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bne IntelliNews – Minsk seeks Russian leader EFSD for $ 500 million emergency loan

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Belarus has appealed to the Kremlin for new funds as its economy continues to suffer from widespread and persistent protests. Russia’s finance ministry confirmed that the Russia-led Eurasian Stabilization and Development Fund (EFSD, a kind of IMF for Eastern Europe) had approved a loan of $ 500 million in 10 years in Belarus,

“The Council of the Eurasian Stabilization and Development Fund has approved the granting of a loan of 500 million dollars to the Republic of Belarus from its own funds. The decision was taken on October 9, ”said the press release quoted by Prime.

The loan grace period is 5 years and the interest rate is floating and is based on an average yield of 7 year Russian Eurobonds in US dollars.

Previously, Russian Finance Minister Anton Siluanov said Moscow and Minsk are working on a three-stage $ 1.5 billion loan with a $ 500 million tranche coming from Moscow and one from the fund up to ‘at the end of the year. Russia will provide the remaining $ 500 million in 2021.

Russia has already offered Belarus debt relief on a $ 1 billion sovereign loan that matures this year and additional relief on $ 1.5 billion in credits owed to VEB and Gazprom. This last borrowing was delayed and moved from the balance sheets of the two companies to the sovereign balance sheet. However, no new real money has changed hands.

Belarus is strapped for cash. According to preliminary data, Belarus’ gold and foreign exchange reserves decreased by 1.8% in September to reach $ 7.321.4 billion as of October 1, 2020, BelTA reports citing data from the National Bank of the Republic. from Belarus.

In September 2020, the country’s gold and foreign exchange reserves declined by $ 136.4 million (or 1.8%) after the massive fall of $ 1.4 billion (15.8%) in August.

Even more worrisome is the internal capital flight as residents empty ATMs of dollars in anticipation of a repeat of the 2011 deep devaluation and economic crisis caused by the protests.

Purchases of foreign currency by the population currently far exceed sales, reports the central bank. In January-September 2020, Belarusians bought $ 1.55 billion more in foreign currency than they sold, BelTA reported, citing data from the National Bank of the Republic of Belarus.

In January-September 2020, individuals bought the equivalent of $ 7,613.7 million in cash and cashless and sold for $ 6,063.2 million in foreign exchange. Net purchases of foreign currency by individuals totaled $ 1.55 billion.

In January-September 2020, Belarusian economic entities bought the equivalent of $ 17,284.9 million and sold $ 15,860.3 million in foreign currency. The net purchase of foreign currency amounted to $ 1,348.6 million.

The cash portion of the reserves has been largely drained, as about $ 3 billion of Belarus’ reserves are in the form of gold and about $ 1 billion is in other currencies and various securities. That leaves only about US $ 1.3 billion in cash, which is less than the value of US dollars in cash purchased by the population in the first nine months of this year.

As a result, the central bank’s reserves fell to around 1.4 months of import coverage, well below the three months, according to most economists, needed to ensure the stability of the national currency.

There are already anecdotal reports that some of the large state-owned enterprises (SOEs) are strapped for cash and are struggling to pay their wages on time.

There are other unconfirmed reports that the self-proclaimed President of Belarus, Alexander Lukashenko, has turned on the presses and is currently simply printing money to meet the bills. The Belarusian ruble has already been hit by instability, but if the central bank prints money to pay wages, it will also affect the economy in the coming months.

The FEDD has been the lender of the last resources for many years now that Minsk has rejected all offers from the International Monetary Fund (IMF) for a program, opposing the conditions that are attached to any IMF money. However, the EFSD also has conditions attached to its loans and also demands reforms from Minsk. However, the Russian-led organization is much more flexible than the IMF and is open to politically motivated decisions.

The $ 500 million is an emergency loan to inject liquidity into the system, but at the rate the central bank is burning the money, it won’t prevent a crisis for more than a few months.

The Kremlin appears to be following a strategy in which it pours just enough money to keep the Lukashenko regime going but at the same time spends the absolute minimum it needs in the hopes that the protests can end as soon as possible.