A Cautious Reset of Belarus-EU Relations in the Making?
On 9 September the EU High Commissioner for Foreign Policy Federica Mogherini stated that the EU should "not to miss a new window of opportunity" in relations with Belarus after Alexander Lukashenka's decision to pardon six remaining political prisoners.
Although the West remains cautious, waiting for the outcome of the October presidential elections, this round of a warming in relations may indeed lead to a new format of interaction.
If the electoral campaign is calm, Minsk and Brussels have a good opportunity to launch fruitful and pragmatic cooperation in various important fields like trade, freedom of movement, investment and education. So far slow engagement seems the only realistic way to gradually Europeanise Belarus and balance Russian influence.
Lifting Sanctions? Not So Fast
After Lukashenka's "act of humanism" many Western governments have unequivocally welcomed this step. Many analysts were expecting the quick removal of European sanctions, but Brussels has taken a pause before doing so.
The first high-rank Western official who visited Minsk after the political prisoners’ release was Gernot Erler, the German government coordinator for the Eastern Partnership and Russia. He reiterated approval of Lukashenka’s step but emphasised, that the EU was not going to revise sanctions before the elections scheduled for October 11. Erler stated that sanctions expire on 30 October and said that the EU member-states had “neither plans, nor grounds for reviewing them beforehand”.
Later, the head of Belgium MFA Didier Reynders and Federica Mogherini stated the same: no revision of sanctions before elections.
during the 2008-2010 reengagement between Minsk and Brussels the situation looked similar Read more
This delay may disappoint the Belarusian authorities whose only motivation to release the political prisoners was to improve ties with the West. However, the EU’s implied rationale seems reasonable, it can be called "2010-syndrome".
During the 2008-2010 reengagement between Minsk and Brussels the situation looked similar: Russia scared its neighbours by intervening in Georgia, the Belarusian government distanced itself from the Kremlin's actions and released political prisoners. Contacts with the EU became more intensive and, finally, Brussels froze sanctions.
In 2010 many hoped Belarus was sincerely opening up to the West. A brutal crackdown on mass demonstration in Minsk on election night followed by 700 protesters being detained and more than 40 sent to jail ruined those hopes. The EU was widely shamed for naivety and had to reintroduce tough sanctions in 2011. These events rolled back relations to the lowest level in a decade.
Now, the West seems to be more cautious, leaving itself leeway in case the elections do not go smoothly.
More Cautious Promises
In 2010 Polish foreign minister Radosław Sikorski was straight-forward when he visited Minsk with his German colleague on the eve of presidential elections. He simply promised €3 billion in exchange for a non-fradulent and open campaign.
the EU can lift sanctions, foster the visa facilitation process, support Belarus' application to WTO Read more
Currently, EU diplomats (including Mogherini) are using cautious language, mentioning a possible “reset” in relations with Minsk if the OSCE monitors’ report after the elections is “positive”. Gernot Erler told journalists about a possible “substantive political dialogue in this case. He also named some concrete opportunities: in the case of “fine” elections the EU can lift sanctions, foster the visa facilitation process, support Belarus' application to WTO and help organise a large investment conference in 2016 together with Minsk.
Also, before the political prisoners release, European diplomats in private talks confirmed the existence of a special internal EU document providing tens of concrete proposals to Minsk. To “activate” this road map the major obstacles of political prisoners and sanctions were to be removed.
Besides the points mentioned by Gernot Erler, this set of proposals allegedly included trade facilitation measures, a sizable increase in technical assistance, new education opportunities (in the framework of the Bologna process) and other rather pragmatic steps. Minsk also seems particularly interested in EU assistance for placing Belarusian bonds on the European stock exchange.
Finally, Jean Asselborn, the Luxembourg Foreign Minister currently holding the EU rotating presidency, on 5 September revealed that the EU was working on a new kind of agreement with Belarus and Armenia "to prevent all bridges being burnt". These two members of the Eastern Partnership showed little desire to sign the association and free-trade agreements with the EU. Hence, treaties with them will be "of a lower level", with no customs privileges but containing "a lot of other things", the Luxembourg Foreign Minister said.
