Lukashenko calls for normalization of relations with the west

By bne IntelliNews January 16, 2015

Belarusian president Alexander Lukashenko made explicit this week what was becoming increasing obvious last year: Minsk is fed up with its pariah status and wants to normalize relations with the west.

“Why should we refuse to cooperate with them? Our relations with the West are a bit different. But we need to build them up. The fact that Belarus is pursuing better relations with the USA and the EU should not worry anyone, either in Belarus or in Russia,” Lukashenko told the House of Representatives of the National Assembly of the Republic of Belarus in a speech on January 15 BelTA reported.

As bne noted in an article last year "Belarus in from the cold," Belarus launched a charm offensive in the second half of last year to try and entice some foreign investment into its economy.

The attempt at Minsk's rapprochement is being driven by two factors. First is that Belarus has exhausted most of the easy "catch up" growth of simply putting bums on empty seats of Soviet-era factories and needs investment to modernize existing ones and build new ones. Per capita income has risen to $16,940 in 2013, but remains behind of its Customs Union partners of Kazakhstan and Russia with $20,570 and $23,200 respectively on a purchasing power parity basis according to the IMF.

This is the second attempt to make up with the west, which is a major trade partner for Belarus. But Lukashenko's violent crack down on demonstrations following his 2010 re-election as president killed off the growing goodwill that Europe was beginning to display.

The second factor is the unintended consequences of imposing sanctions on Russia. Designed to push Russian President Vladimir Putin into changing his policy on Ukraine, on this count the sanctions have been a complete failure – and may actually be very counter productive according to several commentators. However, the spill over of economic pressure on Belarus as a result of the Russian sanctions have been effective in getting Lukashenko to change his ways – even if that was not the intention. Keen to drive a wedge between Putin and any of his small number of allies, Europe and the US have made well-received overtures to Minsk.

Adding to the momentum is the increasingly strained relations between Minsk and Moscow. While the Belarusian president continues to maintain that Russia will stay Belarus' most important partner the launch of the Eurasian Economic Union (EEU) on January 1 has not gone smoothly; supposedly an economic free trade block, Moscow has called for Minsk and Astana into join it in banning EU agricultural imports as part of the tit-for-tat sanctions war. Both Belarus and Kazakhstan have balked at the overtly political move and refused point blank. The upshot has been trade barriers appearing on Russia's boarders to both Kazakhstan and Belarus just as these borders were supposed to disappear completely.

Minsk has been put under even more pressure by the collapse of the Russian ruble in December and was forced to introduce currency controls to prevent a meltdown of the Belarusian ruble, which still lost at least 20% of its value in recent weeks.

Minsk needs money. With about five weeks of import cover worth of hard currency reserves and several billions of dollars of debt coming due this year Belarusian economy is in a perilous predicament. The Russians may come up with another couple of billion in support as it did in 2009, but it will extract its pound of flesh if it does. The IMF could also be roped in again, but for the autocratic Lukashenko the pound of flesh to be paid there in the form of reforms and liberalizations is even less appealing. So attracting some foreign direct investment (FDI) and diversifying the country's trade is really attractive right now.

“In this complicated period we can and must rely on ourselves. It will be good if someone from outside can help us. But we cannot count on the West, the East, Russia, Ukraine, or anyone else. We must use our own resources,” the President said. “If we manage to diversify export (in relation to the share of export to Russia) and redirect products to other markets, we will avoid collapses in the economy and finance. Therefore, the diversification of export is number one priority."

It is not going to be an easy sell, but the government is already working hard. Last year government ministers were tramping the globe with a series of investment conferences and this year's effort started with a Belarusian delegation showcasing its woodworking products this week at a international expo in Turkey for the first time ever.

The acid test will come this autumn when Belarusians go to the polls for another presidential elections. In his speech this week Lukashenko admitted that the rest of the world will be watching the elections closely, which will in effect be a referendum on his commitment to liberalization. Lukashenko remains genuinely popular and should be able to win easily, but as in 2010 he probably won't win fairly in the first round and needs to let the competition go to two rounds to convince the rest of Europe.


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