BELARUS NEWS AND ANALYSIS

DATE:

08/01/2009

Currency devaluation a shock for Belarussians

MINSK, Jan 8 (Reuters) - A surprise 20 percent devaluation of the Belarussian currency has sent people rushing to shops before prices go up.

The devaluation shocked many in this ex-Soviet state where President Alexander Lukashenko, widely known as "Batka" or "Dad", insulated the population from the turbulence of world markets by keeping much of the economy in state hands.

But the global turmoil has caught up with Belarus and has forced it to seek a $2.5 billion loan from the International Monetary Fund.

The devaluation may have been linked to the loan as freeing up the currency system, cutting social spending to balance budgets and wage controls are common conditions set by the IMF for its loans to help rebalance ailing economies.

On Dec. 31 Minsk agreed to the IMF loan and on New Year's Day it devalued the rouble to 2,600/$ from 2,200/$.

Belarussians rushed to the shops the next day to buy what they could in anticipation of steep price rises once the next set of imports hit the shelves.

"I don't remember such queues since the Soviet times," said Marina, a 38-year-old housewife, out shopping in Minsk. "I saw a woman grabbing onto a fridge and shouting that she got it first, while a man was telling her that he had ordered it."

"We sold 10-days worth of stock in three days," said Tatyana, a furniture store assistant. "Today, there were a lot of unhappy people. People couldn't believe that we've sold out."

The average wage, at $400 a month according to the latest data, is now worth $333 after the devaluation.

Alexander Chubrik, a Minsk economist at the Institute of Privatisation and Management, said the central bank should have cushioned the shock by devaluing the currency in stages.

"This was a bad move. No one expected this," he said. "The main result is a collapse in confidence in government policies, and possibly in the banking system."

SURVIVAL STRATEGY

Lukashenko, a former collective farm manager who has been president for 14 years, has maintained popularity through subsidised services such as healthcare and healthy wage growth.

After a row with traditional ally Russia in 2007 over gas supplies, he sought to move closer to the West in both diplomatic and economic terms. In the past 18 months Belarus showed signs of moving towards a free economy.

It received its maiden ratings from Moody's and Standard & Poor, privatised two telecom operators for $1.5 billion, scrapped a "golden rule" on state control of firms and allowed greater foreign ownership of companies.

Lukashenko has tolerated little open dissent and has been criticised by the West until recently for banning rallies, muzzling the media and jailing opponents. He has since then released all "political prisoners", as the West sees them.

"With growth, prosperity and high living standards, the population is willing to tolerate some political inconveniences," said UniCredit analyst Dmitry Gourov.

That prosperity may now recede with devaluation, economic slowdown and slashed budget spending. The economy minister said in December GDP would grow 7 percent in the first half of this year, slower than 8.6 percent in the same period last year.

"There was no slowdown in December -- everything was robust. So this is the first time that people will feel the crisis. Their purchasing power will go down," Gourov said.

Others, such as independent analyst Alexander Klaskovski in Minsk, said confidence would be shaken only to a small degree.

"In their long and hard history, Belarussians have adopted a strategy of individual survival."

(Additional reporting and writing by Sabina Zawadzki; Editing by Angus MacSwan)

Source:

http://in.advfn.com/news_Currency-devaluation-a-shock-for-Belarussians_35523883.html

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