Jerome Taylor: Dictator's grip on power depends on IMF bailout


Jerome Taylor
Monday 29 August 2011 00:00

RBS's decision to turn its back on Belarus comes at a time when Alexander Lukashenko is facing one of the most serious threats to his 17-year rule. Today the IMF will discuss whether to extend the stricken nation a desperately needed bailout loan – a decision that could prove vital in prolonging Mr Lukashenko's grip on power.

Mr Lukashenko has maintained a quasi-Soviet-style economy where the state owns more than 80 per cent of industry. Combined with the fear exerted by his loathed secret police, Mr Lukashenko has been able to remain in power by sheltering Belarus from the economic woes that beset many of its neighbours.

When times were good, the Belarusian state was able to keep salaries and pensions artificially high while Russia was happy to provide subsidised energy in return for political fealty to Moscow. In a classically populist act before last December's elections, Mr Lukashenko increased the state pension by 30 per cent, a move the country couldn't afford.

That is because in recent years the Belarusian economy has tanked and Moscow has become increasingly critical of its western neighbour, refusing to bail it out unless Belarus begins privatising some of its energy sector.

The growing political unrest inside the country has been combined with an increasingly precarious economic situation. So far this year the Belarus rouble has fallen 36 per cent against the dollar, with inflation predicted to reach between 55 and 75 per cent by the end of the year.

Mr Lukashenko has turned to the IMF asking for an $8bn (£5bn) stabilisation loan. But Belarus has barely begun to initiate any of the economic reforms demanded by the international community for such a loan to be granted. Nonetheless, the IMF did agree to a similar bailout loan in 2009 despite misgivings over the pace of reform.

Within the IMF there are two schools of thought. The first believes that any loan without reform would be a green light for Mr Lukashenko to continue his state repression and economic policies. But there are others who believe that a refusal by the IMF to provide a loan would send the Belarusian strongman further into the arms of the Russians.

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