By Lidia Kelly and Richard Balmforth
MINSK, Dec 17 (Reuters) - Belarussian strongman Alexander Lukashenko, savouring a triumph on the eve of certain re-election, said on Friday his oil deal with Russia would benefit the economy and buoy the mood of the people.
The 56-year-old Lukashenko, who is poised to win his fourth term as president in Sunday's vote, persuaded Moscow last week to end a months-long media campaign against him and drop duties on oil exports to Minsk in 2011.
The deal is expected to save Belarus $4 billion next year -- enough to cover a budget deficit which has widened because of lavish pre-election spending by Lukashenko, including raising the minimum wage.
"These agreements influence both the currency rate and the mood of the people," Lukashenko said in his first public comments on the deal since returning from Moscow.
Some economists have warned that cash-starved Minsk may have to devalue the Belarussian rouble early next year. Demand for foreign currency by ordinary people has increased fivefold in recent months.
The problems of foreign financial markets had forced Minsk to postpone plans to issue Russian rouble-denominated bonds, hurting its ability to plug the hole in the budget. On Thursday, though, it said Belarus would issue the bonds on Dec. 23.
The deal with Russia eases Lukashenko's financial worries as he prepares for another five-year term at the helm of his ex-Soviet republic of 10 million, during which many analysts see him facing real challenges on the economic front.
It has also disheartened his few political opponents, who had hoped that pressure from Russia would undermine the veteran leader who has ruled with an iron fist since 1994.
A record 10 candidates are running, including Lukashenko.
But his opponents, bereft of any real party structure or network and with no real access to the tightly controlled media, remain largely unknown to the Belarus public at large and have no chance of unseating him.
There have been modest opposition protests on the streets, but there are no signs that they will attract big crowds.
In 2006, Lukashenko secured more than 80 percent of the vote. The West, which has long regarded him as a pariah, said there had been massive electoral fraud.
The Organisation for Security and Cooperation in Europe (OSCE) has again fielded a small army of observers in Belarus to monitor voting, and a senior Lukashenko aide said she hoped the West would show appreciation of "progress" made in the conduct of the election.
"We are counting on an objective assessment of the election campaign so that the West will show understanding. We do not hide the fact that there are problems but it is very important to see the progress that is taking place," Natalya Petkevich, deputy head of the presidential administration, told Reuters.
While the Russia deal eases financial pressures on Lukashenko, it does not remove all his worries.
The country still urgently needs cash to keep up investment and planned social spending and prop up demand to ensure economic growth.
Some deals are not done: Minsk and Moscow have yet to agree a gas price. "Difficult negotiations are ongoing," Lukashenko said. "But whatever happens, our economy next year looks better than we had planned." (Additional reporting by Andrei Makhovsky, Writing by Lidia Kelly and Richard Balmforth, editing by Tim Pearce)