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Belarusian Review

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A delicate Balance Between East and West

Change is a dangerous thing for an autocrat, and Belarus’s Alexander Lukashenko is being buffeted by demands for just that as he tries to steer his country through the economic crisis and strained ties with Russia without losing control.

... But Mr Lukashenko is no ordinary leader, and the measures he has taken to minimise the impact of the global crisis this year, and will have to take to get the economy growing robustly again, could undermine his rule.

The push to change course comes not from Belarus’s 9.7m relatively quiescent people, but from a series of external shocks that have disrupted the post-Soviet system created by Mr Lukashenko. There are few democratic rights but in exchange Belarusians were spared the turmoil that shook Russia and Ukraine after the collapse of the USSR.

The first jolt was from Moscow, which finally became exasperated with the president’s on-off promises to unite his country with Russia.

Two years ago, Moscow demanded that Belarus pay the same prices as the rest of the world for oil and gas – gas prices have since tripled. This damaged Belarus’s economic model, which was based on sourcing cheap energy from Russia and sending rugged but fairly inexpensive industrial equipment in the opposite direction, as well as refining Russian crude and selling it westwards.

Mr Lukashenko turned to the west, which had isolated him following accusations of a rigged 2006 presidential election. He let out his few remaining political prisoners, and undertook an economic liberalisation programme, which included reducing bureaucracy, ending the state imposition of retail prices for everything from cars to toothpaste, and promised to sell off some state companies.

... The outside world did step up to help Belarus, which ran into balance of payments problems due to its low level of currency reserves. The IMF lent $3.6bn, while Russia and Venezuela stumped up additional help.

But as a price for taking IMF help, the country was forced to devalue by 20 per cent against the dollar, causing a run on the rouble in the first months of this year, and lowering per capita gross domestic product from $6,230 to an estimated $5,094 this year, according to Standard & Poor’s, the rating agency.

The gloomy international outlook and reduced risk appetite has scared off investors. An angry Mr Lukashenko recently complained that there was only a single lowball bid for the state-owned BPS Bank, one of the country’s four largest, from Russia’s Sberbank. The deal has still not gone through.

... Stymied on privatisation, the government has pressed business to keep producing despite the slowdown, as a way of keeping unemployment at its current 1 per cent.

State-owned banks have been funnelling low-interest loans to state industries, which have been running up enormous inventories, and to homeowners, and Mr Lukashenko has been buying tractors and heavy equipment for collective farms.

Belarus’s economic fix is also creating geopolitical problems for its leader.

Although the autocratic style of the Kremlin is closer to his own way of governing, Mr Lukashenko and the elites that help him rule realise that any union with Russia would leave them at an enormous disadvantage compared with the much wealthier oligarchs from the east.

... “I don’t see a connection between business reforms and politics,” says Andrei Kobyakov, the deputy prime minister. “We’ll change when it is convenient for our society.”

... But certain changes may be permanent. Russia is unlikely to go back to subsidising Belarus’s energy, and its markets are becoming more difficult for Belarusian companies.

Relying more on trade with the west also has its limits. Currently Belarus’s biggest exports in that direction are oil and potash – and its factories produce few goods that are in demand in western Europe.

That means Mr Lukashenko’s intricate balancing act is far from over.

This article appeared in
Belarusian Review, Vol. 21, No. 4
Copyright 2009 Belarusian Review
All rights reserved.
Source: Excerpts from an article in Financial Times, November 19, 2009

Jan Cienski

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