April 13, 2001

His Excellency
Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C., 20431

Dear Mr. Köhler:

1.   The overarching objective of the economic policies of the government and National Bank of the Republic of Belarus is to provide for sustained economic growth through greater macroeconomic stability and, as a result, to improve the living standards of the Belarusian people. Our policies envisage building on the positive economic policy developments achieved in 2000 in the area of monetary, exchange, fiscal and pricing policies, acceleration of structural reforms, via gradual but continual and determined introduction of market reforms and increasing economic integration with Russia in the context of the Treaty on the Formation of the Union State.

2.   The attached Memorandum of Economic and Financial Policies (MEFP) lays out a set of the concrete policy measures that will be taken by the government and the National Bank of the Republic of Belarus during the period April 1–September 30, 2001 in the context of a program to be monitored by the IMF staff (SMP). During this period key goals will be: to achieve macroeconomic stability through tightening of monetary policy, building up net foreign exchange reserves and providing for a strict fiscal discipline while finding resources to finance a planned increase of budget sector wages; and to send a signal of our decisive intentions to implement structural reforms by undertaking concrete measures during the SMP period to liberalize prices and raise wages; to eliminate remaining exchange restrictions, strengthen the banking sector; to develop, in close cooperation with the World Bank, a pilot program of a unified system of targeted social assistance; to achieve progress in privatization and improve the business environment. We will make every effort for implementation of the whole complex of the reform measures to promote greater commercial economic and investment activity, increase productivity and competitiveness of domestically produced goods.

3.   We hope that fulfillment of quantitative targets and implementation of structural measures agreed under the SMP will allow to show to the IMF and the whole international community the authorities’ adherence to the chosen direction of reforms, and to lay the basis for discussions (after the SMP implementation) with the IMF staff on a program that could be supported by a Stand-By Arrangement later this year. At the same time, we also hope that successful implementation of the SMP will create conditions for enhanced contacts with other international financial organizations, bilateral agencies and the international financial community as a whole.

4.   We would like to particularly note that the policies detailed in the MEFP will be undertaken during a year of presidential elections in Belarus. This underlines our firm commitment to implement market reforms within the framework of the SMP.

5.   The government and the National Bank of the Republic of Belarus hereby submit for your consideration this six-month program for monitoring by the staff of the IMF. We have been informed that the IMF staff will monitor the program on the basis of quarterly quantitative targets, and we will conduct two reviews with the IMF staff, as described in paragraph 26 of the MEFP.

6.   On our part we would like to inform you that the following prior actions have been taken:

• We have committed to submit by April 25 this year for approval of the President of the Republic of Belarus proposals on a 2001 budget revision reflecting the implementation of the general government budgetary framework described in the MEFP;
   
• We have stated publicly that the authorities will refrain from issuing directives to commercial banks to provide credits to agriculture or other priority sectors, and will honor all government guarantees, while taking the necessary measures for repayment of loans granted in the past. Moreover, on March 26, the government of the Republic of Belarus revoked the items in directives issued in the past that refer to bank lending to agriculture in 2001.
   
• We eliminated indicative ceilings on monthly price increases covering 80 percent of domestically produced goods and services: 25 percent as of January 1, 2001, and 55 percent from April 1, 2001 (the decision was adopted by the government on March 26, 2001); and we have committed to remove the ceilings covering the remaining 20 percent by end-September, 2001.

7.   The government and the National Bank believe that the policies to be implemented as described in the MEFP are adequate to achieve the objectives of the SMP, but stand ready to make additional efforts as necessary to achieve those objectives. In particular, we intend to limit the fiscal deficit in 2001 to the amount of financing available, consistent with our objective of reducing inflation. Additional measures as outlined in the MEFP have been defined to provide for full budget financing in case external financing fails to come. During the period of the arrangement we will consult with the IMF staff on the adoption of additional measures that we may need. We understand the importance of adhering to the spirit of the reform program described in the MEFP and not simply complying with an agreed list of measures. We also inform you that President of the Republic of Belarus A. Lukashenko is aware of the work carried out by the government, National Bank, and the IMF to prepare the program monitored by the IMF staff and supports our joint efforts on its development and the goals and specific contents of the SMP.

