Belarus fuels fears over emerging market defaults

Borrowing costs for emergingnations shot up to a six-year high and the cost of insuring against theirdefault surged yesterday, after Belarus became the latest country to seekemergency aid from the International Monetary Fund.

The former Soviet republic asked the IMF for at least $2bn (£1.24bn) to shore up its finances. The IMF will open talks with Belarus on Monday.

The latest plea to the IMF from an emerging country panicked investors. The extra return demanded forowning emerging-market government bonds over US Treasuries jumped 64 basis points to 8.64 per cent, itshighest level since November 2002.

Belarus added its name to Iceland, Pakistan, Hungary and Ukraine on the list of countries that have asked the IMF for support. The country, which sits between Russia and Poland, may also try to tap central banks andcommercial lenders in other countries.

Developing countries have struggled to repay their debt as the credit crisis has spread out from the financialsystem itself to hit nation states with big foreign borrowings.

Many countries have also suffered falling demand for their commodities and other goods as the world economy slows. Belarus's exports, which include the potash fertiliser and refined oil products, have faced dwindling demand.

Nouriel Roubini, the New York University economist who predicted the credit crisis, said: "It's becoming a mess in emerging markets. There are about a dozen emerging markets that are now in severe financial trouble."

The cost of insuring against credit default by emerging market governments rose 3.2 percentage points to 9.9 per cent yesterday. Fears have hit Europe's Baltic and Balkan states, as well as South Korea, and Argentina, whose nationalisation of private pensions is seen as a move to stave off default.

Credit default insurance on Russia's bonds rose one percentage point to 10.5 per cent of debt insured after Standard & Poor's threatened to cut the country's debt ratings, citing the potential high cost of its planned bank bail-out. plan its banks