VZCZCXRO0515
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVL #0928/01 3051725
ZNR UUUUU ZZH
P 311725Z OCT 08
FM AMEMBASSY VILNIUS
TO RUEHC/SECSTATE WASHDC PRIORITY 3015
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 VILNIUS 000928 
 
SIPDIS 
SENSITIVE 
AMEMBASSY MINSK SENDS 
 
E.O. 12958: N/A 
TAGS: EFIN ETRD PGOV PREL BO
SUBJECT: BELARUS AND THE GLOBAL FINANCIAL CRISIS: FEELING THE 
EFFECTS, BUT NOT ACTING TO MITIGATE THEM 
 
Summary 
------- 
 
¶1.  (U) Until recently, the GOB voiced no concern regarding the 
global financial situation.  However, as the crisis deepens and 
expands, and its negative effects become more visible in Belarus, 
the regime is looking for ways to limit the consequences while 
fundamentally maintaining its command economy methodology.  End 
summary. 
 
"Crisis?  What crisis?" 
----------------------- 
 
¶2.  (U) A month or two ago, most Belarusians, including many GOB 
officials, thought of the global financial crisis as nothing but a 
bad international news, with little to no relation to the Belarusian 
economy.  Belarus' economic performance had been fairly sound, with 
the country's USD 5 billion plus gold and hard currency reserves 
growing steadily (according to official statistics). 
 
¶3.  (U) The first time Lukashenko mentioned the global financial 
crisis was in a speech to senior Belarusian KGB officers October 7. 
He admitted cautiously it can pose a threat to Belarus' exports but 
said that as the country has never traded its stocks internationally 
it has little to worry about.  In the same speech, he lavishly 
praised his policy of tight government control in major sectors of 
the economy noting that the West and "even the Americans" would have 
to resort to the same methods. 
 
Hitting home 
------------ 
 
¶4.  (SBU) However, Belarus' major exports, including potassium 
fertilizers, oil products, tractors, and trucks shrank as 
traditional customers began to lack sufficient funding to purchase 
such goods in regular volumes.  The stocks of unsold products are 
piling steadily.  In turn, lower export revenues force many 
Belarusian businesses buy more hard currency in Belarus.  The 
country's gold and hard currency reserves decreased in September by 
approximately 12 percent.  (Local IFI staff report that Belarus is 
losing USD 20 million each day as they work to prop up the 
Belarusian ruble (BYR), fixed at a rate around BYR 2130:USD 1 for 
several years now.) 
 
¶5.  (U) Belarusian banks are experiencing difficulty trying to 
secure affordable loans from Western banks.  Thus, bank loans have 
become more expensive to domestic consumers too.  Belarusians are 
trying to stock up on hard currency cash, especially US dollars, to 
safeguard their savings.  Press reports are noting the reappearance 
of black market currency traders as in Soviet times. 
 
GOB attempts preventive measures 
-------------------------------- 
 
¶6.  (U) Lukashenka paid a short-notice working visit to Russia to 
meet with President Dmitriy Medvedev October 25.  Press reports 
indicate that crisis-related issues were on top of their agenda. 
Lukashenka acknowledged that he needs Russia's "vision" and advice 
on efficient anti-crisis policies as half of Belarus' hard currency 
reserves are in weakening Russian rubles and Belarus' export flows 
to Russia are slowing down.  In the meantime, Russia's Vice Premier 
and Finance Minister Alexei Kudrin announced October 21 that his 
government would issue a USD 2 billion loan to Belarus later this 
year.  Kudrin's Deputy Dmitriy Pankin added October 27 that the loan 
agreement would include provisions on currency exchange rate, 
privatization in Belarus, access of Russian businesses to Belarusian 
markets, and Belarus' balance of payments. 
 
¶7.  (SBU) Furthermore, the GOB approached the International Monetary 
Fund (IMF) earlier this month with a request to provide USD 2 
billion in financial assistance.  An IMF mission is currently in 
Minsk to hold talks with the authorities; post has requested a 
meeting but has not yet been able to secure one.  Belarus' National 
Bank officials claim the country has no crisis-related problems and 
need IMF assistance to prevent such problems only.  They also 
admitted the GOB had approached central and private banks in some 
unnamed countries to the same end, commercial loans -- without 
conditionality -- being preferable to IFI assistance. 
 
¶8.  (U) The GOB has taken other rhetorical steps to keep the crisis 
at bay.  On October 17, Lukashenka instructed National Bank Chairman 
Pyotr Prokopovich to draft promptly a decree allowing unlimited and 
undeclared deposits in Belarusian banks by foreign citizens and 
guaranteeing all deposits regardless of their size.  Lukashenko also 
required that regulations be drafted urgently to allow launching 
Belarus onto the list of the world's top thirty economies based on 
securing the most favorable loan conditions. 
 
Comment 
 
VILNIUS 00000928  002 OF 002 
 
 
------- 
 
¶9.  (SBU) We agree with independent experts that it is just a 
question of time before severe effects are felt here.  We have been 
told anecdotally that the GOB's own economists have already 
recognized that there is no escape from IFI conditionality and/or 
comprehensive changes that will be badly received by the Belarusian 
people, such as the devaluation of the BYR or the reduction of the 
salaries at state-owned enterprises (which constitute about 
three-fourths of the economy and employ a similar proportion of the 
work force).  However, it is entirely unclear whether the country's 
political leadership -- which has for years trumpeted its supposed 
"economic miracle", based on formerly subsidized Russian energy 
supplies -- is prepared to take the necessary steps. 
 
MOORE 
LEADER