8.   In line with our commitment to transparency in economic policies, we authorize the IMF to publish this letter and the MEFP. We will publish these documents in the Republic of Belarus.

Attached is the Memorandum of Economic and Financial Policies.

 
Yours sincerely,

Republic of Belarus

Memorandum of Economic and Financial Policies
for the Period April 1–September 30, 2001
Under the Staff-Monitored Program

1.   The overriding objective of the economic policies of the government of Belarus is to achieve sustainable growth and improve the living standards of the Belarusian people. To that end, the government and the National Bank of Belarus (NBB) intend to pursue policies leading to greater reliance on market forces combined with greater transparency and more effective governance. This Memorandum of Economic and Financial Policies (MEFP) details the macroeconomic and structural policy framework that will guide the implementation of such policies under a six-month Staff-Monitored Program (SMP). It is our expectation that the successful implementation of measures agreed under the SMP would lead to discussions by end-2001 with the IMF staff on a program that could be supported by a Stand-By Arrangement.

I.   Background and Recent Developments

2.   During the past two years, the Belarusian economy continued to function under unfavorable external and domestic conditions, including the aftermath of the Russian crisis, high oil prices, and structural problems in the economy, mainly in the agricultural and banking sectors. This made it increasingly difficult to sustain earlier growth rates. Moreover, the limited availability of external financing put considerable pressure on monetary policy. Continued support to priority sectors, notably agriculture and housing construction, and inflationary financing of the fiscal deficit led to significant monetary expansion and high rates of inflation—182 percent at end-1998 and 251 percent at end-1999. The impact of the Russian crisis on exports and, more recently, higher oil prices, contributed to a deterioration of the external accounts and a slowdown in growth. Real GDP growth declined from an average of 9 percent in the 1997–98 period to about 3.4 percent in 1999.

3.   Recognizing the limits of the use of inflationary financing and a multiple exchange rate system, during 2000 the government and the NBB started to take measures to accelerate the shift toward a market economy, notably by taking steps to liberalize the foreign exchange market. Since February 2000, interest rates have been kept positive in real terms, helping revive confidence in the domestic currency. Most importantly, on September 14, 2000, we unified exchange rates at the Belarusian Currency and Stock Exchange (BCSE), thus contributing to the elimination of the system of multiple exchange rates that had produced severe distortions, eroded export competitiveness, and contributed to the accumulation of quasi-fiscal deficits. We also removed other exchange restrictions, including those on the use of the Belarusian rubel for settling export-import transactions. While some foreign exchange restrictions remain, in particular concerning monthly access of enterprises to the interbank market and foreign exchange transactions with non-residents, these will be removed during the course of the SMP as exchange rate pressures gradually ease.

4.   Preliminary data for 2000 show a more favorable growth performance, declining inflation, and relative stability in the foreign exchange market following the exchange rate unification. Economic growth accelerated to 6 percent, on the heels of Russia’s recovery and owing to good weather conditions and a consequent pick-up of agriculture production, while the end-year inflation rate dropped to 107.5 percent. The fiscal deficit of the general government (including the Social Protection Fund) was limited to 1 percent of GDP through cuts in unproductive expenditures and better prioritization. Despite a higher energy import bill, the current account deficit is estimated to have narrowed from 2.2 percent of GDP in 1999, to 0.9 percent of GDP in 2000 mainly due to a significant increase in exports of services and receipts of current transfers. Gross official reserves were boosted by $48 million, reflecting sales of securities to non-residents, and continuing investment in gas transit pipelines. On the other hand, little progress was made on privatization, price liberalization, and in the promotion of private sector activities. The banking sector is still in need of reform and restructuring.
 

