Is Lukashenka To Be Declared Bankrupt?

The dictator was handed in the "Pandora’s box" with high risks.

This week the Belarusian authorities unexpectedly received a Eurobond loan of $ 1.4 billion. Eurobonds are short-term and less profitable loans, which are used, if it was not possible to get a less risky loan.

How profitable is the new loan and what can it lead to in the medium term? Leanid Zlotnikau answered these questions for Charter97.org:

– The Belarusian authorities received a Eurobond loan for seven years, and each year they will have to pay 7.5%. It is a very high Eurobond percentage. The higher the percentage is, the lower the level of confidence on the part of borrowers.

A greater percentage has been offered only to Venezuela (35% per annum) and Brazil (10.6% per annum) (there’s a serious political crisis in both countries – ed.). Successful countries place Eurobonds at tenths of a percent.

Belarus will pay 105 million dollars of interest over seven years. And this is not counting the bulk of the debt! It turns out that we will have to pay one and a half times more than the authorities received.

– It turns out somehow not very tempting ... Is it profitable business as a whole? And was it worthwhile doing?

– It's very simple: if the authorities had enough skill to invest this money in projects that give more than 7.5% of profit per year – then it would be profitable. And private businesses can offer such projects – the profit of 10 percent or more.

But the trouble is that this money is not to be invested in any commercial projects. All of it will go to pay huge external debts of Belarus. Authorities do not take money to invest in profitable projects, but to "sticking plaster" on old debts – following the principle of robbing the belly to cover the back. As the result, the solution of problems is shifted into the future: today we are living – and tomorrow let’s happen what may.

For example, in January 2018, the authorities will have to pay $ 800 million on the Eurobonds that were placed seven years ago. Basically, the new loan is taken to cover this debt.

This can be compared with a household where, for example, the head of the family got some money and did not invest it in profitable shares or in a fast-growing business, but ate it away, spent it on drink and blew off, – and then he borrowed even more. He manages to give back his former debts by hook or by crook, and again eats away the remains. And then he goes in circles, getting in greater debt.

– If the householder does not return the debts, very soon tuff guys or judicial executors come to him. What will happen if the Belarusian authorities fail to pay off the Eurobond loan?

– It's very simple: they will get into a situation that is called a default. The softest option in this case is debt restructuring. But it is if we are very lucky and the creditor agrees.

In general, in this case, a default is looming to the Belarusian authorities. A default and that’s it! In this case, the creditor will start to bankrupt the unsuccessful debtor. Any state property abroad will be arrested and sold for debts: embassies and consular buildings, state cargoes in ports, planes, ships, if there will be any.

– How likely is this scenario for Lukashenka?

– The fact that the loan was given at such a high interest – 7.5% per annum – suggests that the risk of default is very high. Belarus has a rather impressive external debt without it, and lending something to such a debtor is a huge risk. Therefore, lenders offer such a draconian interest, which, in turn, increases Lukashenka's risks.

If he had not had such big debts, he would have got 3.5-4%. But such a high Eurobond percentage is a signal that the creditors consider the situation of their debtor to be very, very unreliable.