Stronger sanctions could increase Belarus' dependence on Russia - S&P

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Belarusian and Russian national flags fly during "Day of multinational Russia" event in central Minsk

MOSCOW (Reuters) - Possible harsh Western sanctions against Belarus for its move to force a Ryanair flight to land could exacerbate its economic vulnerability and lead to higher dependence on its neighbour Russia, S&P Global Ratings said on Wednesday.

Belarus outraged the West when it forced the Ryanair flight from Athens to Vilnius to land in its capital Minsk on May 23 to arrest a dissident journalist and his girlfriend.

EU governments, which described the incident as state piracy, say they are looking at targeting sectors that play a central role in the Belarus economy, to inflict real punishment on President Alexander Lukashenko.

"Potential new EU-led sanctions against Belarus following the grounding of a civilian airliner in its airspace could reduce export earnings and lead to further drains in already-modest net central bank international reserves," S&P said.

If implemented, new stricter sanctions "could have adverse implications for Belarus' already-fragile economic, balance-of-payments, and financial stability."

S&P, which rates Belarus "B" level with a negative outlook, said there are numerous obstacles to harsher sanctions against Belarus, including negative spillovers to European companies and the potential lack of unanimity among member-states.

"Broader sanctions would require a coordinated EU position and it is not certain that they will materialize. Should these further isolate Belarus, its economic fortunes will depend even more on Russia's willingness to provide support," S&P said.

Russia on Wednesday provided Belarus a second $500 million following talks between the two countries' leaders as Russian President Vladimir Putin showed his longstanding ally support in this latest standoff with the West.

Apart from additional credit lines from bilateral lenders, Belarus can also use its access to the Russian capital market as it is due to repay $1.1 billion in foreign currency debt this year, with almost the entire amount covered by loans from Russia, S&P said.

(Reporting by Andrey Ostroukh; editing by Jonathan Oatis)