Belarus lifted key currency restrictions Tuesday, effectively devaluing its ruble, as authoritarian leader Alexander Lukashenko seeks loans from Russia to shore up foreign reserves and avert a financial meltdown.

Belarus’s banks will be allowed to trade the Belarussian ruble with local companies outside the 10% band previously mandated by the central bank, central bank deputy chief Nikolai Luzgin told reporters Tuesday in Minsk. Belarussian businesses are already buying dollars for 4,300 rubles apiece, a much weaker exchange rate than the central bank’s latest rate of 3,074, according to business lobby chief Viktor Margelov.
Mr. Lukashenko last week hinted that a devaluation might be imminent.
On Tuesday, Belarus officials said banks and companies could operate outside the previous 10% band introduced last month for over-the-counter transactions.
Bank transactions with individuals still can’t deviate by more than 2% from official rates.
“This introduces double exchange rates. One is official, the other is floating in the market. The population is not allowed to operate on the floating rate, but corporations are,” said UniCredit economist Vladimir Osakovskiy in Moscow. “Overall it is a step in the right direction and should be more constructive for the economy than the fixed exchange-rate regime, which existed before.”
Belarus’s central bank in March ruled out a sharp devaluation of the country’s currency, even as the International Monetary Fund and a top level government official said such a move may be needed. The central bank has boosted interest rates amid high inflation and to help banks hold onto their deposits.
Considered somewhat of a pariah after last year’s harsh post-election crackdown, Belarus has turned to Russia and other former Soviet countries for a bailout loan of $3 billion. But the Kremlin is likely to drive a hard bargain, demanding an agenda of reforms that may include a rollback of the wage increases and credit expansion introduced by Mr. Lukashenko in his pre-election campaign last year.
Those efforts, however, could be painful for Mr. Lukashenko, who has called his nation “an island of peace and stability” and provided the population with a generous social safety net—including an increase of the average wage to $500 a month—while keeping an iron grip on the country’s political life.
(Source: The WSJ)