By Katya Golubkova
MOSCOW - EU sanctions designed to punish veteran Belarus leader Alexander Lukashenko for a sweeping political crackdown will leave him largely unscathed and able to continue financing the economy and his security forces, rating agencies and analysts say.
The European Union imposed wide-ranging sanctions on Belarus last week in response to Lukashenko's grounding in May of a Ryanair plane flying over Belarus and the arrest of an opposition journalist and his girlfriend who were on board, a move some EU politicians likened to air piracy.
The EU has also criticised Lukashenko's suppression of opposition protests, jailing of political rivals and strangling of critical media.
Its sanctions targeted some of the ex-Soviet republic's financial lifelines, including its main export, potash, and its government financing operations. However, loopholes mean they will do little damage, analysts say.
"The (sanctions) package is very serious, but it could have been much more harmful, both for bonds ... and on the financial and trading side," said Alexey Bulgakov, head of fixed income research at Renaissance Capital.
The financial sanctions ban EU entities from new Belarusian state debt, including bonds and loans issued after Tuesday, June 29, with a maturity of more than 90 days. The European Investment Bank will halt lending too.
But they do not touch the state-owned Development Bank of Belarus, the only bank with outstanding Eurobonds.
"As of now there are no restrictions for EU investors to buy new Development Bank of Belarus bonds or for EU banks to lend the bank money with a maturity of 90+ days," said Bulgakov.
The government also has strong financial support from close ally Russia, according to S&P ratings agency.
Minsk is due to repay $1.1 billion in foreign currency debt by end-2021, and can draw upon a separate $1 billion credit line agreed last year with Russia to help refinance this, S&P said.
The credit line was extended to support Lukashenko at a time when he was facing nationwide protests over the results of a presidential election the opposition said was rigged. Lukashenko denies the vote was flawed.
GOLD & FOREIGN RESERVES CLIMB
His government can also fall back on gold and foreign currency reserves, which rose by nearly $500 million as of June 1 to $7.76 billion from early May and are now at their highest level since August last year, according to the central bank.
State-owned Belaruskali, the world's top potash producer that accounts for a fifth of global potash trade, also looks to face no major threat from the latest EU sanctions, analysts say.
Its main export, potash with 60% potassium content, was not on the EU's list of sanctioned items. Brussels instead imposed sanctions on potash with a potassium content of less than 40% or more than 62% in the dry product.
Belaruskali earned $2.4 billion in forex revenue last year.
Bond traders also expect a mild sanctions impact. Sovereign dollar-denominated Belarusian bonds are unfazed by the latest measures.
Asked to comment, an EU official said sanctions needed to put pressure on the Lukashenko regime but also limit the impact on the Belarusian people and EU companies.
"We have the space for any scaling up if necessary. This is in line with our step-by-step approach," the official added.
Belarus Potash Company, Belaruskali's export arm, and the Belarusian finance ministry did not reply to Reuters requests for comment.
Russia has said it will continue to support Belarus.
"Refinancing risks remain broadly contained given new financing from Russia and accumulated savings," Moody's rating agency said in a note, adding that the lack of future financing options would increase Belarusian dependence on Russia.
The sanctions are seen inflicting some pain however.
Moody's said a lot would depend on how Belarus mitigates their impact, but added: "The new sanctions pose significant downside risks to our GDP forecasts of 1% for 2021."