II.   Economic Policies Under the SMP

5.   The SMP focuses on a set of measures that demonstrate our determination and commitment to move toward a market economy. Keeping in mind the government’s medium-term objectives of economic liberalization, sustainable growth, establishment of market institutions and economic integration with Russia in the context of the Treaty on the Formation of the Union State, during the SMP period our policies will be geared toward phased price liberalization, enforcement of hard budget constraints, and an increase in transparency of government operations. At the same time, the SMP will make further headway toward macroeconomic stabilization, through the implementation of tight financial policies. We hope that the successful implementation of the SMP will convey a signal to the international financial community and Belarusian economic agents of our commitment to more credible and sound macroeconomic policies. We are determined to use this opportunity to the maximum extent to establish a track record of good policy implementation, as a basis for discussions on a follow-up Stand-By Arrangement with the IMF.

A.   Macroeconomic Policies

6.   The government’s key macroeconomic objectives for 2001 are to: (i) reduce the pace of inflation to 2.5–3.5 percent per month; (ii) achieve annual GDP growth of at least 2.5 percent; and (iii) accumulate at least $18 million in net international reserves by year-end. To achieve these objectives, financial policies will be tightened and supported by an acceleration of structural reforms, as detailed in Tables 1 and 2.

Fiscal policy

7.   The tight fiscal stance that the government intends to maintain in 2001 is consistent with the limited availability of external sources of financing and the need to keep monetary restraint in order to curb inflation. Improving fiscal transparency is also a key objective of the SMP. In this context, the government recognizes the need to stop interfering in commercial bank activity by directing banks to lend to agriculture and other priority sectors. We have made a public commitment to that effect as a prior action for the SMP. To support this commitment, the government will ensure that any subsidies to agriculture will be channeled through the budget. These measures will increase the transparency of government operations and help ensure consistency between the government’s macroeconomic program and its sectoral policies. We are also committed to improving fiscal reporting and transparency by regularly producing data based on economic classification of revenues/expenditures and making those available to the IMF staff.

8.   The 2001 budget reflects efforts by the government to improve the structure of revenues and expenditures by reducing cross-subsidies, broadening the tax base through the elimination of tax exemptions, and simplifying the tax structure. However, the government’s intention to increase wages to the rubel equivalent of $100 per month by end-year (adding 1.4 percent of GDP to the wage bill in the budgetary sector) and provision of adequate budgetary funds for agriculture (0.6 percent of GDP) have necessitated a revision of the 2001 budget. The revised budget includes a significant decline in NBB net financing to the budget (Rbl 122.6 billion, against Rbl 160.5 billion in the original budget).

9.   To achieve the necessary fiscal consolidation in the revised budget, we have developed a package of measures amounting to 1.7 percent of GDP, including significant cuts in non-priority expenditures, as well as revenue measures (Table 3).To minimize pressure on the budget, the implementation of the planned wage increase will be phased (March 1, July 1, and November 1) in line with price (tariff) increases for housing and communal services for the population and a cutback in budgetary subsidies to households (transport, housing, and communal services). These measures will allow us to limit the consolidated budget deficit in 2001 to 1.4 percent of GDP (about Rbl 218 billion). If the anticipated foreign financing from Russia does not materialize, we will take contingency measures amounting to about 0.7 percent of GDP (Table 4) to ensure that the deficit is consistent with available domestic financing. This commitment and the specific details will be reflected explicitly in the revised budget. We will submit proposals for revising the budget for Presidential consideration as soon as possible, but no later than April 25, 2001, and expect approval approximately one month later. We recognize that timely and firm implementation of these measures are crucial to limit the short-term impact of the wage increase and to ensure consistency of our macroeconomic policies and targets.

10.   We will step up our efforts to strengthen tax administration, in order to prevent a fall in tax collections and the buildup of tax arrears. We will closely monitor and control both tax and expenditure arrears by strictly observing limits on their stocks under the SMP, with a view to reducing them as a percentage of GDP during this period. We intend to avoid the accumulation of expenditure arrears—especially wage and pension arrears—that have characterized other economies in the region. Moreover, we will continue to collect information on inter-enterprise arrears and will be ready to initiate bankruptcy procedures in order to maintain financial discipline and avoid a buildup of these arrears.

