How Not to Be Cheated by Belarus Authorities
Published: 07 March 2012
The incumbent Belarusian government has a long record of deceptive behaviour in its foreign relations. Both its major trading partners – Russia and the European Union – have more than once seen official Minsk let them down on its commitments and promises. These promises included political liberalisation, introduction of single currency with Russia, recognition of Abkhasia and South Ossetia and many more.
The words of the Belarusian authorities are taken with distrust and suspicion not only in Belarus but even more so abroad. When it comes to contractual obligations Belarus' counterparts prefer to be on the safe side of the road and double check that the Belarusian regime will not have a chance to deceive them again. The safeguards which Russia is now taking when ion its new loans to Belarus is a vivid illustration of that.
Bad Reputation Is Easy to Earn
With the European Union the deception mostly occurred in the political realm. In the already distant year of 1999 the Belarusian president made a public commitment at the OSCE summit in Istanbul to organise an all-national round-table with the opposition. Upon his arrival back home he threw the reached agreements in the garbage.
In 2008 Belarusian authorities promised during the behind-the-scenes negotiations with EU diplomats to allow a number of opposition figures enter parliament in exchange for a de facto recognition of the parliamentary elections. When the de facto recognition was about to happen, not a single representative of the opposition got a seat.
The history of deceptions in relations with Russia is far richer. One can name multiple commitments and promises that the Belarusian government failed to fulfil in the framework of the Union State of Belarus and Russia. To name just a few: single currency with Russia, unhampered Russian exports, fair (unsubsidised) Belarusian exports or free access to privatisation for Russian business.
And, perhaps, the biggest blow to the Russian interests was non-recognition of independence of Abkhasia and South Ossetia. According to the outgoing president of Russia Dmitry Medvedev, in the immediate aftermath of the Russian-Georgian War in August 2008 Lukashenka solemnly promised that Belarus would quickly recognise the two breakaway provinces. But this has not happened even now, four years later.
As a consequence, the level of trust in foreign states' undertakings with Belarus is now at its absolute low. But while the European Union is still trying to find proper methods in dealing with the unreliable counterpart amid the ongoing diplomatic row, Russia is using concrete instruments to make sure that the Belarusian authorities will not dupe it again.
For instance, every new instalment of Russian loans for the chronically ill Belarusian economy is now strictly conditioned on the fulfilment of contractual obligations. The Russians adjust the mechanisms of loan administration to minimise opportunities of cheating.
The EurAsEC Loan: the Case of Strict Conditionality
At the end of June 2011, amidst the heyday of the financial crisis, the Belarusian government managed to negotiate a $3 billion loan from the Russia-controlled Anti-Crisis Fund of the Eurasian Economic Community (EurAsEC). But it was agreed that the whole sum would be transferred in several instalments. According to the Letter of Intent that Belarus signed last June, each instalment has strict conditions attached to it.
It became evident that the Russia-dominated Anti-Crisis Fund was serious about its conditions already when it came to the second instalment. Initially, it was scheduled for the end of October. But because the Belarusian authorities were delaying a number of macroeconomic decisions promised in the Letter of Intent (for example, a sufficient increase of the interest rate) the second instalment arrived only on 30 December and after those decisions were made.
The same is now the case with the third instalment of $440 million. According to the Letter of Intent, it should have been transferred by 28 February 2012. However, in 2011 Belarus failed to fulfil a condition – to limit discounted lending under state programmes. The Anti-Crisis Fund deems it to be a considerable violation of the contract as extensive financing of state programmes leads to deficits of the balance of payments.
Therefore, the Fund now demands that the government complies with its commitments and that monetary and budget policies are more conservative. And, unlike in previous years there is now a general feeling that Belarus will not do away with promises only and will have to fulfil all its commitments.
The Nuclear Power Plant Loan: the Case of Direct Loan Administration
It was announced at the end of last November that Russia would provide $10 billion loan for the construction of a nuclear power plant in Belarus. The loan will also come in several instalments. And it will not be transferred directly into the Belarusian government’s account. Instead, the money will first go to the Russian Vneshekonombank, which will make all payments in accordance with the intergovernmental loan contract.
Belvneshekonombank, Vneshekonombank’s daughter bank in Belarus, was appointed as the bank-agent of the Belarusian government under the loan contract. It will facilitate all banking operations needed to receive, serve and return the money.
Thus, through the system of Vneshekonombank the Russian side will fully control the use of the loaned money and make sure that it is used in accordance with the contract. This deprives the Belarusian authorities of freedom to manipulate with the funds.
Following the Russian Suit
The Russian authorities have learned their lesson of how to avoid being cheated when dealing with Belarus. They no longer expect a fair game on the part of Lukashenka. Instead, they develop a strict policy of incentives based on the weaknesses of the Belarusian economy. This narrows Minsk's manoeuvring space and steadily streamlines the behaviour of the Belarusian regime as the Russians want it.
The Statement at the Conclusion of the latest IMF mission to Belarus released on 5 March shows that the IMF is also following the Russian suit in judging the Belarusian government exclusively by its policies and not sheer promises. This is, indeed, the only way to deal with a deviant partner.
Yauheni Preiherman is Policy Director at the Discussion and Analytical Society “Liberal Club” in Minsk