BELARUS NEWS AND ANALYSIS

DATE:

02/01/2007

Belarus faces crisis as Russia cuts subsidies

Minsk, Jan 02: Long seen as the lifeblood of Belarus' command-style economy, subsidies on energy imports from Russia were effectively cancelled on Monday in a move observers believe could deal a body blow to the authoritarian regime of Alexander Lukashenko.

An end to duty-free oil imports announced by Moscow in December and a doubling of the price of gas deliveries to Belarus agreed minutes before midnight on New Year's Eve both came into effect January 1 in a potentially disastrous development for the country's economy.

"After Moscow's latest decisions, Belarus' so-called economic miracle will break down", said Mechislav Grib, a former head of the country's parliament, who now opposes President Lukashenko.

One Russian newspaper estimated Belarus would lose over 10 percent of its 15 billion dollar annual budget due the hike in oil duties alone.

With Russian help, the economy has been booming in recent years, with GDP growth of over nine percent in 2005, according to the World Bank.

Speaking after the gas deal was agreed on New Year's Eve, Belarussian Prime Minister Sergei Sidorsky said Belarus must now "find reserves to develop its economy," but he offered no suggestion of how the resource-poor Soviet-style economy could quickly make up for the loss of the massive subsidies.

In his New Year's address, President Alexander Lukashenko said his country had entered a "new economic reality," and accused neighboring states of trying "to break Belarus economically and politically."

With the threat of a cut-off in vital gas supplies looming as midnight approached, Lukashenko's regime was forced into an embarrassing climb-down, agreeing to a five-year deal that immediately doubled the cost of Russian gas deliveries to 100 dollars per 1,000 cubic meters from 45 dollars.

Within four years, prices will reach "market levels," likely to be well over 200 dollars.

The deal also spells out terms for Russian gas monopoly Gazprom to purchase a 50-percent stake in Belarus' state gas pipeline operator, Beltransgaz, a move the Belarussian government had fiercely resisted.

As the gas prices doubled on New Year's Day, an earlier decision raising duties on Russian oil imports from zero to 180 dollars per tone of crude also came into effect, making imports economically unviable, according to prime minister Sidorsky.

Russia justified its move by saying Belarus made large amounts of money by refining subsidized crude imports from Russia and selling them on to lucrative Western markets.

The country's top refiner has already stopped importing Russian crude, although Sidorsky says he is trying to negotiate a reduction in duties.

According to independent political economist Valery Karbalevich, Lukashenko now faces an awkward choice between watching his economy shrink or pushing through tough reforms.

"The situation which is developing in Belarus requires changes in economic policy and liberalisation, but it is not very likely that Lukashenko would go down this path as such changes would threaten his popularity", he said.

Russian political analyst Sergei Karaganov said that Russia had clearly made a conscious decision to withdraw economic support for Lukashenko.

"In some sort of vain hope we supported a Belarussian regime, which was becoming more and more anti-Russian," with subsidised energy, he told Russian television ahead of the deal.

"All of this money went to support the repressive regime of our neighbor. Now we have decided to charge them a reasonable price," he said.

"Our (political) union with Belarus has long been a fiction," he said.

Bureau Report

Source:

http://www.zeenews.com/znnew/articles.asp?aid=345404&ssid=51&sid=BUS