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Doing Business With Lukashenka’s Regime

Typically, one would not expect to find a “Special Report” on Belarus in The Financial Times. In recent years, most of the western business community has shown limited interest in the country. It wasn’t so long ago, that some people joked about turning the country into an amusement park for people nostalgic over the break-up of the Soviet Union. While politics may have played a contributing role in this lack of interest, it was more likely the perception that it would be difficult, if not impossible, to undertake profitable activities in Belarus.

Typically, one would not expect to find a “Special Report” on Belarus in The Financial Times. In recent years, most of the western business community has shown limited interest in the country. It wasn’t so long ago, that some people joked about turning the country into an amusement park for people nostalgic over the break-up of the Soviet Union. While politics may have played a contributing role in this lack of interest, it was more likely the perception that it would be difficult, if not impossible, to undertake profitable activities in Belarus. Concerns such as human rights certainly have not stopped multinational corporations (MNCs) from doing business in China, Equatorial Guinea, Russia, Saudi Arabia or Uzbekistan, so why should things be any different with respect to Belarus? To McDonald’s, Patio Pizza, the Crown Plaza and other MNCs, Belarus represents just another market, albeit a small one. These service providers are normally not be deterred by non-economic factors – after all, businesspersons, diplomats, and employees of international organizations need places to eat and sleep. In these difficult economic times, such corporate decision-making is easily understandable.

Data Alone is Not Sufficient to Understand the Belarusian Economy’s Current State and Future Prospect
For more than a decade, Belarus has pariah status as “Europe’s Last Dictatorship.” If Mr. Lukashenka would never be invited to visit the world’s major capitals and the country’s senior officials subject to sanctions, why not sell weapons where the end users were separatist movements or terrorist groups, hold elections where the results are never in doubt or squelch political opponents and criticism of the Belarusian government? One could be happy attending state dinners in Caracas, Moscow, Teheran, and most recently Kyiv.

Indeed, times have changed (a bit). The Belarusian government has made it a high priority to establish or strengthen its ties to the European Union, the International Monetary Fund, and the World Bank to lessen its international isolation. This approach also gives the country leverage in its relationship with its closest “friend” Russia – even if accomplishing this change in policy requires minor changes in the way it acts both at home and abroad. In fact, in a significant change since the days of the Orange Revolution, Belarus have sought to establish cordial relations with Ukraine in recognition of the fact that maintaining good relations can have numerous benefits, particularly since Gazprom pipelines on both territories must be utilized for its natural gas to reach their principal foreign market.

Despite the shift in Belarus’ geopolitical approach, the government remains a stalwart of unaccountability. Belarusian Deputy Prime Minister Andrei Kabiakou pithily explained the logic behind his country’s new economic and foreign policies when he remarked, “I don’t see a connection between business reforms and politics . . . . We’ll change when it is convenient for our society.”

Mr. Kabiakou did not feel incumbent to identify precisely who fell under the rubric “we.” Belarus’ population may be the size of a Chinese city, but so long as Belarus has some strategic significance and is careful not to alienate influential foreign businesses, Mr. Lukashenka and his principal supporters have gained some room in which to maneuver.

Does the Lukashenka Regime Face Tough Choices in Sustaining Economic Growth While Maintaining Political Control: Human Rights Violations and Political Suppression
On November 20, 2009, the FT contained a thorough and generally balanced analysis of Belarus’ economy, foreign policy and politics (to the extent that the latter can be said to exist). Jan Cienski, the FT’s Warsaw Bureau Chief, authored the Report. The Report recognizes that the Belarusian economy’s ability to evolve depends on the success of its foreign policy and its ability to keep the domestic political scene relatively tranquil.

In the realm of international affairs, he characterized Belarus’ “relations with Russia [as] testy and overtures to the west tentative.” On the domestic front, Mr. Cienski does not make the mistake of assuming that the relative “tranquility” in Belarus can be equated with the population’s complete support of Mr. Lukashenka, who even admits that his supporters engaged in a degree of falsification to ensure his re-election in 2006.

Mr. Cienski understands that Mr. Lukashenka’s generally successful atomization of Belarusian society means that, in most cases, he does not have to rely on many of the more heavy-handed measures that were required in the past. He perceptively points out that “repression now consists mainly of the threat of losing your job or place at the university. People are completely dependent on the government.”

It is important not to overlook the word “mainly”; the Belarusian government exacts various means to quiet its opposition. For example, at election time, demonstrations by opposition supporters frequently are dispersed by so-called “Special Purpose Police Forces” (i.e. OMON), plainclothesman or skinheads acting on the government’s behalf. There are also demonstrations in connection with certain anniversaries such as the Chernobyl Disaster. Individuals, who are arrested, detained and abused by the authorities while in custody, irrespective of the length of time or how severely they were mistreated have no recourse. The authorities can act with impunity and this operates as a significant deterrent against opposition supporters.

