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.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.