New Format Seems Feasible and Promising
To enable this optimistic scenario in Belarus-EU relations two factors have to coincide: calm elections and more or less positive OSCE report, noting at least minor progress. Both conditions remain rather fragile given the Belarusian regime's lack of plans for true political liberalisation and its unpredictability when it comes to public protests, which December 2010 showed.
the Belarusian authorities have done their best to score some points in the eyes of foreign observers Read more
On the other hand, some prerequisites for this scenario exist. The readiness to protest in Belarusian society has fallen significantly after the Ukrainian crisis. Thus, the government may not need to resort to repression in the absence of a serious threat.
As for the future OSCE report, the Belarusian authorities have done their best to score some points in the eyes of foreign observers. These efforts include inviting a maximum number of Western monitors, equipping many polling stations with transparent ballot boxes and providing relatively free conditions for opposition to campaign.
The authorities have demonstratively refrained from punishing opposition activists for unauthorised protest rallies in central Minsk, which is surprising for Belarusian politics. Although these measures do not change the essence of the controlled electoral process, they may well be highlighted as improvements in the OSCE report which the West hopes for.
If the European Union responds with visa liberalisation, more educational exchanges, more EU technical assistance and investments, it would strengthen the pro-European segment of Belarusian society and within the government. Together with possible Western loans and joining the WTO these measures will help create a more healthy environment in the Belarusian economy and provide a balance to Russian influence.
the restrained language and pragmatic agenda will hardly cause a lot of false expectations and disappointments Read more
At the same time, it looks like this potential new format of relations with Belarus will be designed not to irritate Russia: something "lower" than association agreement which caused the initial tensions between Moscow and Kiev back in 2013.
Additionally, the restrained language and pragmatic agenda will hardly cause a lot of false expectations and disappointments between parties. It happened in cases of Georgia and Ukraine: both of whom hoped for EU membership perspective or, at least, visa-free regime, but have received none of the two so far.
Given the existing political system in Belarus, Russian dominance in the economy and media space and a currently assertive Kremlin's foreign policy, this "small-steps strategy" seems to be preferable. Any true Europeanisation of Belarus and its people remains unlikely without building new bridges with united Europe.
Why Belarusians Stay Away from the Belarusian Rouble
On 16 September a new regulation of the National Bank of Belarus on currency transactions came into effect. It forced all consulates in Belarus to suspend their activities for a few days in order for them to invent new ways of collecting payments from clients.
This is how Minsk attempts to limit the dollarization of the economy. Instead of fixing its monetary policy, the Belarusian government prefers to rely on administrative tools and introducing new restrictions on economic transactions.
These efforts will hardly increase trust in the Belarusian rouble, however.
The Story Of Continuous Devaluation
The Belarusian rouble has been depreciating dramatically throughout its history. Since regaining independence, Belarusians have experienced countless devaluations. The most sever devaluation occurred following the Soviet collapse in 1991. Since the USSR's authorities prohibited keeping international currencies, people remained unprepared for the hyperinflation of the early 1990s. This period wiped out most people's savings in just a few months.
Since then the Belarusian rouble has never been a stable currency. Although all the post-socialist national currencies depreciated greatly in the 1990s, many became internationally convertible and relatively stable in the 2000s. For example, the Polish zloty appreciated by 10 per cent in 2001-2015. But the success story does not concern the Belarusian rouble which devalued fifteen-fold against the US dollar at the same time (from over 1,100 to under BYR18,000 per $1; figure 1).
Most devaluations of the Belarusian rouble were sharp and unexpected. Only in the past seven years have the Belarusian authorities shocked society three times.
within a few months in 2011 the national currency devaluated almost three times Read more
First, on New Year's Day of 2009 it devalued the currency by 20 per cent. The unpleasant surprise forced many people to buy what they could in anticipation of steep price rises following the devaluation. Since then Belarusians have always met the year-end with certain concerns.