In addition, those persons who criticize the regime publicly or maintain unauthorized ties with Western governments and NGOs, particularly students, are sometimes drafted into the military. A draftee who fails to report to the recruitment center without a “good reason” constitutes a criminal offense. Similarly, if individuals challenge Mr. Lukashenka’s actions or state policies, they can face criminal charges as well. In the absence of an independent judiciary, such persons would place themselves in precarious circumstances and have no genuine recourse within Belarus.

Mr. Cienski reports that “over production and state aid have held off a recession, but could lead to problems ahead.” When discussing the health of Belarusian state-owned enterprises engaged in heavy industry, he notes that “if the state withdrew from these companies, they would go bankrupt.” While Belarusian industrial products are having a difficult time competing with the products of other countries, it is able to export software, potash and refined crude oil to the West.

The Role of International Investment: Does Economic Growth Lead to Political Reform and More Attention to Human Needs?
The World Bank ranked Belarus 58 of 183 countries with respect to ease of doing business. Economies are ranked on their ease of doing business, from 1 – 183, with first place being the best. A high ranking on the ease of doing business index means the regulatory environment is conducive to the operation of business. This index averages the country’s percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings are from the Doing Business 2010 report, covering the period June 2008 through May 2009.

Perhaps, it is easier to do business in Belarus than elsewhere since dictatorships can be more efficient than democracies, but at what price? In Transparency International’s most recent Corruption Perception Index (CPI), it was ranked as 139 out of 180 in terms of degree of corruption. The CPI attempts to measure corruption on the part of governmental officials. Even if there are fundamental methodological problems in measuring corruption, it is difficult to explain why Belarus is viewed as a corrupt country, but is considered by the World Bank as being an easy place to do business. Perhaps, Belarus is less corrupt than other countries because Belarusian officials fear the consequences of being accused of corruption given the absence of the rule of law in the country, or perhaps it is a result of the corporations’ selective application of the concept of “global social responsibility” that make them willing to do business in Belarus.

Similarly, the International Monetary Fund has been impressed by the performance of the Belarusian economy. According to Mr. Chris Jarvis, who led an IMF mission to Minsk in November 2009 as part of a review of Belarus’ participation in the Fund’s Stand-By Arrangement (SBA) program, pending approval by the IMF Executive Board, Belarus will be eligible to receive the equivalent of approximately $700 million in disbursements. Mr. Jarvis stated that:
“[Belarusian] Performance under the economic program supported by the SBA has been good. All end-September performance criteria and structural benchmarks were met. The agreement reached on the macroeconomic framework for 2010 would help in achieving program objectives. Prudent fiscal and monetary policies would narrow the current account deficit and bring inflation to single digits. Monetary policy would continue to support the credibility of the exchange rate regime. Disciplined wage policy would improve Belarus’ competitiveness and prospects for economic growth, as the global economy returns to growth. Social policies aim at providing adequate social safety to the most vulnerable groups of population.

It is troublesome that the IMF continues to have tunnel vision. The world cannot be artificially divided into economics, foreign policy and domestic policy. All are interlinked. Belarus’ stability has been obtained at a high human cost. Do the EU, IMF and the World Bank want to be the facilitators of the continuation of this process?

Apologists for Mr. Lukashenka claim the opposition does not offer a viable alternative: they are incapable of mounting an effective opposition, how can they manage an economy? Of course, they have not had the opportunity that the former collective farm director has had to gather his troops.

Indeed, it may be true that the quality of life in Belarus is better than in Azerbaijan, Turkmenistan, or Uzbekistan. Nor is anyone starving in Belarus as in other parts of the world. Perhaps the Belarusian economy is performing better than might be expected, but this will not last forever.

Economists frequently emphasize that the Belarusian economy is relatively healthy under the circumstances due to the education level of the population. However, one wonders if this will continue as the population ages and brain drain continues. Many educated Belarusians seek employment abroad, both in the West as well as in Russia.

The Belarusian economy cannot compete in this age of rapid technological innovation. Mr. Lukashenka has obtained a high degree of political stability, but at a high human cost. The question that the world community should ask itself is whether it wants to provide him the tools to maintain his power. Even if other countries and international organizations feel that it is beneficial to cooperate with Mr. Lukashenka as long as he is in power, he will not always be in power and while he may have surprised many by his endurance, he is not immortal.

This article appeared in
Belarusian Review, Vol. 21, No. 4
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Copyright 2009 Belarusian Review
All rights reserved.

E.S. Burger & Rosalia C. Gitau

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Contents
Economy
Editorial
Features
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Legacy of Chernobyl
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Thoughts and Observations
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