BELARUS PEGS ITS RUBLE TO RUSSIAN.

The Belarusan government and central bank announced on December 27, 2000 that its currency would be pegged to the Russian ruble as of January 1, 2001 (Reuters, December 27, 2000). The aim of the currency peg is to bulk up the Belarusan ruble, which has been devalued precipitously against both the U.S. dollar and the euro in recent years. The action is also to pave the way for the introduction of a single currency upon the planned Russian/Belarusan political union in 2005. The agreement calls for the Belarusan ruble to lose on average no more than 3 percent of its value per month against the Russian. In January the Belarusan currency actually appreciated 1.6 percent, rising from 23.150 to 22.780 per Russian ruble, as reported by the Central Bank of Russia (www.cbr.ru).

The implications that the peg will have on Belarusan monetary policy are clear. The central bank will be bound to further rein in the extremely high rates of inflation to which the country has become accustomed. By the end of 2000 inflation was reduced to around 5 percent per month, down from highs of 12-14 percent per month earlier in the year. The temptation to print money–which the central bank did in November to meet wage payment objectives, as well as to issue soft loans to industrial and agricultural enterprises, which the government has done frequently in recent years–will now be greatly reduced.

The currency peg is the latest and strongest effort to stabilize the Belarusan ruble and tie the country more closely to its eastern neighbor. In September 2000 Belarus declared a new unified exchange rate policy, liberalizing the exchange of rubles among financial institutions, and hence effectively eliminating the black market for currency trading. In November Russia granted a loan of 4.5 billion Russian rubles to support a stable Belarusan ruble, but Belarusan Radio reported that the National Bank of Belarus declared that this loan would be used to decrease the amount of dollar accounting between the two countries and increase the level of ruble transactions (Belarusan Radio First Program, February 2).

Belarus, however, may face difficulty meeting exchange rate targets in the next few years if Russia decides to enforce a more market-based pricing system on oil and gas sales. As of now, Belarus maintains positive terms of trade due to the low price of energy imports. A reversal of the policy would impose much higher input costs on industry, and would drag down industrial output. Because so much of the Belarusan economy relies on trade with Russia, a reduction in supply of goods and a related drop in demand for Belarusian rubles to pay for these goods could erode the value of the Belarusan ruble beyond the 3 percent threshold.

ARMENIAN ECONOMIC PERFORMANCE FAVORABLE.