Statement by the IMF Mission to the Republic of BelarusPress Release No. 11/229
June 13, 2011
An International Monetary Fund (IMF) team led by Mr. Christopher Jarvis visited Belarus during June 1-13, 2011 to conduct post-program monitoring discussions and exchange views with the authorities on possible next steps in response to their request for a Fund-supported program. The team met with Prime Minister Myasnikovich, Deputy Prime Minister Rumas, the Minister of Economy Mr. Snopkov, the Chairman of the Board of the National Bank of the Republic of Belarus Mr. Prokopovich, other senior officials, representatives of banks, independent economists and the diplomatic community. The team is grateful to the authorities for the candid discussions. Mr. Jarvis made the following statement today in Minsk at the conclusion of the mission:
“Belarus’s economic crisis is serious, but there is a way out. We urge the authorities—the President, the government and the National Bank—to work together to produce a clear plan to resolve the crisis. They should tell the public what they plan to do and how they plan to do it.
“What should be in the plan? The origins of the crisis lie in excessive credit growth and wage increases that the economy could not afford. The solutions lie in the same places. The National Bank should restrain credit and money creation. This means limiting credit under government programs and increasing interest rates to at least the level of the expected rate of inflation, so that people can be confident that their savings are not being eroded. The government should reduce the fiscal deficit—we would recommend bringing the budget into balance—and should not increase government wages this year. It should also discourage large state enterprises from increasing wages. We know that prices are going up, and it is hard to manage without wage increases. But high wage increases will just drive prices even higher and the rubel lower in a vicious spiral.
“The foreign exchange market is not working. Very few people are willing to sell foreign exchange at the official rate, and most people who want to buy foreign exchange have to pay for it at a much more depreciated exchange rate. We recommend floating the exchange rate—allowing the official exchange rate to be set by market forces and allowing free trade in both the interbank market and the cash market.
“We project that the effect of these policy changes will be to bring down inflation and the current account deficit, and stabilize the economy. The cost will be that real wages will be lower than they were last year, and there will be uncertainty about the level of the exchange rate in the future. But people are already experiencing lower real wages and uncertainty, while getting none of the benefits that come with stability.
“The main purpose of this mission has been to assess the authorities’ economic policies. We have been pleased with some of the economic measures the government is taking. The government is doing a good job in limiting the budget deficit and in setting limits to lending under government programs. We also welcome the government’s plans to help people who are unemployed and who are poor and are suffering from the effects of the crisis. We also welcome some of the steps the National Bank has taken, including increasing policy interest rates and the recent decision not to provide commercial banks with cheap loans to support their lending under government programs. But we think that both the government and the National Bank need to do more to promote economic and financial stability.
“We have also initiated discussions on a possible IMF program. This has only been the beginning of our discussions and we still have a long way to go. We need to have further negotiations on macroeconomic policies. We will also need to agree on structural reforms to improve the efficiency of enterprises and the financial system so that in future growth will be strong and durable. Above all, the authorities have to be committed to macroeconomic stabilization and structural reforms. We will have to agree on strong stabilization and structural measures which would be implemented prior to the program and would demonstrate their commitment. The IMF staff will continue to work with the government and the National Bank to reach a strong agreement which would help the people of Belarus.”