Monetary and exchange rate policies

11.   The objective of monetary and credit policy in 2001 is to bring inflation down to about 50 percent at year-end, while creating an environment that will ensure a greater degree of stability in the foreign exchange market in support of the unified exchange rate. To these ends, the NBB will adopt the following projected indicators: broad money growth of 51 percent, an accumulation of net international reserves of $18 million, and NBB net credit to the government of Rbl 122.6 billion, to be provided exclusively in domestic currency. The NBB will also continue to maintain positive real interest rates in its refinance credits and other lending facilities to promote greater confidence in the rubel.

12.   While stable developments in the foreign exchange market will require monetary restraint, the tight fiscal situation, the low level of international reserves, and the low level of foreign financing will require some exchange rate flexibility, especially in view of our plans to step up price liberalization. At the end of 2000, the NBB announced the transition toward a policy of crawling peg with respect to the Russian ruble in 2001, in line with our objective of reaching a monetary union with Russia by 2005. While it is our intention to effectively target the Rbl/Rub exchange rate over time, during the SMP period the NBB will be prepared to adopt more flexibility in its exchange rate policy as needed, to take into account unexpected market developments and avoid a real appreciation of the rubel, and to achieve consistency in our macroeconomic policies.

13.   The NBB has taken steps to minimize distortions in reserve requirements and improve compliance by lowering the statutory reserve requirement from 19 percent to 16 percent for domestic currency deposits and from 16 percent to 12 percent on foreign currency deposits. During the SMP period the NBB will maintain the current level of effective ratios, while granting no additional exemptions.

14.   We are committed to ensure that the foreign exchange market increasingly operates on the basis of market principles, rather than via administrative mechanisms, and intend to gradually eliminate all remaining exchange restrictions on payments and transfers for current international transactions. In addition to the specific structural benchmarks envisaged under the SMP, we will establish a timetable for the removal of all remaining restrictions in the context of acceptance by Belarus of the obligations under Article VIII of the IMF’s Articles of Agreement.

15.   The external financing situation will continue to be tight in 2001. External amortization will amount to about $80 million, including repayments to the IMF ($31 million). Considerable pressure on the budget will be somewhat released during the second quarter by the expected disbursement of the first tranche ($30 million) of a medium-term loan from Russia, followed by the remaining $70 million towards the end of the year. On account of this and other small loans, we expect the stock of public and publicly guaranteed medium- and long-term debt to increase by about $65 million to a level close to $930 million by end-year. The government is committed to honor all external obligations in 2001. We are also committed to not accumulating further external payments arrears, especially on energy imports.

B.   Structural Reforms

16.   We recognize that progress on structural reforms, including the acceleration of the privatization process, will be needed to support our stabilization efforts and to improve prospects for private investment and growth. Specific structural measures to be implemented during the SMP period are detailed in Table 2. In particular, we have identified a number of administrative obstacles to private sector activity, which we will remove during the SMP period, as a clear signal of our intention to improve the business environment and foster private sector development. We recognize that the current price control system is incompatible with efforts to move toward a market economy, as it creates economy-wide distortions and shortages and damages enterprise profitability; in addition, its implicit subsidies are not targeted to the poor. To avoid a sharp impact on household incomes, we intend to dismantle the system of controls in a gradual—yet determined—fashion, while stepping up our efforts to introduce a unified social safety net. We started with the initial set of price liberalization measures that were implemented as prior actions and will continue with others that will be undertaken during the SMP period. Finally, we recognize that weaknesses in the banking sector are one of the major obstacles to macroeconomic stabilization. Fundamental bank restructuring oriented toward market-based intermediation will be essential in this respect. Hence, we are committed to start addressing the weaknesses in the banking sector during 2001.

