Belaruskali Will Repay $1 Billion Loan in September
September 20, 2012, Belaruskali intends to repay $1 billion syndicated loan issued by Sberbank of Russia and the Eurasian Development Bank ahead of schedule by a lump sum, the company said. The sources of repayment are likely to be government funds (USD 800 million) and Belaruskali’s own funds (USD 200 million).
The Finance Ministry of Belarus will pay USD 800 million of a loan at the expense of early repayment of foreign currency bonds , acquired by Belaruskali. The rest sum will be redeemed at the expense of the enterprise own funds. Accordingly, the source of repayment of foreign currency bonds are government funds, which are stored in the accounts at the central bank. So, as of May 1, National Bank obligations to the government account for USD 7. 282 billion and Br4. 167 trillion.
Thus, the early repayment of a syndicated loan will have no significant impact on supply and demand of foreign currency in the domestic market, since the funds that had previously been enrolled in the gold and currency reserves are to be used. Accordingly, in this case, international reserve assets of Belarus will decline in September this year (ceteris paribus).
However, a potential decrease in the gold and currency reserves should not be overdramatized.
In our view, it is better to pay off an expensive loan rather than try to ensure a formal compliance of the gold and currency reserves with specific criteria for adequacy of international reserve assets (for example, the criterion of three months of imports).
Thus, as of May 1, the foreign reserves of Belarus, as determined by IMF Special Data Dissemination Standard, amounted to USD7. 975 billion, which corresponds to approximately 1.7 months of current external payments associated with the movement of goods, services, income and transfers.
The calculation was performed in accordance with the payment rate for the import of goods and services, income and transfers (including export customs duties on oil and petroleum products enrolled to the Russian budget) in April 2012 – USD 4. 802 billion.
In general, in a more flexible exchange rate regime of the Belarusian ruble a practical significance of the criteria of adequacy of reserves is objectively reducing. At present, Belarus’ gold and currency reserves are primarily needed to create a safety cushion in terms of making payments on external public debt. Under the new exchange rate regime, the National Bank will not resort to significant foreign exchange intervention in support of the Belarusian ruble exchange rate. In contrast, the Central bank bought in the domestic market more than USD1 billion on a net basis this year.
Therefore, under conditions when the volume of foreign currency supply exceeds over demand there is a decline in need in foreign credits and loans. For instance, in January-April 2012 Belarusian companies sold USD896. 5 million net worth while the population - USD619. 9 million net worth (including non-cash transactions).
Thus, repayment of the syndicated loan issued by Sberbank of Russia and the Eurasian Development Bank ahead of schedule will allow the Belarusian side to save foreign currency by reducing the interest and commission payments. The interest rate on the loan is now high: in the first six months it was at the level of LIBOR rate (1,1%) + 7,6 percentage points; over the next six months the interest rate has increases by 0.3 percentage points accordingly. In other words, the current rate on the loan is about 9% (excluding commission charges).
However, it cannot be excluded that Belaruskali will attract a new loan from Russian banks, or refinance the current loan on more favorable terms. This issue was probably discussed during the visit of the Russian delegation to Belarus.
The Belarusian authorities could to step up the opposition representation in local councils, should party members demonstrate potency. The Belarusian leadership is unlikely to have the resources to ensure 100 percent pro-government candidates in the local elections. The authorities have exhausted the grassroot support and have no funds to pay for the loyalty.
The Belarusian Central Election Commission has proposed to hold the elections to the local Councils of Deputies on February 18th, 2018.
The president has repeatedly emphasised the importance of the local councils in the power system and the state machine always tried to ensure the necessary local election results. Candidates have been decreasing in number with each elections and the authorities dealt with that by reducing the deputy corps. That said, during the rule of President Lukashenka, his electoral base has changed substantially. Over the past decade, most Belarusians have moved to cities and lost their local roots. The rural population is ready to support the president, but rural residents are constantly decreasing in number.
The Belarusian leadership is likely to permit broad participation in the election campaign and an increase in alternative representatives in the local councils. However, the opposition would have to boost its activity, so as so far it has been passive in defending its interests. In addition, the authorities, while determining the date for the local elections, have taken into account the fact that the opposition is usually the least active in the winter time.
Overall, both, the opposition and the local authorities have exhausted their grassroot support, however new local leaders may still come on political stage, although the party opposition has not yet shown sufficient aspirations.