The IMF has resumed consultations with Belarus, though it has not committed to lending funds before Minsk demonstrates further efforts to reform its economic policies (Belapan, February 20). Talks in February focused on the preconditions for a six-month monitoring program, which is slated to begin on April 1. Should this program be concluded successfully, discussion concerning a possible future standby credit facility would begin in earnest.
The Fund has established three preconditions for the six-month monitoring program: (1) administrative controls on price increases for 80 percent of goods are to be removed, (2) the provision of “soft” credits via commercial banks for agriculture and construction is to be halted, and (3) state budget expenditures are to be reduced and some tax exemptions eliminated to finance a scheduled across the board wage increase. Should the IMF executive board approve the monitoring program and should Minsk meet these preconditions, the monitoring program would specify concrete monetary and fiscal policy targets.
President Alyaksandr Lukashenka, who is facing re-election in September, has called on the government to increase the average monthly wage to US$100. The IMF has proposed accomplishing this by increasing budget revenues through cutting non-core expenditures and by rescinding tax exemptions since the tax rates in Belarus are already high. The government has agreed to this in principle, and in exchange claims that it is willing to abide by targets for fiscal and monetary policies, as well as for foreign exchange reserves, that would be set by an IMF team. The government has also agreed in principle to accelerate privatization of small and medium-sized businesses. And it has even agreed to limit the issuance of presidential decrees which have in the past interfered with business transactions.
The government and the National Bank have made similar promises in the past, however, and little has come of them. The IMF’s cautious approach–according to which Belarus must implement IMF conditions before any funds are disbursed–clearly reflects previous experience. In light of Belarus’ upcoming presidential elections, skepticism about Minsk’s commitment to honoring these pledges must run particularly high–especially since President Lukashenka and government officials continue to publicly criticize market reform. On the other hand, Minsk did reduce fulfill its promise to unify and devalue the official exchange rate last year, and tighter monetary policies have helped bring year-on-year consumer price inflation down to 91 percent in January, compared to 244 percent in January 2000. Belarus’ reluctant and piecemeal approach to market reform seems likely to continue to delay macroeconomic stabilization, thereby increasing the overall costs of this transition (Western agencies, February 15, 20).
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