Second, in 2011 the internal currency crisis changed the well-being of Belarusians dramatically. Prior to that the president, the prime minister, and the National Bank of Belarus (NBB) systematically had promised that there would be no devaluation. Nevertheless, within a few months in 2011 the national currency devaluated almost three times, while consumer prices doubled throughout the year. Not surprisingly, Belarusians have become wary about any promises concerning currency stability.
Third, in mid-December 2014, following the 30-percentage devaluation of Russian rouble, the NBB introduced a 30-percent temporary tax on the purchase of foreign currency. Statistically the national currency remained unchanged for a few weeks until the new chief of the NBB, appointed on 27 December 2014, gradually cancelled the tax and devaluated the currency. Since the beginning of 2015 the price of US dollar in Belarusian roubles has risen by a half.
The Belarusian Rouble As Quasi-Money
Belarusian roubles have never served the role of money. An item is money when it serves four basic functions: a store of value, a unit of account, a standard of deferred payment, and a medium of exchange. The national currency has problems with the first three functions. This has led Belarusians to rely on foreign currencies.
First, the past 25 years have taught Belarusians to distrust their national currency and keep savings in dollars or euros. An average Belarusian household and firm puts 60-70 per cent of its deposits in foreign currencies. The structure of deposits illustrates the society and businesses disbelief in the future value of the Belarusian rouble. For comparison, in Poland only 20% of deposits are in foreign currencies.
Second, because of to permanently high inflation, Belarusians have got used to using dollars or Euros as a unit of account. Since 1990 prices have risen by tens or hundreds of per cent per year. That is why many firms and individual traders have preferred to price their goods and services in “hard currencies”. In addition, counting in Belarusian roubles is very inconvenient due to the large numbers. For example, a new Apple MacBook costs around BYR30,000,000 compared to only $2,000.
In the early 1990s, retailers “renamed” dollars to „conventional units” Read more
When the officials banned foreign currency pricing in the early 1990s, the firms “renamed” dollars to „conventional units”. So, when goes go to a bazaar it is easy to spot sneakers or other sport shoes sold for 50-100 conventional units. Until recently one could have used Onliner.by, the Belarusian alternative to eBay.com, to see price of a desired unit in conventional units. Only in late December 2014 did the authorities take Onliner.by off the Internet, refusing to allow it to return until it converted all prices in BYR.
Third, Belarusian roubles hardly serve as a standard of deferred payment. Frequently Belarusian businessmen, freelancer, and NGO representatives strike a deal in dollars and Euros. For example, one can rent a car or book a conference room in Minsk, and agree to pay $200 to the owner. Since payments in foreign currencies are illegal, you pay the equivalent amount in roubles on payment day.
A New Resolution Makes A Little Change
On 16 September the NBB passed resolution no. 515 which introduced amendments to the regulations on currency transactions. The resolution is a part of the NBB's de-dollarization policy. The resolution reduces opportunities for foreign currency transactions between firms as well as between firms and individuals. It makes little difference since most foreign currency transactions are already considered illegal.
The NBB announced the regulation a day before it came into effect Read more
Unfortunately, Belarusian citizens have to pay for the authorities' incompetence. This law was passed without consultation with business representatives. The lack of a transition period for firms to prepare for the new regulation hits both the business climate and people's pockets.
The NBB announced the regulation a day before it came into effect. As a result, visa centres and some travel agencies stopped operating for two days in order to adjust their businesses to the new environment. On 18 September, most travel agencies, like Top-Tour, Tury.By, Sunrise Travel, began to accept consular fees in the national currency at the official NBB exchange rate plus 2-3 per cent. They shifted costs to their clients, who are now paying more money for the same service.
The new resolution of the NBB will not make much difference. Belarusians will invent other ways of how to avoid the restrictions. The only efficient way to increase reliance on the Belarusian rouble is to make it more stable. Until annual inflation hits two-digit figures, and significant devaluations happen frequently and unexpectedly, the population will remain sceptical about the national currency.
So far the Belarusian regime's administrative tools remains helpless against the economy's dollarization. The monetary policy of forcing Belarusian roubles on people approach will not work until the NBB focuses on conducting conservative and reliable monetary policy.