BELARUS: WORLD BANK, IMF SEE NEED FOR EXCHANGE RATE

UNCLAS SECTION 01 OF 02 MINSK 000127

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PINR BO
SUBJECT: BELARUS: WORLD BANK, IMF SEE NEED FOR EXCHANGE RATE
ADJUSTMENTS, PRIVATIZATION

MINSK 00000127 001.2 OF 002


Summary
--------------


1. (SBU) Post has met recently with a visiting World Bank team
and the new IMF resrep. Their consensus view, shared by post,
is that that resolution of the economic crisis in Belarus will
require fundamental steps by the GOB beyond simply obtaining
further loans and credits. Recognition of this at the political
level remains an open question. End summary.

World Bank
--------------


2. (SBU) World Bank Director for Ukraine, Belarus, and Moldova
Martin Raiser briefed Charge and other diplomats April 20.
Raiser explained that discussions with the GOB were going fairly
well, but was careful to point out several key factors affecting
any potential assistance to Belarus. He confirmed that,
following World Bank practice, structural steps -- particularly
macroeconomic reforms -- would need to be in place prior to the
granting of any assistance, and added that although the GOB has
requested US$1 billion the amount which would be considered
would be markedly less given the World Bank's $35 billion annual
worldwide lending level. (The GOB currently gets $100 million a
year from the World Bank.)


3. (SBU) Raiser added that the issue of assistance to Belarus
would not likely be brought to the bank's board until September

2009. He agreed with others present, including the IMF resrep,
that Belarus' problems are comprehensive and greater than
previously anticipated. While he had a series of discussions
with GOB officials, including Deputy Prime Minister Kobyakov,
Raiser could not speak with confidence on the extent to which
the highest levels of GOB leadership understand the depth of the
economic crisis here.

IMF
---


4. (SBU) Newly-arrived International Monetary Fund (IMF)
Resident Representative Nataliya Kolyadina, a Russian citizen,
met with Charge April 22. She confirmed that the IMF team, led
by Chris Jarvis, would return to Minsk in late April 2009 to
review the existing $2.46 billion credit. Kolyadina highlighted
the fact that the GOB had made deep cuts in public expenditure
and would probably succeed in cutting the budget deficit to
zero, but was not meeting the necessary criteria for receiving
the next tranche of that credit, as foreign reserves were lower
than required. At the same time, Kolyadina acknowledged that
the depth of this crisis -- and, in particular, the greater
economic declines in Russia and Ukraine -- meant that previous
calculations were incorrect and the GOB's needs were greater.
The IMF was still in favor of letting the Belarusian ruble slide
farther, at least another five percent; Kolyadina expressed
surprise at recent public statements by National Bank Governor
Pyotr Prokopovich that the ruble would not be allowed to
decrease more than one percent in value.


5. (SBU) Kolyadina confirmed that the GOB was making some
progress in de-dollarization by raising interest rates for ruble
savings and reducing them for hard currency accounts. She
agreed with Charge that currency swap arrangements (in place
with China, and allegedly being considered by other countries
including Russia) would not help the financial bottom line.
When pressed, she said that the GOB had not officially asked for
further funds from the IMF, speculating that structural progress
such as sought by the World Bank might strengthen the case for
additional IMF help. From her perspective on the crisis here,
Kolyadina feels it is inevitable that the authorities must place
national assets on the block for privatization, sooner rather
than later; she concurred that senior political leadership may
not fully understand that. (Comment: EBRD has already expressed
willingness to help with the pre-privatization process. End
comment.) She confirmed that Jarvis as team leader would be
available to provide a briefing on the IMF mission's conclusions
around May 11.

Comment
--------------


6. (SBU) As we saw in the fall of 2008, there is a disconnect
between the economic and financial experts and Belarus' most
senior political leadership. GOB concern for the views of the
populace, not usually of much importance here to regime
officials, grew prior to the IMF-mandated 20% devaluation of the
Belarusian ruble in January 2009 and has increased since.
Politically, the authorities are not prepared to force another
precipitous devaluation, and are wary that too much of a
downward shift over time in the ruble rate will spark broader
complaints. Separately, the privatization of key cash cows --

MINSK 00000127 002.2 OF 002


those few state-owned institutions, particularly in the energy
sector, that generate much of the nation's income -- is a step
which the Presidential Administration and even some of the
nationalists in the democratic opposition are hoping can be
avoided. Currency swaps and grand statements by the regime's
allies will be hailed from time to time but will not add to
dwindling reserves. As recognition sets in that there are no
other options for sustaining the economy -- a message that will
be underlined by the IMF team later this month, and will be
further confirmed by the fact that any World Bank assistance
will be neither extensive nor imminent -- the GOB will have to
choose between economic realities and political fantasies.
MOORE