OREANDA-NEWS. September 19, 2011. Transcript of a Conference Call on the First Post-Program Monitoring Discussions with Belarus:

MS. STANKOVA: Good morning, everybody. Thank you for joining us in this conference call on the release of the Staff Report and the Public Information Notice on the First Post-Program Monitoring Discussions with the Republic of Belarus.

The documents were made available on the IMF’s online media briefing center at 8:00 a.m. D.C. time and they will be under embargo, as well as the conference call, until 11:00 a.m. D.C. time. We would appreciate if you could please respect the embargo, for both the documents and the conference call.

The conference call will be held by Chris Jarvis, Mission Chief for Belarus. He will make brief introductory remarks, and after that we will take your questions. I will now pass the microphone to Chris.

MR. JARVIS: Good morning, or afternoon. I’ll must make a few brief comments at the beginning, and then take your questions.

The main message that I’d like to convey is that the Belarusian authorities need a comprehensive and credible adjustment strategy. Over the last few months we’ve seen some positive developments, like the policy package that was agreed with the Eurasian Economic Community Anti-Crisis Fund and, more recently, the announcement by President Lukashenko that he intends to allow the exchange rate to trade legally at a market rate, and also the decisions by the national bank to increase policy interest rates.

There are a number of things that the authorities still need to do.

One of the most important is that there must be a genuine liberalization of the exchange rate. This means that they should really allow the market to work, and not try to prevent people from trading at a market exchange rate, or to influence that exchange rate by distortions or by intimidation.

There also need to be supporting fiscal, monetary credit policy and wage measures. The liberalization of the exchange rate should help to bring down the current-account deficit, which has been a huge problem for Belarus over the last few years. And we are already seeing some signs that that’s happening.

However, to produce domestic stability it will be very important that the liberalization is supported by a tight fiscal policy, higher interest rates, to make sure that they’re positive in real terms, and tight credit policy. Credit policy has been an Achilles heel of Belarusian economic policies for some time. And also tight wage policies.

The other thing that will be very important is to make further progress on structural reforms. We talk about his in the staff report, but let me single out a few things which I think are particularly important.

One is to make the development bank operational. This has the potential to be an instrument that brings lending under government programs under control. And it’s very important that it be up and running quickly, and that it actually has the powers and capacity to control lending under government programs.

Another is to make the privatization agency fully operational, and to begin a process of privatization of medium sized enterprises.

Another thing that’s important is to continue with price liberalization. As we say in the report, it may seem counterintuitive to liberalize prices during a period of high inflation, but it’s actually the best time to do so, because the ongoing relative price adjustment offers an excellent opportunity to bring prices to their equilibrium level quickly.

And finally, it’s very important that the authorities make progress in serious enterprise reform. Again, the crisis offers an opportunity. Enterprises will necessarily be exposed to hard budget constraints as credit is limited, and managers’ incentives should be aligned with this new commercial reality that the enterprises face.

Finally, a few words on the relationship between Belarus and the Fund.

We have been advising the Belarusian authorities on economic policies, and we will continue to advise them. We are planning a mission to go to Minsk next month for further discussions with the authorities to update ourselves on the economic situation in Belarus, and to give them some further advice.

With regard to a possible new financial program with the Fund, there has been a request from the authorities, and there was an exchange of views on that request during our last mission in June.

The position of our Executive Board, as you can see from the summing up of the Board discussion, which was part of the set of documents released, is that Executive Directors will need to see strong and demonstrated commitments by the authorities before there could be a new Fund program.

So that makes the steps that the authorities take in the next few weeks very important in terms of the relationship with the IMF. But this is even more important for the stability of the economic situation in Belarus, and the prosperity of the Belarusian people.

Thank you very much. I’ll take questions now.

QUESTIONER: I have actually maybe three brief questions.

One is, when you were discussing the request in June, did you talk about the scope of the program, basically how much money they wanted to borrow?

