Belarus's central bank devalued the country's official currency rate by 36% Monday, as it published the new exchange rates on its website. The new exchange rate of 4,930 Belarussian rubles to the dollar became official on Tuesday 24 of May 2011, compared with 3,155 rubles to the dollar Monday the 23th of May

Bandwidth for trading

The Belarus central bank said it will allow the ruble to be traded within a band of 12% above and below the average exchange rate of the currency basket, consisting of dollars, rubles and euro. Yet the new currency rate is still not even close to the "black market exchange rate" which now trades between 8,300 - 8,400 rubles to the dollar. The "black market" trade is significantly higher than the official trade, since the countries foreign cash reserves have dropped drastically.

What is happening and why?

The International Monetary Fund urged Belarus to reform its economy in March, calling on Lukashenko to stop his unsustainable spending and for the central bank to increase benchmark interest rates to fight inflation. In a March 9 report from the IMF, the IMF blamed much of the problems in Belarus to Lukashenko's spending spree. To win the elections he increased public-sector salaries with about 50% and lending had increased by 38% compared to the year before.

IMF and Russian support

Belarus got a $ 3.5 billion dollar bailout loan from the IMF during the global crisis. The new customs union including former Soviet states Russia and Kazachstan have agreed to give Belarus an additional $ 3 billion loan but only under certain conditions one of them being 4 seperate installments in the wake of the next three years, with the first installment of $ 800 million to be delivered only after the 4th of June.

Other important measures that must be taken by Lukashenko include the sales of some $ 7.5 billion in state assets and the sale of the remaining 50% stake in Belarus's Gas Transit Pipeline, Beltrabsgaz to Russian gas monopolist OAO Gazprom, who already holds the other 50% in order for Russia to strengthen it's control over the gas distribution to Europe.

Some more economic numbers

The Belarusian ruble lost almost a quarter of its value on May 12 after the central bank lifted restrictions on foreign- currency sales to households and increased the benchmark interest rate to 14 percent, the highest in the world. Although the devaluation is ment to halt the run on foreign currency and inflation, the latter accelerated to 14% in March alone, the fastest inflation raise since April 2009 and still well ahead of Russia's 9.6% in April.

What's next? Hyperinflation ...

Unless Belarus reforms it's economy rapidly through for example massive privatization of state assets, it will head into the direction of hyperinflation, massive un- and underemployment and a complete standstill of production. The ruble is expected to slide towards the 12.000-20.000 exchange rate to the dollar.

Businesses collapse

You are an local entrepeneur selling goods that you have to import since hardly anything is being produced in the country itself. As a retailer you might make an average margin of 50% on sold products. With such a huge devaluation you are likely to run out of stock and without the option to change currency you can't import anymore. Then there is the government law that says that you have to change 30% of your foreign currency at the official rate while around the corner of your store you can get twice the exchange rate.

Local people: Where it really hurts

For most of us this is a situation unknown. But try to imagine high inflation and devaluation at the same time. Imagine that yesterday your income from salary was around $ 507,- (Official average salary in Belarus standing around 1.6 million rubles) and today it dropped to $ 385,-. At the same time, yesterday you bought daipers for your baby child for around $ 22,- and today the price went up to $ 38,- combined with the huge drop in your income, your private situation gets very nasty. So it's really the local people you get hurt the most.

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