Russia announces release of Belarus bailout

(MOSCOW) - Russia on Tuesday announced the release of the first $800 million tranche of a bailout loan to Belarus aimed at helping its neighbour recover from its worst economic crisis since the Soviet era.

Moscow also criticised a new wave of sanctions slapped on the republic by Europe's foreign ministers on Monday in protest over a crackdown on the opposition that followed disputed presidential elections last year.

A small group of former Soviet republics headed by Russia agreed to extend a $3 billion loan to Belarus over three years under strict conditions that include its adoption of a wholesale privatisation programme.

Belarus has thus far failed to put its state firms up for sale. The loan's release was imperilled further by strongman President Alexander Lukashenko's vow to shut down Russian media outlets operating in Belarus.

But Russian Finance Minister Alexei Kudrin told news agencies that "Belarus fulfilled all the formal obligations (on Monday) evening" and was sent the first payment on Tuesday.

The hard currency and basic goods shortage poses the most serious challenge of Lukashenko's 17-year presidency and has seen the mercurial leader make a series of at-times contradictory pronouncements.

He warned on Friday that he was ready to close the country's borders and require consumers to rely only on domestic goods if the economic situation deteriorated further.

Kurdin said Tuesday that Moscow reserved the right to review the release of additional money if Lukashenko barred Russian goods from entering the republic.

"If necessary, we will submit a corresponding (loan review) proposal to the anti-crisis fund," Interfax quoted Kudrin as saying.

Belarus is scheduled to receive its next payment of $440 million by the end of the year.

The long-awaited cash is the first foreign assistance Belarus has seen since the crisis began to unfold this winter and is unlikely to provide more than stopgap help.

The country last week raised its main interest rate to one of the world's highest at 18 percent to help fight inflation that reached 32.6 percent in May.

Its foreign currency holdings meanwhile fell by another 9.6 percent last month as the state took desperate steps to keep the local ruble from losing even further value.

Russia has served as the increasingly isolated republic's most important link with the outside world and on Tuesday defended its ally against another round of sanctions imposed by the European Union.

"We view such a policy as counterproductive, no matter how difficult the dialogue in the human rights arena might be," news agencies quoted a Russian foreign ministry spokesman as saying.

The new EU sanctions were the first to hit the Belarus business sector.

The 27-nation bloc has already agreed a travel ban and assets freeze on 188 people who include Lukashenko's closest assistants and several judges.

Belarus has accused the West of trying to topple Lukashenko's regime and on Tuesday vowed to take reciprocal steps against the EU.

"The European Union's actions escalate the confrontation and complicate our ability to move on to normal cooperation," a foreign ministry spokesman said.

"Belarus will take adequate step to defend the legitimate interests of its citizens and enterprises, including reciprocal measures against the initiators of this decision."