By Alesia Sidliarevich and Laura Gardner Cuesta
Belarus’s sovereign bonds fell from outrage among foreign investors ahead of the 90th of August presidential election in the country. While many expect a non-violent transition from force to the taste of the 2018 “velvet” revolution in Armenia, this is almost unlikely in a country that has been under the command of Aliaksandr Lukashenka for 26 years, according to experts interviewed through Debtwire.
An offensive against wartime political parties and civilian activists is already in full swing and the government is taking strong action against the expected mass protests.
Hundreds of protesters and political leaders have been arrested since the start of the election campaign, and many are still in prison, adding former banker Viktar Babaryka, one of the main challengers opposed to Loukachenka, and the popular blogger Siarhej Cihanousky, whose wife Sviatlana had. to enter the presidential race instead.
“This is a much more active pre-election crusade than ever,” said Julia Kockaja, Minsk journalist. “People have had enough. It doesn’t matter who wins until it’s Loukachenka.”
The opposition crusade began to gain momentum when Babaryka, who spent 20 years as CEO of Belgazprombank, a subsidiary of Russia’s Gazprombank, announced in May his goal of running for president.
Independent exit polls put Lukashenka’s approval at an all-time high of 3%, prompting a very popular “Sasha 3%” meme on local social media.
Risk of sanctions.
A non-violent revolution is in Belarus, says a Moscow-based credit analyst.
“Loukachenka saw a lesson in the 2014 Maidan revolution in Ukraine and will fight hard,” the analyst said. “It will weigh the protests with brutal force and the Belarusian special is well prepared for them.”
Belarus will again face foreign sanctions, similar to those imposed after the December 2010 presidential election, when the country excluded itself from foreign debt markets, according to analyst and a London-based portfolio manager.
This will push the country to Kremlin influence and make its economy even more dependent on Russia, an analyst in Kiev said.
Belarusian Eurobonds at $800 million with 6.875% maturing in 2023 were trading more than Ukrainian debt, however, they crossed the roof at the end of June, after their spreads expanded across 160 basis points.
Russian pressure
Russian President Vladimir Putin intensified economic pressure on Lukachenka in an effort to force integration between the two countries before this year.
Russia obtains energy resources for its small landlocked neighbor with subsidized charges until 2019, when it stopped ceding energy export charges for Belarus. The resolution charged Belarus $330 million last year and governments have not yet been successful in a long-term settlement on new positions. Belarus has no source of power of choice and has so far only controlled the purchase of single tankers from other countries, said Vadim Iossub, a senior research analyst founded in Minsk in Alpari Eurasia.
Exports of oil refining products as well as potassium fertilizers account for about 50% of the country’s total export revenues, Iossub said, adding that the refining sector suffered this spring due to falling oil costs and european demand relief.
Belarus is the only country in Europe that has not caused national blockades amid the coronavirus pandemic (COVID-19) and its GDP from January to May through only 1.8%, less than neighbouring countries.
“However, this GDP CALCULATION includes stored goods produced in the era that were not sold. Supply chains disrupted the pandemic and it remains to be seen when and how those products will be sold,” Iossub said.
The IMF predicts that the Belarusian economy will shrink by 6% until the end of the year and will begin a slow recovery in 2021-22.
Central bank’s threat of independence
The National Bank of the Republic of Belarus has implemented a balanced financial policy since 2015 keeping the Belarusian ruble rate stable. However, before the election, Loukachenka told the central bank to pay the salaries of state-owned enterprises in a timely manner and gave orders to the refinancing rate.
“This is an intervention in financial policy that can lead to a currency devaluation,” Iossub warned. Belarus holds the record for devaluation and the inflation rate among the former Soviet republics, he noted.
The central bank expects the inflation rate to succeed at 5% -6% until the end of 2020, however, the analyst believes it will be 6% -8%, and only if financial policy remains reasonable.
Alesia Sidliarevich is associate editor of Debtwire CEEMEA, which covers debt restructuring. She may be in [email protected].
Laura Gardner Cuesta is a senior journalist at Debtwire CEEMEA, which covers sovereign debt. She may be in [email protected].