Russian funding eases debt pressures on Belarus as geopolitical tensions rise

By bne IntelliNews February 17, 2015

Sergei Kuznetsov in Minsk -

 

Belarus' foreign government debt repayments have reached a peak and the government is facing a serious shortage of funding. The country is required to pay $4bn this year, while its foreign currency reserves stood at just $4.7bn as of the beginning of February. The Belarusian authorities are confident that Russia will again provide financial support, but at the same time Minsk appears increasingly worried about a possible threat from Moscow to its sovereignty.

“We do not want to take on more loans… However, if we encounter real trouble, Russia will lend us a shoulder,” Alexander Lukashenko, the president of Belarus, said during a press conference on January 29. Lukashenko added that he “has a solid agreement” on this matter with his Russian counterpart as well as with the Russian prime minister.

Lukashenko said his government is still relying on the final tranche of a loan from the bailout fund of the Russia-led Eurasian Economic Community, EurAsEC, which previously rescued Belarus from a balance-of-payment crisis in 2011 by offering a $3bn aid package. According to initial agreements, the final tranche should be worth $440m. However, its fate has been unknown since late 2013.

Andrei Kazakevich, director of the Vilnius-based Institute for Policy Studies Palіtychnaya Sfera (Political Sphere), believes that Russia will be the principle source for maintaining the country’s international reserves, because refusal to do so would inevitably entail in a "reformatting" of the Belarus-Russia relationship. "This would not be very favourable to Russia now, because of the instability in Ukraine and its general political isolation from Europe and the US,” Kazakevich tells bne IntelliNews.

He adds that the very structure of the alliance between Belarus and Russia is based on the premise that Russia always acts as a supplier of financial resources and economic benefits for Belarus. In 2014 alone, Russia provided $2bn in government loans to Belarus.

IMF conditions

Stanislav Bogdankevich, former governor of the National Bank of Belarus, also believes that Russia will continue to provide financial support to Belarus. “To obtain a loan from the International Monetary Fund (IMF), it would be necessary to change the existing economic model, to change course. The latest statements by Lukashenko suggest no willingness to do so. He does not intend to abolish manual economic governance,” Bogdankevich tells bne IntelliNews.

Belarus has been trying to negotiate a new support programme with the IMF since late 2010, when the previous stand-by loan programme for the country ended. However, the multinational lender has repeatedly stated that it wants to see “a credible commitment to a comprehensive package of consistent and strong macroeconomic policies and deep frontloaded structural reform” in Belarus.

However, the Belarusian government has not completely abandoned the idea of cooperating with the global lender. A new visit to Belarus by IMF experts is scheduled for March, and the authorities could once again raise the question of possible funding, despite the low chances of a success. “We continue to work with the IMF. In March a planned mission of the organisation will work in the country to study our situation. We are not ruling out any possibilities as far as financial cooperation is concerned. But the consideration of these matters will need time, at least several months,” Finance Minister Vladimir Amarin said on January 29.

It's a 'Russian World'

Despite their confidence in Russia’s largesse, the Belarusian authorities appear to have started worrying about the Kremlin’s new aggressive policy towards post-Soviet states. Moscow considers post-Soviet countries that have a significant Russian-speaking population and traditional economic and interpersonal relations with Russia to be part of the so-called “Russian World”, and in Ukraine it has shown its readiness to defend its influence there, even by military force.

“There are several interpretations of the concept of the ‘Russian World’. In most of them, Belarus is considered a part of it – because of the domination of the Russian language in Belarus, existing traditional ties [with Russia], and the existence of a Union State [Belarus-Russia bilateral integration formation],” Kazakevich says.

After the eruption of the Ukraine crisis and the active intervention of Moscow in the situation there, including military support for the separatists in the Donbas, Lukashenko’s rhetoric towards Russia has become tougher. “There are some ‘wiseacres’ who claim that Belarus is, as they say, part of the ‘Russian World’ and even almost Russia. Forget about it: Belarus is a sovereign and independent state,” Lukashenko said on January 29.

Kazakevich says that Russia’s approach to the “Russian World” could indeed be a potential threat to the Belarusian state, because the concept “envisages the political and cultural domination of Russia over the region which belongs to the ‘Russian World.’”

Minsk has also become increasingly ambivalent about the Eurasian Economic Union (EEU), a trade bloc recently created by Russia, Kazakhstan, Belarus and Armenia. During his press conference on January 29, Lukashenko said that Belarus could leave the EEU if the agreements between its member states are violated. “If the agreements we have reached are respected, we will honour everything with regard to the EEU. If they are not respected, we reserve the right to withdraw from this union,” Lukashenko said.

However, Lukashenko later toned down his rhetoric. The president said in an interview with a Russian TV channel on February 14 that the trade union is beneficial for Belarus and that the country “sees prospects in it”. On the other hand, Lukashenko underlined that “if it is too painful and tight [for Belarus], there is a possibility of leaving any agreement, even the [EEU].”

As Bogdankevich predicts, “Lukashenko will maintain the eastern vector [of his foreign policy] alongside moderate liberalisation of his relations with the West.”

 

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