Belarus' Hyperinflation Crisis: Russia Threatens to Cut Off Belarus Electricity

Russia Threatens to Cut Off Belarus Electricity

June 21, 2011

AFP - Russia's power utility warned Tuesday it would cut off all electricity to cash-strapped Belarus if it remains in arrears after receiving the first tranche of a $3 billion bailout loan.

A potential interruption of Russian supplies should not hit resource-starved Belarus too severely because it only receives a tenth of its electricity from its energy-rich neighbour.

But it adds another psychological blow to a nation of 10 million that this year has already seen its currency devalued by more than a third and inflation reach a staggering 32.6 percent amid its worst crisis since the Soviet era.

The cutoff threat stems from a $54 million electricity payments debt that resulted in a partial disruption in supplies earlier this month. The Russian utility initially threatened to cut off supplies Tuesday at 2000 GMT before extending the deadline by six days until the end of the day Monday after holding urgent talks with Minsk officials.

"They insisted that they will be able to pay by Monday," a source at the Inter RAO UES utility told AFP. "We will see."

The warning came only hours after $800 million of Russian orchestrated assistance reached Minsk -- the first line of support to reach depleted state coffers since the crisis began in the winter.

The three-year package was agreed under strict conditions that include the government's adoption of a wholesale privatisation programme.

Belarus has thus far failed to put its Soviet-era state firms up for sale. The loan's release was imperiled further by strongman President Alexander Lukashenko's vow to shut down Russian media outlets operating in Belarus. But Russian Finance Minister Alexei Kudrin told news agencies that "Belarus fulfilled all the formal obligations (on Monday) evening" and was sent the first payment on Tuesday.

The hard currency and basic goods shortage poses the most serious challenge of Lukashenko's 17-year presidency and has seen the mercurial leader make a series of at times contradictory pronouncements. He warned on Friday that he was ready to close the country's borders and require consumers to rely only on domestic goods if the economic situation deteriorated further.

Kudrin said Tuesday that Moscow reserved the right to review the release of additional money if Lukashenko barred Russian goods from entering the republic.

Belarus is scheduled to receive its next payment of $440 million by the end of the year but the money is unlikely to provide more than stopgap help.

The country last week raised its main interest rate to one of the world's highest at 18 percent to help fight inflation that reached 32.6 percent in May. Its foreign currency holdings meanwhile fell by another 9.6 percent last month as the state took desperate steps to keep the local ruble from losing even further value.

Russia has served as the increasingly isolated republic's most important link with the outside world and on Tuesday defended its ally against another round of sanctions imposed by the European Union.

"We view such a policy as counterproductive, no matter how difficult the dialogue in the human rights arena might be," news agencies quoted a Russian foreign ministry spokesman as saying.

The new EU sanctions were the first to hit the Belarus business sector.

Belarus has accused the West of trying to topple Lukashenko's regime and on Tuesday vowed to take reciprocal steps against the EU.

"The European Union's actions escalate the confrontation and complicate our ability to move on to normal cooperation," a foreign ministry spokesman said.

"Belarus will take adequate step to defend the legitimate interests of its citizens and enterprises, including reciprocal measures against the initiators of this decision."

Belarus - Hyperinflation in Real Time

June 22, 2011

totallygroovygirlfriday - In our continuing saga of the Belarus hyperinflationary crisis (which is a real-time economic lesson for the globe), Russian is threatening to cut off Belarus’ supply of electricity. Fortunately, Russian only supplies 10%, but other creditors may join the party.

In our last episode:

But it adds another psychological blow to a nation of 10 million that this year has already seen its currency devalued by more than a third and inflation reach a staggering 32.6 percent amid its worst crisis since the Soviet era.

Now:

The cutoff threat stems from a $54 million electricity payments debt that resulted in a partial disruption in supplies earlier this month.The three-year package was agreed under strict conditions that include the government’s adoption of a wholesale privatisation programme.

Belarus has thus far failed to put its Soviet-era state firms up for sale. The loan’s release was imperiled further by strongman President Alexander Lukashenko’s vow to shut down Russian media outlets operating in Belarus.

Ah yes, the next step in a hyperinflation crisis. You can “revalue” your own currency, but those pesky international creditors still want full payment of the original currency value. Or they graciously compromise and force you to sell your country’s assets to pay them as much as possible of the debt owed.

In our next exciting episode:

You have pawned all your nation’s assets, halting all national revenue for the foreseeable future (except for taxes on the poor, since your middle class got wiped out during the “revaluing” phase and the rich have moved their money out of the country) — but taxes on the poor during a depression don’t amount to much, thus your government and its services collapse.