Belarus is likely to announce either a cash injection from Russia or a devaluation of its rouble in the coming weeks as it plans to restart limited foreign exchange trading, analysts say. The former Soviet republic is running out of foreign currency reserves due to a big trade deficit and overspending in the run-up to the December 2010 presidential election in which President Alexander Lukashenko secured a fourth term in office.
Belarus' central bank, which effectively halted forex trading this month, said on Thursday it would restart sales of foreign currency to banks from April 1 but would only sell as much as it can buy from exporters. "We see that something must be in the pipeline by then in terms of privatisation (most likely to Russia, but China cannot be excluded) and devaluation is likely to happen by then," UniCredit analyst Dmitry Gourov wrote in a note to investors.
Minsk has already announced plans to borrow up to $3 billion from Russia and other ex-Soviet states. Likely helping keep Russian investors on its side, Belarus said on Thursday it had paid the first quarterly coupon of 152 million Russian roubles ($5.4 million) on the bond it issued in Russia in December. Belarus also says it is ready to sell its stake in a joint venture with Russia's MTS for $1 billion.
Officials have said the government could sell a 25 percent stake in Belaruskali, one of the world's largest potash miners, for $6 billion-$7 billion. The sale, which could interest Chinese investors, has not been officially announced though. Another Moscow-based UniCredit analyst, Vladimir Osakovskiy, said political factors were favourable for a devaluation.
"The political cycle is over, elections are over, so why keep (the exchange rate peg)? They can always find scapegoats." Analysts say the rouble could be devalued by 20-30 percent from the current 3,030 per dollar and businessmen in Belarus say they receive offers to buy the US currency at about 3,700 roubles per dollar on the "black market".
However, other analysts say the government is unlikely to devalue the rouble because such a measure would hardly make its Soviet-style command economy more competitive. "The authorities in Belarus do not believe that a devaluation of the rouble would improve the economic situation," said Renaissance Capital analyst Anastasiya Golovach in Kiev.
"They think it would rather add to inflation, which is already accelerating due to announced increases in food prices and utility tariffs, and strengthen expectations of a further weakening of the rouble ... They have trapped themselves."
Belarussian goods such as agricultural machinery have a "comparably thin market", mostly in the former Soviet Union, and a decline in price most likely will not result in higher demand for them, Golovach said. She said the government's short-term solution is therefore likely to be limited to an aid package from Russia. "I think in April they will be able to make a deal with Russia and the EurasEC," Golovach said, referring to a bailout fund mostly financed by Russia and its Central Asian ally Kazakhstan.
Such an announcement could help Belarus' Eurobonds bounce off all-time lows they hit this week. "If they can get that (aid) there's potential for quite a significant rally in the bond," said Gabriel Sterne, economist at London-based brokerage Exotix. The yield on Belarus' 2018 Eurobond broke the 12 percent mark on Thursday as news of the local foreign exchange market trading coming to a halt caused panic among investors. "I believe that the recent fire selling is a result of people not fully understanding the country," Gourov said in a note. The government's debt profile looks "very manageable", Gourov said, and will not suffer much from a possible devaluation.