25 May 2011

Alex Nice

Former Chatham House Expert


Belarus is facing a deepening economic and political crisis. Declining Russian subsidies, budget deficits and a worsening trade balance have put increasing pressure on the economy.

The government has sought to downplay the problems, delaying an official devaluation to manage the political fallout. The result has been to deepen distrust in the government, and increase losses from speculators and the black market. On 23 May the National Bank devalued the Belarusian Rouble by 56 per cent, prompting long queues outside shops and petrol stations and panicked buying of even basic provisions.

Belarus's unreformed economy has depended heavily on Russian subsidies in the form of cheap oil and gas to maintain high employment and ring-fence the country from the upheaval of privatisation. Now the social and economic model which has maintained President Alexander Lukashenko in power since 1994 is unravelling.

There is little prospect of the EU or IMF providing assistance. Following last December's presidential elections the authorities in Belarus have cracked down harshly on the political opposition. Whilst the regime continues to hold political prisoners, the discourse in Brussels will be of sanctions for Belarus, not loans. On the same day as the devaluation, the EU added to the list of Belarusian officials subject to travel bans.

Lukashenko's only prospect for foreign credit is Russia. This will come at a price which the ruling elite will find difficult to swallow. Alexei Kudrin, Russia's Finance Minister, has made it clear that Russian loans are conditional on privatisation, or in other words, the sale of major enterprises to Russian companies. These include 'strategic' assets as Beltransgaz (the transportation network which carries 15 per cent of Russia's gas exports to Europe), the railway system and major oil refineries.

On 21 May, Belarus Prime Minister Mikhail Myasnikovich stated Beltransgaz could be sold to Gazprom for $ 2.5bn. However, Moscow is in a strong position to dictate terms and appears to be in no rush to release money to Lukashenko. Vladimir Putin visited Minsk on 19 May, yet no formal agreement was signed at the meeting. Moreover the sums discussed - $ 3bn over the course of three years - are insufficient to stabilise the economy.

The Belarusian social contract, accepted by much of the population, presupposes political stability and modest economic well-being. Both of these have been compromised in recent months. In other contexts, one might look for signs of a social unrest. However, Belarusian political opposition and civil society remain weak, and the ruling elite will do all it can to keep them that way.

On 11 April a bomb in the Minsk underground killed 14 and injured over 200. Belarus is traditionally known as a peaceful country with no domestic terrorist threat or external enemies. Lukashenko subsequently warned of the threat from a 'fifth column', and moved to increase pressure on independent media and the opposition. Even darker days may lie ahead for Belarus.