VZCZCXRO3218
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSK #0014/01 0091307
ZNR UUUUU ZZH
P R 091307Z JAN 09
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC PRIORITY 0058
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHSK/AMEMBASSY MINSK 0059

UNCLAS SECTION 01 OF 02 MINSK 000014 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EFIN BO
SUBJECT: BELARUS: POPULATION DISTRESSED AND DISILLUSIONED BY 
IMF-MANDATED DEVALUATION, IMPACT OF GLOBAL FINANCIAL CRISIS 
 
REF: 08 MINSK 264 
 
MINSK 00000014  001.2 OF 002 
 
 
Summary 
------- 
 
¶1.  On January 1, Belarus' National Bank announced a sharp 
devaluation of the national currency against the U.S. dollar, 
Euro (EUR) and Russian ruble (RUR), fulfilling an IMF condition 
for a USD 2.5 billion loan.  The devaluation received highly 
skeptical responses from independent economic observers and both 
scared and outraged and scared Belarusian citizens.  People here 
highly doubt the National Bank's pledges to allow no more such 
devaluations in 2009, and have lost tremendous faith in the GOB, 
which had promised (and, previously, delivered) stable and 
reasonable propserous economic conditions.  End summary. 
 
¶2.  In the afternoon of January 1, Belarusians received an 
unpleasant New Year's gift from the country's National Bank.  In 
accordance with IMF conditionality for obtaining a USD 2.5 
billion loan (reftel), the Bank announced a 20.45 percent 
devaluation of the Belarusian ruble (BYR), against the USD and 
slightly smaller devaluation against EUR and the RUR effective 
January 2.  Starting on January 2, Belarus began pegging the BYR 
to the basket of the USD, RUR, and EUR with all three having an 
equal part in the basket.  The BYR value of the basket is to 
fluctuate throughout 2009 no more than five percent.  Ideally, 
the move should give a competitive edge to the country's economy 
and secure the stability of the National Bank's new monetary 
policies.  The Bank relies on accumulating through loans from 
Russia, IMF and maybe from some other sources USD 8-10 billion 
in hard currency reserves by the end of the year to cushion the 
negative effects of the global financial and economic crisis. 
 
¶3.  In late December 2008, the National Bank and the GOB secured 
the IMF's initial agreement to provide USD 2.5 billion under a 
15-month Stand-By Arrangement (SBA) in support of Belarus' 
economic recovery.  Comments by IMF Managing Director Dominique 
Strauss-Kahn that Belarus' economy "has recently shown signs of 
overheating" and the country "has also been hit hard by the 
global economic crisis" have been widely reported here. 
Nevertheless, Belarusian President Lukashenka was insisting as 
late as January 7 that "there is no crisis in Belarus". 
Similarly, Lukashenka had stated on several occasions in late 
2008 that the GOB would preserve the stability of the Belarusian 
ruble and not allow it to be depreciated. 
 
¶4.  So far, the loss of confidence and trust in regime's 
financial policies has impacted the population more deeply than 
the loss in living standards.  Long lines at stores, banks and 
currency exchange offices, as well as gloomy comments and 
forecasts in internet forums and blogs are a clear indication of 
the growing panic fueled and accompanied by rumors, often most 
unrealistic.  However, there are no signs that people's 
resentment and despair may spill over to the streets.  Many 
bloggers and internet forum attendees agree that devaluation is 
a sensible economic instrument but it should have been performed 
in a way that would not allow deceiving and robbing the poorest 
people.  Independent economic pundits believe that seniors will 
be hit the hardest.  The Belarusian internet is full of 
suspicion that the regime and Lukashenka in the first place used 
IMF-mandated devaluation to make big money through insider 
trading.  There are unconfirmed reports that many Belarusian 
companies, which had significant amounts of hard currencies on 
their bank accounts, were required to promptly sell them for 
Belarusian rubles right before the end of last year. 
 
¶5.  Currently, many Belarusians try to get rid of their 
Belarusian rubles as soon as possible.  Seeking to secure their 
earnings, they are desperately trying to buy hard currency or 
consumer goods (mostly higher technology).  Wide and 
persistently circulating long-time rumors suggest that the 
authorities will shortly introduce the new Belarusian currency 
(allegedly printed in or brought from Lithuania), which will 
denominate (cut two zeros) and replace the existing one, thereby 
more closely approximating the Russian ruble.  (For example, 
moving the exchange rate from BYR 2650:USD 1 to BYR 26.5:USD 1. 
According to other rumors, further depreciation is inevitable, 
with the Belarusian ruble falling to a rate like BYR 6000:USD 1 
by the end of 2009. 
 
¶6.  Independent economic observers have issued rather skeptical 
comments on the regime's new monetary policies.  One of the 
leading economists of the independent Institute of Privatization 
and Management Yelena Rakova believes the percent devaluation 
will not solve all problems as most Belarusian exporters are 
highly dependent on imports; the prices of imported goods have 
now risen 20 percent to compensate for the devaluation.  She 
predicts the country will need to depreciate the currency again 
in 2009 and that will lead to both higher inflation and many 
bankruptcies in the banking sector.  Former Chairman of the 
National Bank Stanislav Bogdankevich opined that devaluation and 
pegging the currency to a three-currency basket were both 
 
MINSK 00000014  002.2 OF 002 
 
 
economically sound, but those decisions were long overdue and 
are not sufficient to help the largely unreformed economy. 
Strategiya think tank chair Leonid Zaiko criticized GOB 
"short-sighted" monetary policies and predicted continuing 
devaluation, up to 40 percent inflation and about 70 percent of 
Belarusian banks being in red by the end of 2009.  He also 
expressed the view that the replacement of the Belarusian ruble 
by the Russian ruble would be the best solution for the needy 
Belarusian economy. 
 
Comment 
------- 
 
¶7.  The regime decided to sacrifice its image and agreed to 
serious political losses due to the ongoing financial problems 
and others looming of the state-controlled economy, which in 
turn threatened the regime's overall stability.  Speaking at the 
Russian Orthodox Christmas festivities in Minsk on January 7 
Lukashenka said: "We have done a lot and now all depends on the 
people".  The fact that the rest of the world is also facing 
economic difficulties helps to diminish the blame assigned to 
the GOB.  The regime is probing into people's ability to 
tolerate the most unpopular economic steps.  Belarusians seem to 
remember well their Soviet survival skills and, although greatly 
worried, show no inclinations to protest publicly.  That may 
change as inflation hits and state-owned enterprises lay off 
more employees; analysts predict that the late winter/early 
spring will be the time to watch the population closely. 
MOORE