18 July 2019, Thursday, 8:53
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No Money Is Granted. Lukashenka Has Two Options Left

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The economist warns about "belt-tightening."

The credit loop is tightening. However, Finance Minister Maksim Yermalovich states that Moscow's loan of $600 million, postponed until the resolution of the situation with the Belarusian-Russian integration, will not affect the country's solvency. Minsk has found alternative sources - $500 million from the China Development Bank and borrowings in the domestic market, Zautra Tvaye Krainy writes.

The minister's statements are based on the availability of the country's gold and foreign currency reserves - about $8 billion, Alpari Senior Analyst Vadzim Iasub notes.

- Annual payments amount to about $3.5 billion. In theory, two years is a good time not to borrow anything. Reserves would be enough to pay off debts. Another thing is that it means default.

This year's debt repayment is not an easy issue, the expert admits.

- The story of the Chinese loan is not completely clear. Maksim Yermalovich twice turned to the topic, but never said whether it was really an untied loan," the expert said.

All the Chinese loans, received by Belarus up to that point, were tied. That is, the allocated money was spent on infrastructure projects and used for payments to Chinese contractors, employees or for the purchase of Chinese materials.

- "Tied loans are not the money that can be used to pay off debts," the financial analyst explains.

If China is ready to provide a loan on conditions needed by Minsk, the issue of debt repayments will really be resolved this year. But it will be relevant in 2020 again.

- In the coming years, Belarus should annually repay about $3 billion. Moreover, the latest statements of the Ministry of Finance show that about 70% of these amounts need refinancing. It means that one should re-borrow about $2.5 billion annually," Vadzim Iasub says.

The domestic market cannot provide such amounts. According to the economist's calculations, it can attract up to half a billion dollars. Additionally, the country may place Eurobonds or attract loans from commercial banks. But since it is done on market conditions, it means that the interest can reach 8%. It is expensive for Belarus.

Is it possible to save on domestic costs so much that there is enough money to pay off foreign debts?

- The optimization of costs is always on agenda. But how can we optimize the costs of $2.5 billion with GDP of about $60 billion? We should save 4% of GDP, which is unreal," the expert emphasizes.

Minsk has only two options. The first one is to settle issues with Russia, which probably stipulates a closer integration.

The second option is a much cheaper loan from the International Monetary Fund. According to the economist, it's interest rate could be 3% or even less.

- In this case, we need to agree to comprehensive overhauls in the economy, social policy, to create a favourable investment environment, which implies the inviolability of property, an independent judiciary. That is, we have to dare to reforms, which the country's leadership has refrained from for the last 25 years," the economist says.

At the same time, he believes it is wrong to equate these alternatives. In the first case, Belarus will have to bow and scrape before its "older brother," while in the second - to undergo a long overdue treatment for the domestic economy.

- The second option is to carry out reasonable reforms that many developing countries have been through. Not the IMF but us need them in order to grow and develop sustainably," Vadzim Iasub says.

It turns out that the reforms the authorities ran away from both in difficult and good years have caught us. This is the decision that will support the independence of the country.

The authorities' statements that reforms can be carried out only in conditions of economic stability are just excuses, the financial analyst said. Political will comes first.

According to Vadzim Iasub, no one will ask Belarusian taxpayers which way to follow.

- The political leadership of the country will deliver a decision regardless of the opinion of the society," the expert says. - And the events of the previous 25 years show that the head of state completely rejects the reforms necessary for cooperation with international financial organizations.

The expert assumes that still money can be spent in the absence of a loan, and after election campaigns, the belt-tightening may happen.