With new International Monetary Fund (IMF) credits still out of reach for Minsk, last year’s securing of a $2bn loan from the Russian-controlled Eurasian Development and Stabilisation Fund (EDSF) was supposed to help Belarus cover its huge debts. That is, until Moscow began to tighten the screws in return for opening the money tap.
$300mn of the third tranche of the EDSF loan agreed in spring 2016 was withheld, ostensibly due to slow implementation of essential reforms by the government of President Alexander Lukashenko, although political reasons are suspected to be behind the delay.
Issues that soured relations with Moscow in the past year include Minsk’s blocking of the establishment of a Russian airbase at Bobruisk, third-country nationals crossing the Belarusian-Russian border (which Minsk has exacerbated by offering visa-free entry for 80 countries), restrictions on sales of Belarusian dairy products in Russia on sanitary grounds, and energy costs, with Minsk unilaterally dropping the price it pays for Russian natural gas to around $80 per thousand cubic metres instead of the $132 set in the current contract with Gazprom.
Russia beefed up its demands for swift repayment of the resultant fuel debt of around $425mn by reducing its oil supplies to Belarus, which in retaliation hiked its fees for transit of Russian oil to the EU.
On December 26, Lukashenko boycotted the summit of leaders of countries of two structures for integration across the former Soviet space that are controlled by Russia, the Eurasian Economic Union (EEU), and the Collective Security Treaty Organization (CSTO).
According to the Centre for Eastern Studies (OSW) in Warsaw, the direct cause of the snub was likely a statement published five days earlier by General Leonid Reshetnikov, the director of the Russian Institute of Strategic Studies (an advisory body to Russian President Vladimir Putin), and a retired intelligence officer. “He unequivocally denied the distinct identity and language of the Belarusian people, and suggested that the Belarusian authorities have been conducting overly independent policies, thus risking the repetition of the so-called Ukrainian scenario,” the OSW said in a report. “This is the first time such a radical opinion about Belarus has been expressed at such a high level in Russia, which probably reflects the views of the wider Russian elite.”
Sovereignty bug bear
Such thinking has long been a source of anxiety in Minsk: There are many politicians in Russia “who have imperial ambitions” and want to see Belarus as “some kind of [Russian] north-western region”, the authoritarian Lukashenko said in April 2015, six months before he won a fifth consecutive presidential term since coming to power in 1994. “We were and are a sovereign independent state. And we will stay this way.”
But as Russia stands its ground against the West over Ukraine, “the Kremlin expects much greater loyalty from Belarus, and will respond more assertively to any far-reaching expressions of independence by [Lukashenko]”, the OSW added.
For now, Minsk remains defiant in its right to pursue independent policy, a point raised by Lukashenko on January 20 as he commented on Russia’s decision to enforce document controls for travellers arriving from Belarus because of Minsk’s new visa rules.
“The howling and whining by some neighbouring countries is just an attempt to state dissatisfaction by some forces,” he responded. “We have not breached anything here in terms of our domestic legislation. It’s our sovereign right. And we have not breached anything in terms of our agreements with other countries.”
Earlier in January, Belarusian authorities said that from February 12 they will lift visa requirements for citizens of 80 countries visiting the republic for up to five days via its main airport in Minsk. The changes will apply to 39 countries in Europe, including the entire EU, as well as Brazil, Indonesia, the US, Japan, and others countries.
“Lukashenko’s baby steps towards visa liberalisation do not come out of the blue," the Economist notes, and are “another stage in the gradual, tentative rapprochement between the EU and Belarus”.
New leaf with West
The gradual thaw follows a long freeze over the regime’s brutality in the 2010 presidential elections. Having watched East Ukraine go up in flames, Lukashenko, who does not enjoy particularly warm relations with Putin, is now especially tense about possible Russian bullying, while the EU sees Belarus as a kind of diplomatic buffer between Russia and itself. Lukashenko’s release of jailed opposition figures in 2015 led to the bloc removing most of its sanctions against Belarus and it is now advising the country on how to manage its borders.
Lukashenko wants to attract investment and Western trade to help free and diversify the Belarusian economy, which is still largely hitched to Russia’s. An EU delegation visited the country last October to discuss trade, and Belarus is showing more interest in aligning itself with technical regulations that govern the European single market. (The WTO on January 24 also welcomed the resumption of accession talks with Belarus.)
However, the odds are stacked heavily against Belarus escaping Moscow’s gravity, so deep is its dependence on Russian trade and especially energy. Belarus used to earn most of its revenue by importing cheap oil from Russia, refining it and selling it at much higher prices to European clients. Since the start of July 2016, Russian oil pipeline monopoly Transneft reportedly pumped 40% less oil to Belarus than in the second quarter because of the gas pricing dispute. The knock-on effects were immediate: Exports of Belarusian petroleum products in volume terms last year declined by 19.3% year-on-year to 12.3mn tonnes, and in value terms by 39.2% y/y to $3.78bn.
Belarus is likely to face another year of recession after a 2.6% decline in GDP in 2016, and 3.9% in 2015. It is the only country of the Commonwealth of Independent States (CIS) that is expected to see economic contraction in 2017, forecasted at -0.5% by the IMF, while the World Bank expects 0.9% decline.
Meanwhile, as the national reserves hover around $4.9bn, the external government debt of Belarus increased by $1.72bn last year to reach $13.5bn in early December. This year the government should repay and service $3.5bn in debt, including $1.65bn of internal and $1.86bn of external state debt.
Forced to play safe
But Westward-aimed change is not comfortable for Lukashenko, a 62-year-old former Soviet farm director who like Putin deeply misses the USSR and is reluctant to scrap old-style state support for industry and the social sector. Last year, as the government in Minsk began sniffing around the IMF again, Lukashenko warned it not to “grovel” before the Fund in its search for credits.
And as the strivings of Ukraine and Georgia towards EU integration show, nothing happens very fast, and can be quickly thwarted by all manner of Russian intervention, including military. Fear of this is likely to run too deep in Minsk to take any chances.
“Fearing a Russian backlash, Mr Lukashenko is unlikely to commit to the kind of sweeping political reforms that would enable a deep partnership with the West,” the Economist concluded, as the Ukraine crisis continues to eat up any slack Moscow might once have cut Minsk as it tries to achieve growth and cement its statehood.
“It seems that since the Ukrainian revolution, the Russian elite has changed their perception of Belarus, and now expect absolute loyalty and subordination to an even greater degree,” wrote the OSW. “Therefore, Moscow is reacting much more nervously to [Lukashenko’s] habitual attempts to find room for manoeuvre in Belarus’s foreign policy, which mainly consists of finding a counterbalance to Moscow in cooperation with the EU and the US.”
Tensions between Minsk and Moscow can be expected to escalate further this year, the OSW adds, “including open political dispute at the level of the presidents, which could lead to the collapse of the current model of relations between the two countries”.