BELARUS NEWS AND ANALYSIS
DATE:
01/04/2009
Lukashenko Loosens Reins as Russia Vies With West for Belarus
By Yuriy Humber
April 1 (Bloomberg) -- Belarusian President Alexander Lukashenko, one of Russia's staunchest allies, is inviting an East-West bidding war for his country as he seeks to hold onto power and keep its economy afloat amid the global crisis.
Lukashenko who has run what the U.S. in 2005 called "Europe's last dictatorship" for 15 years, agreed in January to accelerate state asset sales and reduce government-ordered bank lending in exchange for a $2.5 billion bailout from the International Monetary Fund.
He then went to Russia, Belarus's biggest trading partner and energy supplier, and asked for an additional $3 billion in credit. When that was rejected, he sought $2 billion. The Russians, reluctant to expand existing subsidies before the IMF aid, may now relent to keep Belarus in their orbit.
A Belarusian move toward Europe would likely heighten Russian Prime Minister Vladimir Putin's anxiety over western encroachment in territory once ruled from Moscow. The three Baltic former Soviet republics joined the European Union and the North Atlantic Treaty Organization in 2004, and Ukraine and Georgia are seeking NATO membership.
"Belarus is trying to reposition itself closer to Europe and further from Russia," said Charles Grant, director of the Centre for European Reform, a London-based research group. "Russia may not like it. It may stop it."
Revolutions
Lukashenko, 54, is keen to exploit Russian fears of instability in a country of 10 million Russian speakers that Moscow-based OAO Gazprom uses to ship a fifth of its gas exports to Europe.
Alongside the IMF cash, Belarus obtained an EU offer of membership in its so-called Eastern Partnership, which would break down trade barriers. Lukashenko will attend an EU meeting on the initiative in May.
Every Belarus election since 1996 has been criticized as unfair by international observers such as the Vienna-based Organization for Security and Cooperation in Europe. In November 2007 and again in March 2008, the U.S. Treasury Department froze the overseas accounts of state-run oil company Belneftekhim, citing human rights violations by Lukashenko.
Since then, Belarus has released the last of its political prisoners, prompting the EU to ease travel restrictions on Lukashenko and his top officials and the U.S. to lighten penalties on Belneftekhim.
Price of Aid
Access to western aid comes at a price for Lukashenko. While most governments are taking a greater role in their economies, he is being forced to unwind state controls.
The European Bank for Reconstruction and Development, formed by the U.S. and other western governments to help Soviet-bloc states embrace capitalism after communism's collapse, says it won't increase its investments in the country until Lukashenko shows more commitment to privatization and the free market.
Lukashenko visited Moscow last month for talks with President Dmitry Medvedev. The $3 billion in new Russian aid would have come in the form of a currency swap and added to the $3.5 billion Moscow has doled out to its neighbor since 2007.
After Russia rejected the first request, Belarus yesterday asked Russia to provide a $2 billion bank loan guaranteed by the Russian government, Interfax reported, citing the Russian Finance Ministry's press service.
If Russia offers the cash, it will be on condition that Belarus adopts the Russian ruble, initially as a reserve currency, and increases its military cooperation. That might include the deployment of Russian missiles on Belarusian territory should the U.S. go ahead with a planned missile-defense system in neighboring Poland.
Not Stupid
"Russia gives us loans so easily and so cheaply, knowing full well that they go on things we consume and hence can't be repaid," said Stanislav Bogdankevich, head of the Belarus National Bank between 1991 and 1995, in an interview in the capital Minsk. "Russian politicians aren't stupid. In the future, they will take Belarusian assets to cover debts. There is an element of future subjugation."
Unlike Russia and its $385 billion cash reserve, Belarus is racing to avoid bankruptcy after its economy grew at an average of about 8 percent since 2000.
The country has about four months to raise more cash from the West or win funding from Moscow and face an "encroaching takeover by the Kremlin," said Yaroslav Romanchuk, an adviser to the government who runs the Mizes research center in Minsk.
Belarus's importance to Russia as a "geopolitically crucial location" will make it hard to rebuff Russian pressure, the U.S.-based risk-advisory group Stratfor said. "Russia's financial assistance is simply too valuable for the economically isolated Belarus to pass up" amid the economic crisis, Stratfor, which is based in Austin, Texas, told clients last month.
Plunging Exports
Belarus's exports plunged 45 percent in January, leaving the central bank with less than $3 billion in foreign currency reserves, equal to less than a month of imports. Gross domestic debt stood at $14.6 billion on Feb. 1, triple the amount held by the population in 28 banks.
On the list for privatization this year is the Belarusian Automobile Plant, maker of BelAZ trucks, and pipeline operator Gomeltransneft Druzhba, which services part of the Druzhba route that Russia uses to supply 20 percent of Germany's crude oil.
Russia is the biggest export market for Belarusian products and the two countries formed a loose political union a decade ago that helps Belarus save $4 billion a year in discounted natural- gas and oil prices.
That relationship may change if Belarus finds other donors and diversifies its sources of energy. The nation is seeking to build its first hydropower and coal-fired plants and burn peat, a decayed vegetation matter found in bogs, to cut reliance on gas to 58 percent of total electricity output from 97 percent within a decade, Energy Minister Alexander Ozerets said in an interview.
Seeking Allegiance
At their meeting in Moscow, Medvedev sought to lock up Lukashenko's allegiance.
"We have reached some serious agreements which have economic, humanitarian and regional dimension," Medvedev told reporters. "They now need to be implemented. They must be turned into contracts, deliveries, settlement of issues."
Conditions for more Russian loans may include recognition of the breakaway Georgian regions of Abkhazia and South Ossetia, over which Russia waged a five-day war last August. The EU has said it will make no deals if Belarus officially recognizes the states, as Russia has. Lukashenko has passed on the decision to the country's parliament, which has delayed voting on it.
"Lukashenko's game continues in both directions," said Arkady Moshes, program director for Russia at the Finnish Institute of International Affairs in Helsinki.
To contact the reporter on this story: Yuriy Humber in Moscow a
Source:
http://www.bloomberg.com/apps/news?pid=20601085&sid=aGbHxWKyvfxI&refer=europe
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