Price liberalization

17.   Our program for price liberalization during the SMP period is to progressively eliminate the price controls from about 30 percent of regulated consumer goods and services, allowing market forces to direct the allocation of resources in the economy. As a first step in this direction, in October 2000 we reduced the number of socially-important goods subject to controls from 48 to 28. Moreover, as a signal to the business sector in Belarus and the international community of our commitment to these reforms, we removed 25 percent of the economy-wide ceilings on monthly price increases as of January 1, 2001. The government removed most of the remaining indicative ceilings, bringing down the number of goods and services subject to the ceilings by 80 percent by April 1, 2001. During the SMP period, we will remove indicative ceilings on the prices of the remaining 20 percent of goods and services and significantly reduce the list of socially-important goods, monopolies, and strategic enterprises subject to price control. We will agree with IMF staff on a schedule for phasing out remaining controls in these three areas. In addition, by end-April, 2001 ceilings on the mark-up on prices of imported goods and services will be removed, and export prices will be liberalized for those goods and services for which domestic controls will have been lifted by end-September. In the context of our fiscal program, we will begin to gradually adjust the remaining administered prices, mainly energy and utility tariffs, to cost-recovery levels.

Privatization and business environment

18.   Private sector development has been hindered by excessive regulation and state intervention in the economy, which have tended to penalize profitable private enterprises and discourage investment. As part of our recent efforts to address this problem, we have simplified the enterprise re-registration procedures and intend to recommend to parliament to accelerate the adoption of a new “Law on Licensing.” In addition, adopting the decision on the revocation of Presidential Decret No. 40 (on the confiscation of property of individuals and enterprises at the discretion of the President) and the preparation of a normative act for the modification of the golden share rule during the SMP period will signal the government’s commitment to reduce state involvement in private sector activity.

19.   In a similar vein, we intend to rekindle our privatization program. We believe that privatization of large-scale enterprises in the current environment would be premature. Therefore, for the immediate future we will place special emphasis on small and medium-sized enterprises, which should become a major engine for economic growth and creation of employment opportunities during transition. Large-scale privatization will follow. More specifically, during the SMP we are determined to prepare the legal basis for the completion—by the end of 2001—of privatization of retail trade, public catering and household services enterprises in the six oblast centers. In addition, during the SMP period the government will submit to parliament the new edition of the law on privatization ensuring improvement of privatization procedures.

Banking sector

20.   A crucial pre-condition for successful bank restructuring is to reduce state participation and interference in the sector. To that end, and to support the effective implementation of monetary policy in 2001, the government will refrain from mandating banks to provide resources to any particular sector of the economy. This will allow banks to make credit decisions based on credit risk and return; it will also strengthen the independence of the NBB. In addition, as a first step in the direction of a more general reduction of state involvement in the banking sector, during the SMP period the NBB will transfer to the government or sell its equity holdings in two major banks. The NBB is committed to further reduce its shares in other banks during 2001, according to a schedule to be agreed with the IMF staff.

21.   The NBB has recently taken steps to improve banking supervision and is intent on addressing remaining weaknesses in 2001. In particular, the NBB will ensure full compliance with prudential regulations and enhanced transparency through improved monitoring and consistent application of standards for all banks, without exception. As part of the SMP, the NBB will establish a schedule to reduce the limits on lending to banks’ shareholders and connected parties, and to move toward further adoption of international accounting standards, in order to allow proper assessment of banks’ financial situation and the need for future bank restructuring.

Other structural reforms

22.   Protecting the poor continues to be of utmost importance to the government and is the cornerstone of our social policy. The existing system of social assistance provides a wide range of universal subsidies that are poorly targeted and weigh heavily on the budget. To improve the efficiency of social spending, the various existing social assistance programs need to be replaced by a unified social assistance program that consolidates the funding and benefits of all current programs and better targets financial support. We will continue our cooperation with the World Bank to achieve this goal. In particular, during the SMP period we will design, in close cooperation with the World Bank, a pilot program of a unified system of social assistance. It is our intention to draft a normative act for the implementation of this program by end-October 2001.

23.   In 2001 the government will take steps toward liberalizing the labor market in order to facilitate the transition to a market economy. During the SMP period, we will review proposals to increase the flexibility of the system of wages in the budget sphere that will allow us to react more adequately to changes in the economy. We will also review the indicators that currently influence the wage-setting process at state-owned enterprises, with a view to creating a more flexible pay system. Preparatory work in this area is already under way. Finally, we are considering the transition to a forward-looking wage indexation system.

