You're reading: Belarus freezes food prices after devaluation

MINSK, May 31 (Reuters) - Belarus on Tuesday froze prices on a number of foodstuffs as analysts warned the former Soviet republic could descend into economic chaos and an IMF mission headed to Minsk to assess the situation.

A government decree said prices for fish, tea, coffee, certain types of sausages, cheese and a number of fruits and vegetables — some of which have doubled in the last two months — cannot be raised further until July 1.

Belarus devalued its rouble by 36 percent to 4,977 per dollar last week in an attempt to reduce a current account deficit largely caused by generous public spending in the run-up to Alexander Lukashenko’s re-election as president last December.

But the unofficial black market rate for roubles is still around 6,000 per dollar and the central bank has ceased intervening to support the currency after spending a quarter of its forex reserves earlier this year.

Russia this month rejected Minsk’s initial plea for a direct loan but said that it and several other ex-Soviet nations could still give it some joint regional assistance. They are to decide on that bailout package on June 4.

Belarus imports many foodstuffs and consumer goods whose prices have in some cases doubled since March, wiping out wage rises last year that Lukashenko touted in his election campaign.

The economy ministry has said inflation could reach 39 percent this year and analysts say a "Zimbabwe scenario" of hyperinflation is plausible if the Russian bailout deal falls through.

Last week, Lukashenko threatened to sack his prime minister and central bank chairman if they failed to rein in prices and stop the panic on the consumer and foreign exchange markets.

This week, the central bank raised its key refinancing rate to 16 percent from 14 percent as it battles to persuade domestic consumers to keep funds in roubles and use a range of policy tools to bring the economy back on an even keel.

"Belarus is (finally) on the right macroeconomic track, but the country’s inability or lack of desire to continue reforming the economy could lead to an unsustainable spiral of devaluations and external crises," Renaissance Capital economist Ivan Tchakarov said in a note on Tuesday after visiting Belarus.

Reflecting such fears, spreads on Belarus debt widened by 50 basis points on Tuesday as measured by JP Morgan EMBI Global index [11EML].

Under a more favourable scenario, Belarus would tighten monetary and fiscal policy, sell off state assets and, possibly, conclude a new agreement with the International Monetary Fund, Tchakarov said. The Fund said on Tuesday a mission would visit Belarus on June 1-13 for regular post-programme monitoring.

Minsk has not applied for IMF funding so far and has faced strong criticism from the West over a crackdown on opposition after elections last year.

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