Belarus completes its currency devalution

AP News
Posted: May 11, 2011 9:43 AM
Belarus completes its currency devalution

The exchange rate of the national currency of cash-strapped Belarus on Wednesday plunged by 30 percent after the government completed its devaluation, a move that will eat into people's salaries and cause price hikes in this authoritarian former Soviet republic.

Last month, the authorities gave permission to banks to buy and sell the ruble at a rate determined in open trading and the country's National Bank said Wednesday that money changers on the street can now buy and sell currency at any rate they want.

Banks responded by raising the U.S. dollar exchange rate for retail transactions by 30 percent, from some 3,000 rubles to 4,000 rubles against the dollar.

National Bank spokesman Anatoly Drozdov said the bank hopes this move will help satisfy people's demand for foreign currency.

This, however, has not helped people like Oleg Zagorelskiy, a 35-year-old owner of a small computer hardware importer in Minsk, who needs foreign currency to pay his foreign suppliers.

"We still have no foreign currency available," he told The Associated Press. "My plans are ruined. I'm forced to wind up my business."

Nina Zelenkovskaya, a 36-year-old accountant who has been queuing to buy foreign currency for three weeks now, said Wednesday her salary of 1.2 million Belarusian rubles ($400 before the devaluation) is now worth $300, which is about the average in the capital of Minsk.

Prices for some imported goods have nearly doubled in Minsk while the price for a loaf of white bread in a downtown store rose to 1,500 rubles (38 cents) from 1,000 (25 cents) on Tuesday.

Belarus is facing a severe downturn, with hard currency reserves plunging 20 percent in the first two months of the year to less than $4 billion, and staples such as vegetable oil and sugar vanishing from stores.

International financial institutions have been calling for a sharp devaluation of the Belarusian ruble to help the former Soviet republic's struggling economy. The devaluation is the latest blow to authoritarian President Alexander Lukashenko, whose government has incurred strong Western criticism for cracking down on opposition.

Belarus uses different exchange rates, depending on whether it is banks, private individuals or state companies that are buying the foreign currency. At times the difference between those rates can be up to 30 percent.

For most of his 17 years in power, Lukashenko has relied on Russia _ the country' main sponsor and ally _ to maintain a quasi-Soviet economy complete with a social safety net that helped maintain his popularity.

But the Russian subsidies have dwindled recently as Moscow pushes for control over Belarus' most prized economic assets, such as oil refineries and chemical plants, in exchange for more loans.

The devaluation comes amid reports that Russia is in talks with Belarus on lending its neighbor $3 billion in annual installments in the next three years.

Russian news agencies carried comments by Finance Minister Alexei Kudrin on Wednesday citing him as saying that Moscow is not planning to lend Minsk money directly, but would prefer that such a loan is handled by a Moscow-led organization which would include some former Soviet republics.

Kudrin also suggested Minsk be more active in privatizing its prized assets.

Market watchers earlier said that Russia is unlikely to lend money to Belarus without receiving guarantees that Russian companies could get a preferential access to some Belarusian state-owned assets such as oil refineries.


Nataliya Vasilyeva contributed to this report from Moscow.