24.   The unreformed agriculture sector continues to be one of the main burdens on Belarus’ financial resources, with an adverse impact on macroeconomic stability. While recognizing that major structural reforms of this key sector is beyond the scope of the SMP, we will nevertheless begin the reform process by preparing a restructuring program for the agro-industrial complex and starting its implementation in 2001. In particular, we will prepare proposals on the reduction of the volumes of purchase of agricultural products on state order with a view to incorporating them in the draft projections for the social and economic development of the Republic of Belarus in 2002.
 

III.   Program Monitoring

25.   The government’s economic reform program to be monitored by the IMF staff will cover the period April 1–September 30, 2001. To jump-start reforms and provide a strong signal to the domestic and international community of our resolve to implement the SMP, we have taken the following prior actions: (i) we have issued a public statement committing the government to stop mandating commercial banks to provide directed credits to priority sectors and to honor government guarantees on past lending; (ii) we hereby commit ourselves to submit, by April 25, 2001, a revised 2001 budget for Presidential approval explicitly including all necessary agricultural support, and new measures, agreed with the IMF staff, to ensure that the budget is fully financed; and (iii) we have eliminated 80 percent of all indicative ceilings on monthly price increases of domestically produced goods and services, and will remove the remaining 20 percent during the SMP period.

26.   In the attached Tables 1 and 2 and in the Technical Memorandum of Understanding, we have detailed a set of quantitative targets and structural benchmarks agreed with the IMF staff, for the purpose of monitoring progress under the SMP. This will be done in the context of two program reviews, around July/August and October/November. During the reviews, the IMF staff will assess whether the measures agreed under the MEFP are working toward achieving the intended impact of significantly increasing transparency, liberalizing prices and hardening budget constraints, while strengthening macroeconomic conditions.

27.   To increase transparency of our policy intentions, we have agreed to publish this Memorandum in the Belarusian media and on the IMF Website.

Republic of Belarus

Technical Memorandum of Understanding
For the Staff Monitored Program

1.   This Memorandum defines variables that constitute quantitative targets under the staff monitored program (SMP) and sets out the reporting requirements for the government and the National Bank of Belarus (NBB).

Quantitative Targets

2.   Quantitative targets under the program are detailed below and summarized in Table 1. Unless stated otherwise, in this Annex all cumulative changes are calculated relative to the outstanding balance at end-December 2000.

Net Domestic Credit of the National Bank of Belarus

3.   Net domestic credit (NDC) of the NBB comprises the sum of its net lending to general government and to the economy, including to the banking system and to nonbanks.

4.   Net lending of the NBB to the general government is defined as outstanding claims of the NBB on the general government, including overdrafts, direct credit, and holdings of securities of the general government, minus deposits of the general government.¹

5.   For the purposes of the SMP, the general government is defined to include the state budget (republican, local budgets, and the Minsk city budget), the social protection fund, and six budgetary funds that are currently consolidated with the budget (Republican fund for agricultural support, State employment fund, Republican road fund, Republican environmental fund, Republican energy fund, and Guarantee fund). Any new extra budgetary funds created during the period of the SMP will be included in the general government.

6.   Net lending of the NBB to the economy, including to the banking system and nonbanks is defined as outstanding claims of the NBB on banks and on nonbank economic agents, including direct credits, overdrafts, credits extended under Lombard or repurchase operations, and holdings of securities of banks or nonbanks, minus excess reserves of commercial banks.

7.   NBB claims and deposits are valued in Rbl at the accounting exchange rate of Rbl 1,180 per U.S. dollar at end-December 2000. Use of Fund credit by the general government is excluded.

8.   As defined, the stock of NDC (excluding excess reserves of commercial banks) of the NBB was equal to Rbl 314.417 billion at end-December 2000. NDC of the NBB will not exceed Rbl 396.383 billion by end-June 2001, and Rbl 405.451 billion by end-September 2001.

Net Bank Credit to the General Government

9.   Net bank credit to the general government is defined as outstanding claims of deposit money banks on the general government, including overdrafts, direct credit, holdings of securities of the general government and other claims on the general government, minus deposits of the general government.

