. The dictator has stated that the conditions of attracting foreign investments to the country must comply with the state interests and advised the officials “to bring some action”, and “there is enough money in the world”.

Economist Leanid Zlotnikau has explained in a comment to the charter97.org website why the governor urges the officials on in the issue of foreign investments.

– Of course there is a rush as the time of payment for debts is coming, either in the end of the year or early next year. For example, we have one payment, which requires at least half a billion dollars in January. This, of course, not all of our debts, but this will be in January.

– How would you comment upon Lukashenka’s words that Belarus has a good credit history?

– Well, actually, our credit rate, according to the data provided by the international rating agencies like the Fitch and others, remains very low. I don’t know why Lukashenka mentioned “a good credit history”, I cannot be responsible for what he says (according to the Fitch, the credit rating of Belarus as of December 2016 is “B-“. The highest rating is “AAA”, the medium level is “BB”, the level “CC” relates to the countries in default – charter97.org).

– Can a country with such a low rating obtain new loans?

– You know, there are limitations for the government and there are restrictions for the country, which are set by the Parliament. This does not mean that the country cannot gain even more debt. It can, given a certain decision of the Parliament. That just is not a problem in Belarus. The problem is the low credit rating.

Why it is low, I can give an example without any theory. Our government is trying to get loans at the Eurobonds market. Simply put, they are trying to take money under their bonds at the international currency market. It has been done before: take billions - return billions. However, for the past three years, the government has been trying to find big foreign banks that will distribute our Eurobonds. The fact remains, the government itself cannot distribute these bonds directly – it needs intermediaries. So, it can’t find any for the last three years. That is, the government cannot find the intermediary banks, which would organize the loans in foreign currency for the country. This practice demonstrates that Belarus has a low credit score, even better than the rating agencies, such as the Fitch.

– Do you mean Lukashenka cannot actually pay the debts?

– Right. If Russia suspends the next tranche of the loan, which should be provided by the Stabilization Fund of the Eurasian community (we were supposed to receive the third tranche at the end of the year, but it was delayed), if there are no new loans, if they fail to privatize some businesses on an urgent basis to get a couple of billions of dollars from the sale of these businesses, so yes, indeed – we have nothing to repay!

That is, we should get either any loan at the international currency market, for instance, the IMF could provide us a loan, or Russia could help. Or we can, say, privatize "Belaruskali" (sell more than a controlling stake). If we fail to find external loans or to privatize one or two large companies, we will not have money to pay debts falling due as early as 2017.

– How likely does this scenario look?

– This scenario is likely to happen. Its probability is not higher, of course, than 50%, but not much lower either.

– In such case, where can Lukashenka find the money?

– It’s very hard for me to tell where and under which conditions he can find the money. He would have already done this if it was simple. Now it seems difficult.

– So you say, the default is possible?

– The default is possible, but it strongly depends on the decisions that will be taken. They still have something to urgently privatize, the same "Belaruskali". Moreover, Lukashenka may make concessions to Putin to give up confrontation with him, agreeing to some unfavorable conditions for us. In this case, Russia can help, because it is a trifle for it. But if the policy will continue as it is today, if there is no reform, if there are bad relations with Russia, then yes – default is possible.

– It has been reported that Lukashenka is not going to the EAEU summit in St. Petersburg… Does it mean anything?

– This means a lot. For example, bad relations with Russia. Russia can say something like, all right, you can live the way you want, and we do not insist that Belarus should join the EAEU. In this case you just fall out of the trading conditions inside this integration space. This means that oil and gas prices may rise more, and reach the world level. Also, when importing our goods to Russia or Kazakhstan, the goods will be subjected to duties. That is, we will be thrown out of the Eurasian Union.