- Associated Press - Tuesday, April 19, 2011

MINSK, Belarus | Cash-strapped Belarus announced Tuesday that it would allow its beleaguered currency to float, effectively permitting its devaluation in a bid to ease a spiraling currency crisis.

International financial institutions have been calling for a sharp devaluation of the Belarusian ruble to help the former Soviet republic’s foundering economy.

Tuesday’s move was the latest blow to authoritarian President Alexander Lukashenko’s attempts to show he can deliver economic stability after 17 years in power.

The currency crisis, an increasingly severe crackdown on the opposition and a mysterious subway bombing last week have spawned a sense of rising panic and disorder in this nation of 10 million, often labeled the last dictatorship in Europe.

Belarus’ first post-Soviet leader, Stanislav Shushkevich, told the Associated Press that Mr. Lukashenko’s political survival hinges entirely on another loan from Russia.

“He will be able to ease social tensions if the Kremlin gives him another loan,” Mr. Shushkevich said. “Otherwise, people will start protesting. What we are seeing now begins to resemble the collapse of the Soviet system.”

The government’s hard-currency reserves plunged 20 percent in the first two months of the year to less than $4 billion, and staples such as vegetable oil and sugar started vanishing from stores as people started to hoard.

Starting next week, banks will be able to buy and sell the Belarusian ruble at a rate determined in open trading, said Central Bank Deputy Chief Nikolay Luzgin, adding that the government will “take extra steps to balance the situation on the domestic currency market” after next week’s trading.

Importers of medicine and Russian natural gas will be able to buy foreign currency at privileged rates.

Even before the announcement, frightened Belarusians had been lining up for hours in the past few weeks to exchange their rubles for euros and dollars. Because the free float initially will affect banks, it was unclear how currency rates on the street will be affected.

“My short-term plan is to emigrate to Poland,” said Pavel Korchevsky, 37, a businessman. “It’s impossible to do business in a country where the president personally determines the dollar rate.”

Belarusian authorities also announced sharp budget cuts on Tuesday, reducing financing for investment programs by 30 percent and state office construction by 20 percent.

A long-standing social contract that asked Belarusians to give up their political freedoms in exchange for safety and a modest standard of living appears to be fraying.

The April 11 explosion in the capital’s busiest subway station during an evening rush hour killed 13 and wounded more than 200 - the first deadly bombing in a nation where the opposition has been largely peaceful and militant groups have been unheard of.

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