Опубликовано на сайте BelarusDigest
The Belarusian government spent the whole year actively looking for money to sustain the collapsing socio-economic model. It was looked for everywhere: in the West and the East, in Europe, Asia and Latin America, at the IMF and EurAsEC. And over the last several weeks finally Belarus managed to get a big chunk of foreign loans. The biggest ‘gift’ came from Russia as a reward for Minsk’s support of the new wave of post-Soviet integration.
Now that the hard currency reserves have become thicker the government can take it easier for some time. But how long can the strategy of surviving on foreign loans last? Already next year the Belarusian taxpayers will feel the burden of the debt.
The Year Of Money Quest
As soon as the first signs of the financial crisis became visible earlier this year the Belarusian government went back to its once successful way of muddling through an economic turmoil with the help of borrowed money. In 2009 the country received USD 3.6 billion as a stand-by credit from the IMF which to a large extent saved it from full-scale socio-economic repercussions of the plummeted demand for Belarusian goods on international markets. Belarusian rulers reasoned that instead of opening the Pandora’s box of economic reforms in 2011 it would be less risky to look for new external borrowings.
But this year the overall situation was not as favorable for the Belarusian government. After the crackdown on the protesters on 19 December 2010 and the wave of repressions against the political opposition and civil society Belarus found itself in a severe confrontation with the EU and USA. Discussions of the next IMF loan went nowhere because Belarus refused to fulfill the necessary political pre-conditions. Moreover, the unwillingness to adjust the macroeconomic policy to the recommendations by the IMF made a loan from that institution twice impossible.
At the same time the government was looking for money everywhere else. There were hopes for Venezuela, Iran, Azerbaijan and China. But what the ‘distant friends’ were able to offer was peanuts. In July Belaruskali got USD 300 million from Azerbaijan and the money was transferred to the national reserves. At the beginning of October a USD 400 million credit was promised by Iran but with no follow-up.
There were several announcements of credits from China (including USD 1 billion in November). But Chinese credits do not look very attractive as they have a condition attached – to be spent on Chinese goods. And for Belarus it means to further expand its trade deficit.
Another source of external money was through selling Eurobonds. And in January the country completed its borrowing of USD 800 million through this mechanism. But as the financial disturbances were growing bigger Belarus’s sovereign rating and the commercial banks’ ratings were downgraded.
The sovereign rating was downgraded from B2 in January to Caa1 today by Moody’s and from B+ in January to B- today by S&P. Both agencies keep Belarus’s credit on a negative watch, which increases the likelihood of further downgrades. As a result, Belarusian Eurobonds maturing in 2015 and 2018 were trading at 20% and 17% yield respectively in late September 2011 (being originally issued at 8.75% and 8.95%).
Following the Gazprom deal on 25 November, the yields on the Belarusian 2015’s and 2018’s Eurobonds have compressed to 13% and 12%, respectively. However, even such high yields make the Eurobond market hardly attractive for the country. Should Belarus decide to return to the market, it will need to pay a hefty new issue premium and find bookrunners capable and ready to place its bonds with institutional investors.
All but one bookrunner of the previous Belarusian Eurobonds refused to work with the sovereign due to human rights abuses in the country. Sberbank is the only bookrunner who has not dropped Belarus from its coverage list.
From Russia With Love
Last but not least, there was Russia, the regime's biggest creditor and donor. However, during the first half of 2011 no money came from the ‘Big Brother’. Only in July did the Belarusian government manage to negotiate a USD 3 billion loan from the Russia-controlled Anti-Crisis Fund of EurAsEC. The first tranche of the loan (USD 880 million) arrived in the summer. Another USD 440 million was scheduled for October-November. But because Belarus has not met all the agreed macroeconomic conditions the tranche is still pending.
However, there is little doubt that it will arrive after the ‘integration agreements’ reached on 18 and 25 November. Belarus (more precisely the state-owned company Belaruskali) got USD 1 billion as a syndicated credit from Sberbank and the Eurasian Development Bank. And, finally, it was announced that Russia would provide USD 10 billion for the construction of the Belarusian nuclear power plant in Astravets. However, the credit will be allocated in several tranches.
And So It Is…
So what does the preliminary results of the ‘credit quest’ in 2011 look like in numbers?
As of 1 October 2011, the government debt was USD 11.88 billion. Provided that the second tranche of the EurAsEC credit arrives this year, the government debt will rise to almost USD 12.5 billion, which will represent 25% growth of the debt in 2011. That is an estimated 36% of the GDP which realistically will amount to around USD 35 billion this year. The gross national debt will exceed the GDP already in 2011. Given that in the Belarusian command economy there is little difference between the liabilities of the state and of state-owned banks and enterprises (about 80% of the economy), the risks are getting high. And new credits are on the way.
Thus, the external debt level is becoming a new Belarusian tragedy which can soon completely overshadow the other national concerns, i.e. current account and foreign trade deficits, and even inflation. Taking into consideration that the dominant slice of the debt is Russian, the Belarusian government’s ability to resume its geopolitical maneuvering will be significantly limited.