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Statement by the IMF Mission to the Republic of Belarus

An International Monetary Fund (IMF) team led by Mr. Christopher Jarvis visited Belarus during October 5-17. The mission discussed the current economic situation and exchanged 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, the Chair of the Board of the National Bank of the Republic of Belarus Ms. Ermakova, Deputy Prime Minister Roumas, the Minister of Finance Mr. Kharkovetz, the Minister of the Economy Mr. Snopkov, 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:

“There is an urgent need to bring down inflation, which is eroding living standards and feeding depreciation expectations. The depreciation so far has helped to bring down the current account deficit, which is an important and welcome development, but these gains would be eroded by continued high inflation. To achieve external sustainability and domestic stability, it is important that the Government and the National Bank take action now to reduce inflation.

“The authorities’ policies to contain the crisis have been in the right direction. Access to foreign exchange has become easier after the opening of the second session in the foreign exchange market in September. The announcement of the authorities’ plans to unify the exchange rates at a market rate and to float the rubel is another very important step forward. The authorities have also been making efforts to tighten monetary policy and have been following a prudent budget policy.

“However, major additional efforts are also urgently needed. During the remainder of 2011, we recommend that the government continue to take all possible measures to contain spending and that it freezes lending under government programs, which have contributed to excessive credit increases and inflation. The National Bank should raise interest rates further and faster to levels which are higher than expected inflation, so that people will be confident that they will receive a positive return on their savings. Wage restraint is also crucial. The role of the November 2010 wage increase in contributing to the crisis of March 2011 is now widely recognized. We would therefore recommend avoiding further increases in the first grade wage for government workers and workers in state enterprises.

“For 2012 the Government and the National Bank intend to pursue policies which are geared towards achieving external sustainability and domestic stability: building foreign reserves, reducing the current account deficit, and reducing inflation. This is welcome, and would be a significant departure from past policies. We especially welcome the Government’s intention to propose a balanced budget for 2012. Additional measures that will be important to achieve the stated objectives are strict limits on lending under government programs, tight monetary policy, and continued wage restraint. The authorities should also continue with and accelerate their work on structural reform, especially enterprise reform, privatization, price liberalization and banking sector reform. Deep structural reform is needed for Belarus to achieve strong and lasting growth and to increase living standards in a durable way.

We also discussed Belarus’ request for IMF financial support. Before program negotiations could begin, as a first step, the authorities will need to demonstrate a clear commitment—including at the highest level—to stability and reform and to reflect this commitment in their actions. Meanwhile, the IMF staff will continue to work with the authorities to help them design policies to restore stability and prosperity.”