10.   As defined, the stock of net bank credit to the government was equal to -Rbl 0.967 billion at end-December 2000. Net bank credit to the general government will not exceed Rbl 9.033 billion by end-June 2001, and Rbl 29.032 billion by end-September 2001.²

Net International Reserves of the NBB

11.   Net International Reserves (NIR) of the NBB are defined, consistent with the definition of the Fund’s Special Data Dissemination Standard (SDDS) template, as gross reserves in convertible currencies readily available to, or controlled by, the NBB, less NBB reserve liabilities in convertible currencies.

12.   For program monitoring purposes, gross reserves of the NBB are defined as the sum of monetary gold, holdings of SDRs, the NBB’s reserve position in the Fund, and readily available holdings of foreign exchange in convertible currencies. Excluded from reserve assets are capital subscriptions to foreign financial institutions, long-term nonfinancial assets, convertible currency-denominated claims on residents, assets in nonconvertible currencies, and foreign assets pledged as collateral or otherwise encumbered.

13.   Reserve liabilities in convertible currencies are defined as convertible currency liabilities of the NBB to nonresidents with an original maturity of up to and including one year and outstanding use of Fund credit. Excluded from reserve liabilities are liabilities with original maturities longer than one year. Liabilities in respect of foreign currency-denominated deposits of resident commercial banks and other foreign currency-denominated NBB liabilities to commercial banks and other resident economic agents (deposits, NBB securities) of an original maturity of one year or less shall be included as reserve liabilities under net international reserves.

14.   Under the SMP, Russian rubles are not considered to be a convertible currency for the purpose of defining NBB NIR, and NBB gross reserves and reserve liabilities denominated in Russian rubles shall be excluded from the calculation of NBB NIR. This would exclude assets and liabilities arising from stabilization loans or other forms of credit from the Central Bank of Russia to the National Bank of Belarus whether denominated or held in Russian rubles or convertible foreign currencies. Also excluded from the calculation of NBB NIR for SMP purposes are assets and liabilities arising from lending from the government of the Russian Federation to the government of the Republic of Belarus, for which the NBB acts as fiscal agent on behalf of the Ministry of Finance of Belarus. In particular, a possible $100 million medium-term loan from Russia is excluded.

15.   As defined, the stock of NIR of the NBB was equal to $122 million at end-December 2000. The stock of net international reserves (NIR) of the NBB will be at least $117 million by end-June 2001, and $133 million by end-September 2001.

General Government Fiscal Balance

16.   The definition of the general government is given in paragraph 5 above.

17.   The general government fiscal balance is defined from the financing side, on a cash basis, as the sum of net lending of the banking system to the general government, the general government’s net placement of securities denominated in Belarusian rubels outside the domestic banking system, including to other residents (enterprises and individuals) and to nonresidents, the general government’s receipt of disbursements from external debt less amortization paid, plus privatization proceeds. External debt is defined as loans, securities, overdrafts, trade credits (with expenditures used by budgetary organizations to procure goods and services) and other claims on the general government denominated in currencies other than the Belarusian rubel. Disbursements and amortization of external debt will be valued in Belarusian rubels at the exchange rate at which these transactions take place.

18.   Net lending of the banking system to the general government is defined as outstanding claims of the banking system (including the NBB) on the general government, including overdrafts, direct credit and holdings of securities of the general government, less deposits of the general government and securities issued by banks held by the general government, if any.

19.   The cumulative general government fiscal balance will be limited to -Rbl 72.101 billion at end-June 2001, and -Rbl 82.072 billion at end-September 2001. These limits assume cumulative net foreign financing of the general government fiscal balance of $20.5 million during 2001 (including the $100 million medium-term loan from Russia, of which $70 million are expected in the fourth quarter). During the program period, it is assumed that cumulative net foreign financing will be -$17.9 million for January–June 2001, and -$33.5 million for January–September 2001. For the purpose of the adjustor described below, the corresponding exchange rates for the second and third quarters will be Rbl/$1,391 and Rbl/$1,565.

