Cash-strapped Belarus announced Tuesday that it would allow its beleaguered national currency to float, effectively permitting its devaluation in a bid to ease a spiraling currency crisis.
International financial institutions have been calling for a sharp devaluation of the Belarusian ruble to help the former Soviet republic's foundering economy. The move was the latest blow to authoritarian President Alexander Lukashenko's attempts to show he can still deliver economic stability after 17 years in power.
The currency crisis, an increasingly severe crackdown on the opposition _ including the arrest Tuesday of a human rights activist on suspicion of involvement in a subway bombing last week _ have spawned a sense of rising panic and disorder in this nation of 10 million, often labeled the last dictatorship in Europe.
Belarus' first post-Soviet leader, Stanislav Shushkevich, told The Associated Press that Lukashenko's political survival now hinges entirely on another Russian loan.
"He will be able to ease social tensions if the Kremlin gives him another loan," Shushkevich said. "Otherwise people will start protesting. What we are seeing now begins to resemble the collapse of the Soviet system."
The government's hard currency reserves plunged 20 percent in the first two months of the year to less than $4 billion, and staples such as vegetable oil and sugar started vanishing from stores as people started to hoard.
Starting next week, banks will be able to buy and sell the Belarusian ruble at a rate determine in open trading, Central Bank deputy chief Nikolay Luzgin said, adding that the government will "take extra steps to balance the situation on the domestic currency market" after next week's trading.
The U.S. dollar stood at 3,074 Belarusian rubles on Tuesday. Stanislav Bogdankevich, former chief of the Belarusian central bank, told The Associated Press that he expects the ruble to drop by one-third after the float.
Importers of medicine and Russian natural gas will be able to buy foreign currency at privileged rates.
Even before the announcement, frightened citizens had been lining up for hours in the past few weeks to exchange their rubles for euros and dollars. Since the free float will initially affect banks, it was unclear how currency rates on the street will be affected.
"My short-term plan is to emigrate to Poland," said Pavel Korchevsky, 37, a businessman. "It's impossible to do business in a country where the president personally determines the dollar rate."
Belarusian authorities also announced sharp budget cuts Tuesday, reducing financing for investment programs by 30 percent and state office construction by 20 percent.
A long-standing social contract that asked Belarusians to give up their political freedoms in exchange for safety and a modest standard of living now appears to be fraying. The April 11 explosion in the capital's busiest subway station during an evening rush hour killed 13 and wounded more than 200 _ the first deadly bombing in a nation where the opposition has been largely peaceful and militant groups have been unheard of.
Authorities quickly arrested a man accused of placing the bomb and four suspected accomplices, but haven't said who ordered the attack. Lukashenko responded to the subway blast by ordering prosecutors to interrogate opposition activists.
That made some bloggers speculate that authorities may have carried out the attack in order to distract Belarusians from the country's rapidly worsening economic situation.
Lukashenko responded with characteristic bluntness.
"Only idiots and scoundrels can allege that, only scum can do that," he said, arguing that the economic troubles and the subway attack had been carried out by unspecified forces seeking to subdue the nation.
Minsk, a city of drab suburban apartment blocks and broad central avenues lined with monumental Stalin-era buildings, looks tense, with police and military patrols deployed on the streets and the subway.
"Belarus has always been known for its stability and order, but the explosion has filled me with fear and anguish," 46-year-old Dr. Zhanna Pankratova said as she walked past the explosion site. "Whom can we trust now?"
Opposition leader Anatoly Lebedko expected the government to intensify its crackdown on dissent.
"If they announce a decision tomorrow to brand all members of the opposition with a hot iron, I will not be surprised," said Lebedko, who was released from a KGB prison earlier this month after 3 1/2 months in custody.
As if on cue, a top human rights advocacy group said Tuesday that one of its members had been arrested on suspicion of involvement.
The Belarus Helsinki Committee said that police were holding Pavel Levinov. Police could not be reached to confirm the arrest, but the head of the committee, Oleg Gulak, said he had visited the police station in the capital, Minsk, where Levinov was being held.
Another activist who was detained along with Levinov but later released said police broke into Levinov's apartment to detain him and several others.
The arrest adds to fears that Lukashenko is using the bombing, which killed 13 and wounded more than 200, as a pretext to pressure political opponents.
The government already has issued reprimands to two main independent newspapers and the prosecutor-general has threatened to "bring order" to the Internet, the last haven of uncensored speech in Belarus.
For most of his tenure, Lukashenko has relied on cheap energy resources from Belarus' main sponsor and ally, Russia, to maintain a quasi-Soviet economy complete with a social safety net that helped boost his popularity among the working class and the elderly.
But the Russian subsidies have dwindled recently as Moscow has pushed for control over Belarus' most prized economic assets, such as oil refineries and chemical plants, in exchange for more loans.
Even as state coffers were drying up, Lukashenko raised public sector salaries by 30 percent ahead of December's presidential vote to secure his re-election. The vote was harshly criticized by international monitors.
"Belarus was living beyond its means, and it was the president who made it do that," said Leonid Zayiko, head of the independent Strategia think-tank. "All the problems emerged because he wanted to remain president and raised salaries."