Selling the reforms

The Belarusian delegation is leaving for the spring session of the International Monetary Fund next week.

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They are to discuss prospects for cooperation. According to BelaPAN, the authorities take to Washington so-called “road map” of the structural reforms for the Belarusian economy. The measures from the “road map” can significantly change model of country’s economy.

The path to a market economy: the official version

Authorities were getting ready spring session especially actively. Economic departments have been developing the “Package of measures” for Washington discussion throughout the first quarter of 2015.

Finally, we see a plan for structural reforms of economy. The document is really complex, contains dozens of items and includes measures aimed at both the creation of economic conditions for the reforms and the reforms themselves. “Road map” suggests that Belarus will take steps to ensure macroeconomic stability, including mechanisms of tight monetary and fiscal policies.

As for actual steps to reform the economy, the major point is to revise the mechanism of financing the economy. In particular, it is assumed that the program of social-economic development for the 2016-2020 will decrease number of loans to state-owned enterprises as parts of state programs.

By the way, according to the International Monetary Fund, about the half of Belarusian banks’ loan portfolio account for loans that were issued under government programs. Accordingly, the reduction of such funding means that the loans will be granted on market conditions. These are  completely different conditions for the Belarusian state-owned enterprises, accustomed to concessional financing.

The plan, which will be presented to the International Monetary Fund also suggests that Belarus will strengthened social support. In particular, an aim to increase the amount of unemployment benefit to the level of minimum wage.

Improving social protection is a quite logical measure, given the planned phase-down of state programs funding. Because government abandoned the practice of giving concessional loans, some enterprises overdue wages. There will be more of them, when government continues to decrease financing.

It is worth noting that the “road map” for also the restructuring of state-owned enterprises and privatization of small and medium-sized organizations. Restructuring means the alienation of non-core assets, excluding low-profit activities and labor optimization.

In general, the “road map” for the structural reforms aimed at improving the efficiency of Belarusian enterprises. Moreover, the widespread introduction of market economy mechanisms is planned.

The ball at Belarus’ side

According to official statements, external consultants supported Belarusian authorities in making “road map”

“We welcome the balanced and individual approach to the analysis of the economic situation in our country and we are grateful to the World Bank for assistance in the development of plan for structural reforms,” said Prime Minister Andrei Kobyakov meeting with representatives of the bank in early April.

Given the fact that the Belarusian authorities were preparing the reform program in conjunction with external consultants, the action plan is good and complex.

According to Belarusian economists, the International Monetary Fund can support such measures and start a discussion on new credit.

“The ball is on the side of Belarusian authorities. If they prove to lenders that they are willing to carry out reforms there will be no problems with a new loan,” says Dmitry Kruk, economist at Belarusian Economic Research and Education Center (BEROC).

According to the expert, the fund can set clear parameters for the provision of financial resources depending one some key indicators, because Belarus did not make her obligations during last loan program in 2009-2010.

“The standard procedure involves the gradual fund allocation of financial resources – tranches. IMF uses this practice regularly, it will certainly be used for Belarus” says Mr Kruk.

Financial market analysts have noted that Belarus needs money very much

“This year Belarus has a high enough demand for credit resources. It must perform external public obligations. In normal mode to repay the debt, new borrowing are needed,” says Alexander Mukha, financial analyst of BusinessForecast.by.

The fact is that the income from export duties on oil products in the current year, according to the Ministry of Finance, will be approximately $1 billion less than planned. On the other hand, the export earnings of Belarus fell by a quarter the in first months of 2015, what reduced the supply of foreign currency in the domestic market and reduced opportunities to increase international reserves. Against this background, a new IMF loan would be very useful.

“The fund provides financial resources on favorable terms. The interest rate is low. Moreover, the credit program with the fund is a positive signal to investors, as everyone’s aware that attracting resources from the fund the country takes a number of commitments to ensure macroeconomic stability,” says Catherine Bornukova, economist.

The situation in the Belarusian economy is forcing authorities to move towards reforming the economy.

“In 2009, starting loan program with IMF, the government perceived the crisis as a temporary phenomenon associated with adverse processes in the global economy. Today the authorities understand that the stagnation of the last three years is not random, and they have to do something,” explained Ms Bornukova.

“On the other hand, IMF and the Belarus’ view on the extent of reforms may differ. Therefore, to ensure that the reforms will be carried out properly, the Fund wants to get the guarantees of the Belarusian leadership,” summarized Catherine Bornukova.

In a recent interview to Bloomberg, Belarusian President Alexander Lukashenko said, “We are absolutely ready for reforms. The fact that the IMF requires [reforms] from us is absolutely right.”

To words with deeds, the fund will certainly require senior officials to put signatures and official seals on economic decrees. Only then, when power will take all the responsipility, the Fund will give Belarus money. In tranches.

Translated from naviny.by