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Rebuffed By Russia, Belarus's Economic Crisis Deepens

Belarusians line up for a chance to buy foreign currency outside an exchange office of a bank in Minsk. The falling currency has Belarusians scrambling to buy imports and staples as well.
Belarusians line up for a chance to buy foreign currency outside an exchange office of a bank in Minsk. The falling currency has Belarusians scrambling to buy imports and staples as well.
Russia has rebuffed Belarus's request for a $1 billion stabilization loan, telling Minsk to turn elsewhere for the funds.

The announcement by Russian Finance Minister Aleksei Kudrin on May 11 came as a slap in the face to Minsk, which is reeling from a deepening economic crisis.

"The talks had been under way for nearly two months," Belarusian political scientist Andrey Fyodarau.

On April 18, Kudrin said that he "expected the talks to end within a month," Fyodarau says, and then Russia's ambassador to Belarus, Aleksandr Surikov, said on April 21 that Russia had no reason to refuse the loan.

On April 26, Belarusian Finance Minister Andrey Kharkavets "said that the remaining points in the talks would be settled within a week," Fyodarau says, and the total sum of the package -- $3 billion with $1 billion from Russia and $2 billion from Eurasian Economic Community (Eurasec) -- "matched Belarus's needs and that this had been confirmed by Russia. So the announcement seems unexpected."

Russian Finance Minister Aleksei Kudrin's announcement seems to have closed the door on Belarus.
Kudrin has now told journalists that the most Belarus could hope to get from Eurasec's regional fund would be $1 billion and that the amount "would not be enough" to stem the crisis. He said Minsk should seek help from the International Monetary Fund.

Currency Collapse

The bad news for Minsk came a day after Belarus's Central Bank lifted exchange-rate controls, allowing a steep currency devaluation in all but name.

Officially, the Belarusian ruble's exchange rate remains at 3,037 to the U.S. dollar. But the lifting of controls sent the local currency plummeting to around 4,000 to the dollar -- a 25 percent drop in one day.

The collapsing currency has many Belarusians scrambling to buy foreign currency, precious metals, imported goods, and consumer staples like sugar and oil.

Economist Yauhen Preigerman says the Minsk authorities are struggling to cope, and they "understand that if they formally announce a devaluation then that jump would instantly bring the wages of Belarusians almost to the level of Moldova, which is considered the poorest country in Europe."

But according to Preigerman, "there is no other way out. There must be a devaluation and they will do it. But the indecisiveness attests to various political risks, including political ones, that the authorities fear. And it also attests to the fact that the authorities don't have a unified economic strategy."

Lukashenka has blamed the developing crisis on the interference of unspecified foreign governments and on Belarusians purchasing too many foreign automobiles. Independent experts blame it on populist pledges Lukashenka made during last year's presidential election campaign, rising energy tariffs, and widespread inefficiency in Belarus's state-dominated economy.

Moscow's Cat-And-Mouse Game

The reasons for Moscow's apparent about-face have experts scratching their heads. There has been speculation for weeks that the talks largely centered on Moscow's desire to purchase key Belarusian state companies, and it is possible those talks broke down.

Russia's Vladimir Putin (left) may have bad news for President Alyaksandr Lukashenka next week in Minsk.
"It's important to note that Russia's refusal to provide the loan was made by Kudrin publicly. If Moscow hoped to secure the privatization of Belarusian enterprises by Russian capital, then it would have continued backroom trading," economist Fyodarau says. "Kudrin's announcement is something of a burning of bridges."

On the other hand, Fyodarau wonders whether Moscow ever intended to provide the loan so easily and may have been "playing like a cat with a mouse." He says it may be a result of the recent postelection crackdown and Belarus's isolation from any possible Western support. "Minsk turned out to be defenseless before Moscow, and Moscow is using that edge."

Clearly, if Minsk was in dire straits when it presented its crisis plan to Moscow in April, it is even more desperate now. Kudrin's statement could be a way of setting the stage for Prime Minister Vladimir Putin's scheduled visit to Minsk on May 19. Kudrin also suggested that Belarus could raise up to $2 billion through privatization.

written by Robert Coalson on the basis of reporting by RFE/RL's Belarus Service
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