Belarus economic partnerships: decisive elements of the longevity of the regime

By Belarus Project | 21 February 2012

To quote this document: Belarus Project, “Belarus economic partnerships: decisive elements of the longevity of the regime”, Nouvelle Europe [en ligne], Tuesday 21 February 2012, http://www.nouvelle-europe.eu/node/1429, displayed on 20 June 2019

(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.

 

 

Constructing new partnerships: the mirage of the Chinese salvation

Facing a true dilemma, Belarus was presented with what appeared as a perfect solution: to establish an alliance with China which reduce the pressures of the West and allow it to distance itself from Russia. Indeed, China doesn’t aim at directly influencing Belarusian domestic politics nor does it present a perceptible threat to its independence. To be more specific, when the Chinese Prime minister visited Belarus, he underlined that the two countries have the same vision concerning human rights - a rather limited one, of course. At first sight, the partnership between the two countries is undeniably attractive for Belarus. With the support of China, Belarus entered the Shanghai Cooperation Organization, allowing it to diversify its partners. Moreover, in September 2011, the Belarusian Parliament declared that China had granted the country a loan of one billion dollars, following the attribution of a total sum of fifteen billion dollars over the two past years, the double of the amount negotiated for the IMF loan.

Nevertheless, some authors started to question the real reasons and consequences of this cooperation. Belarus apparently doesn’t present any particular economic advantage for China. But the fine print of the financial deals negotiated between the two countries must be taken into account to understand their current relationship. In exchange for Chinese loans, Belarus bound itself to spending the money in Chinese goods. Consequently, there was no stimulus in developing and modernizing the country’s outdated industry. Moreover, like in the Russian case, the relations with China represent a pressure towards a diminution of the state’s influence on the country’s economy. One of the biggest potash companies and a jewel of Belarus' economy, Belaruskali, is being sold to Chinese investors. Therefore, we could ask ourselves: how much longer will this situation be sustainable? Is Lukashenko losing the hand on its economy? Such development will be crucial for understanding the evolution of his regime.

The mitigated results of cooperation with Venezuela and Iran

When diversifying its partnerships, Belarus doesn’t count only on its relations with China. The so-called friendship and collaboration with “rogue states” such as Venezuela or Iran have been nourished for a few years now. Indeed, like in the Chinese case, these countries present the advantage of not being concerned with the origins and practices of the Belarusian regime. On the contrary, there is a personal and mutual support between leaders. Nonetheless, because of such personified relations, these alliances are somehow unstable. With Iran, they have a lot of potential but for now have been relatively disappointing. The volume of trade between the two countries reched $71.6 million with a positive balance for Belarus exporting $63.2 million. This sum is nevertheless low if compared to the total Belarusian trade operations amounting 86 billion dollars. The military and energy cooperation is also important: Belarusian companies negotiated the access to the Jofeir oil field, an important source. Nevertheless, by fear of American repression, some of them like Belarusnafta are withdrawing from the exploitation field.

With Venezuela, the alliance also allows Belarus to have access to oil, therefore allowing a certain distance from Russia or even Iran. In exchange, it offers its expertise to help developing the Venezuelan construction and military sector. The volume of trade between the two countries boomed:  it went from five million dollars in 2006 to 600 million last year. Nevertheless, this sum is still marginal if compared to total trade or even to the Chinese financial aid.

Conclusion

Understanding the external relations of Belarus is an essential tool for estimating the longevity of Lukashenko’s regime. Although the country may appear to be in Russia’s backyard or the West’s black sheep, it intends to diversify its relations maintaining contacts with “rogue states” such as Iran and Venezuela or more importantly with China. Those contacts are based on mutual support and the perspectives of economic advantages. However, in the case of Venezuela and Iran, they do not seem to be very stable. In the case of China the alliance is stronger, but the Belarusian government has to pay a considerable price for it: the change in the nature of its economy that is less and less state-owned. Having in mind all these important elements, we could therefore ask ourselves: How much longer will the regime stand such trade off?

To go further

On Nouvelle Europe

To read

  • Lallemand JC., Liaisons dangeureuses, Politiques internationales no 117, Autumn 2007

On the Internet

 

Source: logo for the Belarus project 

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