IMF – Belarus: good plans are not enough

The IMF mission is visiting Belarus on October 17th – 28th, 2013 for post-programme monitoring.

The Government and the National Bank have elaborated a joint action plan, however the only goal they have is to sign a new loan agreement with the IMF. The plan is not thoroughly developed and the measures it suggests are declarative. Most critically, political will is missing which thereby minimizes chances for the new loan programme to be implemented.

On October 10th, the Government and the National Bank adopted a joint regulation, No 895/15, which approved the plan for the structural economic reform. The regulation was adopted just in time to coincide with the Belarusian delegation’s visit to Washington, where they would attend a meeting of the IMF and the World Bank’s Board of Governors. The structural economic reform plan is meant to demonstrate the desire to start economic reforms in order to sign a new loan agreement with the IMF. Paragraph 1.12 says consultations with the IMF will be held within the new cooperation programme. Belarus is desperate for external financing and, theoretically, the IMF could issue a loan at favourable interest rates, but it sets requirements which need to be met – first of all, to ensure structural economic reforms.

The plan has been formulated to meet IMF requirements. It includes limiting credits to the economy, improving the payment mechanism, avoiding cross-subsidies, privatizing state property, and preparing high-yield enterprises to IPO. In reality, the economic reform plan contradicts the government’s economic policy.

For instance, the need to IPO the high-yield business is questionable, since it will reduce budget revenues. BelAZ, which has been prepared to IPO, has curtailed its plans to sell. De-monopolization of energy industry has been declared, but the state intends to leave its sole ownership over electrical grids network. The government also does not plan to finalize the MAZ and KAMAZ merger, which contradicts the reforms’ plan.

Political aspects play a certain but not decisive role. The plan could be a basis for further negotiations about a new Stand-by Programme with the IMF, but one important point is missing in the plan, namely political will and the government’s desire – supported by actions – to start economic reform. In addition, the government’s attitude to privatization has not changed since the last programme was implemented. Thus, chances for a new cooperation programme and the IMF loan are low.

Once again, Belarus will attempt to convince the IMF of the seriousness of their intentions. In its regular report, the IMF mission will praise the National Bank’s efforts for the right measures, but will complain about the lack of political will by the country’s leadership to move towards structural economic reforms.