20.   Adjustor: The limits on the cumulative general government fiscal balance will be adjusted downwards if the expected disbursement of $70 million from Russia does not take place. Domestic financing will not be increased to compensate for any shortfall of external financing. If foreign financing and/or privatization proceeds from sources not assumed under the program are secured, any downward adjustment of the general government fiscal balance will be reduced by the amount of such new financing.

Tax Arrears to the General Government

21.   Tax arrears to the general government are defined as the difference between assessed tax and nontax payments made by the general government and required of economic agents and individuals and actual payments made. A tax arrear is defined as a payment that is overdue according to the present definition of tax arrears of the Ministry of Finance, which treats all overdue tax payments at the end of each month as arrears. If a new definition is adopted during the course of the SMP, targets on the stock of tax arrears will be revisited.

22.   As defined, the stock of tax arrears to the general government was equal to Rbl 43 billion at end-December 2000. The stock of outstanding tax arrears to the general government will not exceed Rbl 87.363 billion at end-June 2001, and Rbl 100 billion at end-September.

Expenditure Arrears of the Republican Budget

23.   Expenditure arrears of the Republican budget are defined as the difference between payments the Republican budget is legally committed to make and actual payments made. A payment in arrears is defined as a payment that is overdue in relation to its contractual or required date of payment. Commitments include, but are not limited to, wage, pension, and payments to energy utilities and other suppliers of goods and services. Intra-governmental arrears—i.e., overdue expenditure or transfer obligations between the Republican budget and oblast governments, local governments, the Minsk city government and extra budgetary funds—are not counted toward the limit.

24.   As defined, the stock of expenditure arrears of the general government was equal to Rbl 47.8 billion at end-December 2000. The stock of outstanding expenditure arrears of the general government will not exceed Rbl 47 billion at end-June 2001, and Rbl 47 billion at end-September 2001.

Monitoring and Statistical Information

25.   In addition to the established, regular provision of economic data and information by the National Bank of Belarus and the various governmental agencies (MOF, Ministry of Statistics, Ministry of Economy, Ministry of State Property Administration and Privatization, etc.), the government and the NBB will regularly provide the IMF with the necessary economic and financial data to monitor performance under the SMP.

26.   In particular, the NBB shall provide by the 25^th day of each month an aggregate National Bank balance sheet, as well as a monetary survey comprising: (i) deposit money banks; and (ii) the banking system as a whole. The NBB will also communicate any changes in accounting conventions, new accounts and/or valuation principles. The NBB shall also provide data on stabilization credits received from the Central Bank of Russia, on foreign currency-denominated deposits and securities issued, and on profits transfers to the government. The NBB shall also provide information on the breakdown by interest rate charged on NBB credits and on domestic securities transactions.

27.   The NBB shall provide weekly data on daily foreign exchange market transactions and exchange rates, in the format agreed with the IMF staff. The NBB shall also provide data on the balance of payments (current account transactions, capital and financial account transactions and financing items, including external arrears). Balance of payments data shall be provided approximately 75 days after the end of each quarter, although preliminary data will be provided for information purposes.

28.   The Ministry of Finance shall provide by the 25^th day of each month the latest consolidated fiscal data for the general government, including economic and functional classification of revenues and expenditures, data on external debt disbursements and amortization paid, privatization proceeds, profits transfers from the NBB, and data on issuance and outstanding stocks of general government securities (treasury bill and other securities) and domestic debt service.

29.   The Ministry of Finance shall also provide data on the outstanding stock of tax arrears to the general government and the outstanding stock of expenditure arrears of the Republican budget government by the 25^th day of each month. For information purposes, the Ministry of Finance shall provide data on the stock of external payments arrears, including in respect of government-guaranteed debt.

Structural Benchmarks

30.   The main structural measures of the SMP constitute structural benchmarks, as indicated in Table 2.

March 2001.

1 Profit transfers from the National Bank to the government are assumed to be Rbl 5 billion during the period January–September 2001. If actual profit transfers are greater than Rbl 5 billion, net lending of the NBB to the general government shall be adjusted accordingly, upon consultation with the IMF staff.

2 Table 1 shows cumulative flows for net bank credit to the general government from January 1, 2001.