(written by Piera Sciama - Belarus Project)
The recent economic crisis affecting Belarus is seen as one of the harshest the country has ever been through. Inflation rates are astronomical, some industries, especially the ones related with the energy activity, are affected by unemployment and there are shortages of food and goods. The government is covered in debts and has difficulties in paying for its imports, as its currency is constantly devalued. Consequently, it is forced to negotiate several economic and financial aid deals, for which it often has to give important compensation in return. Moreover, degrading relations with the West and unstable relations with Russia show the fragility of the country. Such a situation raises the question of the stability and longevity of the government. How to stay in power in such unfavourable conditions? Lukashenko has found parts of the answer: to reinforce relations with countries like China, Iran or Venezuela that have a similar vision of the world and international relations.
The degrading geopolitical situation: arm wrestling with Russia
Belarus is one of the few post Soviet countries that maintained privileged relations with Russia. Indeed, they signed in 1995 a partnership agreement that allowed Belarus to have access to certain vital resources such as oil and gas at an preferential price, which in turn boosted the country’s economic activity. But with time, relations worsened. In 2007 Belarus was hit by a crisis affecting the prices of gas. Similarly to what it announced to Ukraine one year before, Gazprom (Russian state-owned company) informed Belarus it would have to buy its gas at the market price, thus putting an end to a vital advantage.
Although price negotiations smoothed with time, it did not achieve to secure Belarus privileges: the price of a thousand cubic meters of gas rose from 46 to 100 dollars. Furthermore, this had important consequences for the overall economy since all the gas that Belarus imports comes from Russia representing 70% of its energy supply. By August 2007, Belarus had already contracted a debt of 456 million dollars. Indeed, it could not afford importing gas at the market price under such short notice.
Lukashenko and many other Belarusians considered the Russian move as an attack to destabilize their economy. Several elements vindicate such suspicions. Again in 2007, Russia threatened the country with a cut of 30% of its gas supply in case of default. Moreover, to be able to secure gas at an attractive price, Beltransgaz – the Belarusian state-owned gas company – had to open its capital to Gazprom up to 50%, for the equivalent of 2,5 billion dollars. Clearly, the Belarusian state was losing control over the situation. All in all, despite government negotiation, gas prices for Belarus gradually rose to finally reach the European market price by 2011.
The Western rejection
Impressively and despite all the elements listed above, it seems that the price of an alliance with Russia is lower than one with the West. This is linked with demands for a more democratic regime. In a visit to Minsk in October, an IMF mission pointed out the structural problems of the Belarusian economy showing its will to contribute to its recovery. In its report it underlined the negative consequences of the brutal rise in salaries before the 2010 elections and pushed for more transparent privatizations. It also emphasized that the country’s main challenge is to achieve external sustainability and domestic stability. To do so, Belarus should reduce the current account deficit and inflation as well as balance the state budget in 2012.
Nonetheless, in December 2011, the cooperation between the IMF and Belarus was severely threatened, as the government condemned two young opponents to death penalty. This led the IMF to suspend all kinds of financial help to the country. However, some observers believe in the importance of cooperation between the West and Belarus. The loan that was being negotiated with the IMF was of eight billion dollars, a significant amount of money. For now, Belarusians and Westerners are observing one another from a safe distance, and it is undeniable that their degrading relations contributed to increase the conception of Belarus as an isolated country.
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