Secondly, you mentioned that one of the main requirements at this point is the liberalization--the true liberalization--of the exchange rate regime. But if they do not have enough resources, isn’t it dangerous for them to do that at this point?

And last, but definitely not least, I’d like to ask you to look ahead a little bit and give me your assessment of what happens if the government is not able to attract additional sufficient international financial resources?

MR. JARVIS: Okay. Let me take the first of those questions first on the possible scope and size of an IMF arrangement.

To establish how much money the IMF might provide, we would first need to work out an economic program and establish what is the financing need. We didn’t get far enough in our discussions on what would be the economic program--there wasn’t sufficient consensus on that--to get to the point of really establishing what would be the remaining financing need after macroeconomic adjustment. So the answer is that we didn’t talk about the size of a possible Fund program.

Your question on the liberalization of the exchange rate: you asked whether it would be dangerous to liberalize the exchange rate without substantial financial resources.

No, it wouldn’t be dangerous. One of the things about having a floating exchange rate is that the central bank is not obliged to intervene to defend that exchange rate. So it’s possible to operate a floating exchange rate without very substantial reserves.

Now, there is a risk that if you have a floating exchange rate and you don’t have strong supporting domestic policies, you can get into a spiral of inflation and depreciation. And that’s one of the risks that we flag in the staff report. And that is what makes it particularly important that the exchange rate liberalization is matched by a strengthening of domestic economic policies.

On the question of what would happen if Belarus is not able to attract external resources. We think it’s important that Belarus is able to attract resources because reserves are at a relatively low level at the moment, and especially net reserves, once you take into account the liabilities of the central bank.

So even with a floating exchange rate, we think it would be important for the central bank to be able to build up its reserves to a more comfortable level. And for that reason, we think that potential external support--both in the form of loans and in the form of privatization proceeds--can play a very helpful role in contributing to external stability.

QUESTIONER: Belarus said that it has asked the IMF for up to USD 8 billion in loans. What is the IMF’s position on that sum? You said that there has been no consensus on the economic program. But what is the IMF’s position on that specific request of up to USD 8 billion?

And my other question is what is the soonest Belarus could actually, realistically, get financial program with the IMF?

MR. JARVIS: As I said, we can’t really get into a discussion of how much financial support Belarus needs until we know more about the underlying economic program. So there’s not really much I can add to that.

In terms of how soon there could be an agreement that really depends on the actions and the policies of the Belarusian authorities. As I said, our Board wants to see a strong and demonstrated commitment from the authorities, and that’s really the necessary condition for progress towards an agreement.

QUESTIONER: The National Bank of Belarus said on Friday that they were going to start as of tomorrow a special trading session for the ruble to trade freely. But it’s only an extra-special session. Is that enough of a condition, in the eyes of the IMF board?

MR. JARVIS: I think it’s a very important and welcome move. It will be important that this is a genuinely free exchange rate. And we will be interested to see how the new approach works in practice.

But the mechanism that they have in mind is, I think, a very good first step. I hope it’s the first step towards unifying the exchange rate completely. Because that’s something that we would really need to see as part of a program that could be supported by the IMF.

You asked whether that’s enough. We need to see actions and commitments in many areas, if there is to be a Fund program, and that includes not just the exchange rate, but also fiscal and monetary policies, and structural reform. Because we think it’s through structural reform that you can really unlock the prospects of sustainable growth for Belarus.

QUESTIONER: Thank you. I just wanted to see if you could be a little bit more specific about the new mission that is planned for next month, as you said. Do you have dates for the mission?

MR. JARVIS: We do. Our planned dates are October 5th to 17th. That might change by a day or two, but I don’t expect that it will. In the past, our planned mission dates have usually turned out to be our actual mission dates.

MS. STANKOVA: I think we will conclude the conference call.

Let me remind that the conference call and the documents posted today at the media briefing center are under embargo until 11:00 a.m. D.C. time. And I hope that gives you time to finish your stories. And thank you very much, Chris for the conference call.

MR. JARVIS: And thanks for your questions, and for your continued interest. And I look forward to talking to some of you another time.