Russia dangles $3 billion loan to Belarus

Yuras Karmanau, Associated Press, On Thursday May 19, 2011, 3:35 pm EDT

MINSK, Belarus (AP) -- Russia's finance minister is dangling a $3 billion loan in front of Belarus, saying Thursday that the cash hinges on the crisis-hit neighbor selling off certain national assets.

Belarus is facing a severe downturn, with hard currency reserves plunging 20 percent in the first five months of the year to less than $4 billion, and staple foodstuffs vanishing from stores. Trading restrictions were lifted on Belarusian ruble last month, leading to a 300 percent devaluation against the U.S. dollar.

At a meeting of government of former Soviet nations in the Belarusian capital on Thursday, Russian Finance Minister Alexei Kudrin said his country will decide early next month whether to approve the loan of $3 billion over three years.

"We have a condition," Kudrin said. "In the next three years a certain privatization should be carried out."

Russia is thought to be seeking to capitalize on Belarus' vulnerability by acquiring major stakes in energy assets such as Beltransgas, the state-owned gas pipeline network that supplies domestic homes and forwards the gas to Europe.

Kudrin said talks on Beltransgaz were imminent, and shot a veiled warning that Belarus is in no position to turn Russia down. Kudrin said if Belarus isn't able to raise up to $9 billion via selloffs, it would be forced to turn to the International Monetary Fund, which has loan conditions that Belarus is ill-equipped to meet.

Independent analysts say to save its economy, Belarus is in urgent need of at least $8 billion.

"The authorities need to admit that the politics of recent years were flawed," said Stanislav Bogdanovich, former head of the country's central bank.

Last month, the authorities gave permission to banks to buy and sell the ruble at a rate determined in open trading.

Banks initially responded by raising the U.S. dollar exchange rate for retail transactions by 30 percent, from some 3,000 Belarusian rubles to 4,000 rubles against the dollar. It has since risen to 8,000 rubles to the dollar, giving rise to miles-long lines at currency exchange booths as desperate locals try to squeeze the rapidly diminishing value out of their rubles.

Belarus uses different exchange rates, depending on whether it is banks, private individuals or state companies that are buying the foreign currency. At times the difference between those rates can be up to 30 percent.

For most of his 17 years in power, President Alexander Lukashenko has relied on Russia -- Belarus' main sponsor and ally -- to maintain a quasi-Soviet economy complete with a social safety net that helped maintain his popularity.

But the Russian subsidies have dwindled recently as Moscow pushes for control over Belarus' most prized economic assets, such as oil refineries and chemical plants, in exchange for more loans.

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