S&P downgrades Belarus closer to default

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Standard and Poor's on Monday downgraded the debt rating of Belarus to a level that placed the struggling ex-Soviet nation one step closer to being deemed vulnerable to default.

The move was the second by the rating agency since May and was the latest sign of

widespread doubts that President Alexander Lukashenko is sufficiently committed to stem spiralling inflation and spark economic growth.

Standard and Poor's downgrade to the level of 'B-/C' from 'B/B' came in response to a crisis that began with ambitious election campaign promises by Lukashenko last year and extended to Russia ending key subsidies to Belarus earlier this year.

"The downgrade reflects our concerns over Belarus' ongoing dependence on external funding," Standard and Poor's said in statement. "We remain highly uncertain as to Belarus' ability to secure such funding."

The last downgrade in May followed a government decision to accept a 36-percent currency devaluation that helped to temporarily slow local demand for foreign currency.

Belarus loosened its currency again in September by introducing limited free market trading and has now devalued the local ruble by some 60 percent in five months.

The B- rating with a negative outlook indicates only a small assurance of payment and places its sovereign debt just one notch above CCC --- the agency's grade for a state completely dependent on "favorable business, financial and economic conditions" to meet financial commitments.

Standard and Poor's noted that the government's decision to raise interest rates to an unprecedented 30 percent was making little impact because annual inflation had reached 69.7 percent since the start of the year.

"There has been little notable progress in liberalizing the economy, privatization is proceeding very slowly, and the private sector remains underdeveloped," it said.

Lukashenko has appealed to the International Monetary Fund for help and has received low-interest loans from China and a group of ex-Soviet states led by Russia.

But the IMF is only coming to Minsk next month for another round of policy discussions -- the fund stresses that the talks will not address aid -- and Standard and Poor's said it may have to downgrade Belarus again shortly.

"We remain highly uncertain as to Belarus' ability to secure (sufficient outside) funding, and we believe the government has made only limited efforts so far to remedy the underlying causes of the external imbalances," Standard and Poor's said.

It added that the two waves of currency devaluation will nearly double the foreign currency debt mark to more than 40 percent of gross domestic product by the start of 2012.

S&P said Lukashenko's promised drive to sell off state assets was "proceeding very slowly and the private sector remains underdeveloped."

The worst economic crisis of Lukashenko's 17-year rule has forced him to agree to a $7.5-billion privatisation programme that will likely leave most of his most prized assets in Russia's hands.

The sell-off must be completed in gradual installments over three years that ensure payment of a $3-billion loan agreed by a group of countries led by Russia this summer.

But the major deals have been delayed amid reports that interested Russian companies were continuing to squeeze their debt-ridden counterparts in Belarus for lower prices.

© 2011 AFP

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