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Belarus comes in from the cold

Row with Russia leaves large hole in the country’s current account.

Every cloud has a silver lining, or so the saying goes. For mandate-hungry investment bankers desperate to secure another multi-million dollar year-end bonus, the political woes of Belarus could yet prove to be an unexpected source of much-needed business in 2007. Not so much a silver lining then, more a gilt-edged opportunity.

The economic fallout from the spat over oil and gas prices between Belarus and Russia means that the authorities in Minsk are now facing up to the prospect of plugging a hole in the country’s finances with the help of funding from their one-time ideological foes in the west.

According to recent research by RZB economist Gerhard Lechner, the hike in prices demanded by Russian state gas company Gazprom – $105 per 1,000 cubic metres this year compared with just $47 in 2006 – will result in Belarus’s current account deficit ballooning from an estimated 2.1% in 2006 to a forecast 6% in 2007. Such a level would cause a sharp depreciation of the Belarusian rouble if the government of president Alexander Lukashenko were to fail to secure additional funds to prop up the former Soviet republic’s finances. Lechner believes the Belarusian rouble could drop by around 10% this year and by a further 10% in 2008.

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