Belarus and the Ukraine Conflict: More Losses Than Gains?
Although the Belarusian authorities have managed to promote their country in a favourable light by hosting the high-level talks on Ukraine, they seriously worry about the direct spill-over of the Ukrainian conflict.
Belarus has already suffered economic losses from the Donbass war as its trade with Ukraine has fallen by more than 40% in 2015. In addition, it has hosted more than 100,000 refugees and had to resist significant Kremlin's pressure.
Seeking to prevent the pressure, Minsk decided to avoid siding with anybody and developing relations with all involved parties. Maintaining friendly relations with Moscow and Kyiv, it rekindled its relationship with Europe. Now, Minsk sent another message as President Lukashenka urged Americans to participate more actively in the Ukrainian peace process.
Minsk's trade links explain much in its behaviour regarding Ukrainian crisis. Having a fragile national economy, the Belarusian government cares about Ukraine as a partner. While bilateral trade in goods in 2012 made up almost $8bn, last year it fell to just $5bn. It was 7.5% of the whole Belarusian foreign trade. That is significantly less than with Russia (48.7%) yet still a lot.
Even more important is the considerable positive trade balance that Belarus constantly had in trade with Ukraine, because Minsk for years has been struggling with a large negative trade balance in Belarus' foreign trade.
Minsk opted for its current neutral position taking into account not only Russia's and Ukraine's significance for the national economy but also the EU's. After all, more than 30% of Belarusian exports in 2014 went to the EU, and about 20% of imports came from there.
To revive trade with Ukraine, Minsk agreed last month to wider use of Ukrainian hryvnas in bilateral trade despite obvious risks and losses related to such a decision. The significance of the links with Ukraine for Minsk were emphasised by Minsk daring to supply Kyiv with military equipment.
Through Ukraine to Europe?
So far, Belarus has managed to minimise its losses related to the Ukrainian crisis. Further Minsk even succeeded in using the Ukrainian crisis to rekindle its relations with European nations. The OSCE Chairman Ivica Dačić during his visit to Belarus on 21 July announced, “Minsk has became a synonym of peaceful regulation in Ukraine.”
Belarus could host a secretariat for the talks on Ukraine Read more
The exact role of the Belarusian government in Ukraine's armistice talks remains a moot point, although it clearly plays some part and wishes to play an even bigger one. On 9 July, Belarusian Foreign Minister Uladzimir Makei said that the Belarus could host a secretariat for the talks on Ukraine. The Belarusian web-portal Tut.by commented: “That will to the maximal extent possible bring Belarus closer to the role of mediator in the peace process.”
Unlike relations with Europe, Minsk's relations with US remain essentially in the same troubled state. Washington recently extended sanctions, and put Belarus into the group of the worst violators of human trade, worse even than Afghanistan and Uzbekistan.
Hence the new moves by Minsk. Last week, Lukashenka met with US Republican congressmen Dana Rohrabacher, Gregory Meeks and Stephen Cohen. On Tuesday, in the presence of a journalist of US-run Radio of Liberty he emphasised the necessity of bigger US engagement in solving the Ukrainian crisis.
Minsk's Fears: Real and Imaginary
Nevertheless, the uneasiness that Minsk feels about the conflict to the south of the Belarusian border find its expression in many occasions. For example, usually Belarusian Special Operation Forces celebrate Paratroopers Day at their military bases. This year, however, the Belarusian army made a point of staging military shows of special forces in the centres of Brest and Vitsebsk where the most renowned special forces units are stationed.
Celebrations included demonstrations of combat skills and eloquent gestures. Thus, in Brest, on the Ukrainian border, the show featured Belarus' deputy defence minister, commander of Belarus' special operations forces and deputy commander of Russia's paratroop forces. The demonstration of force became even more pronounced as one of the speakers announced: “We are not the Health Ministry, we will not warn [before acting].”
Belarusian officials warned Belarusians who participate in hostilities in Ukraine about criminal persecution for mercenary activities Read more
Top Belarusian officials openly discuss what they consider a threat. On 4 August, Lukashenka told journalists, “there is a lot of violations on the [Belarus-Ukrainian] border… Violations ranging from smuggling to – what worries me the most – infiltration of persons with weapons.” Two days earlier, acting Secretary of the Security Council Stanislau Zas' also assured a Belarusian TV channel that the government was taking measures to prevent weapons from Ukraine entering Belarus.
On 11 June, the chairman of the Belarusian State Security Committee Valery Vakulchyk said that Belarusians who participate in hostilities in Ukraine will face criminal persecution for mercenary activities. “Men killing men… How can we accept it? And then they will come here with the experience of killing people.” So far, Belarusian state bodies, however, have not launched criminal investigations against any of these combatants fighting on either side.
That Minsk avoids unnecessarily antagonising Kyiv is clear from this stance even as it is widely publicised of cases of participants in Donbass war. For instance, on 27 July, a co-chairman of the oppositional organisation “Young Front” Eduard Lobau announced that he had gone to Ukraine to “aid brotherly people in its struggle against the common enemy [Russia].”
He is not the first opposition activist to do so, and earlier former political prisoner Vasil' Parfiankou also joined the battalion of the Organisation of Ukrainian Nationalists. These are not individual cases. On Friday, Nasha Niva announced that all Belarusian nationalists fighting in Ukraine would be assembled into one military unit.
Some public statements of Belarusian officials may follow not only from their concerns about the destabilisation in Ukraine but also from the domestic political context. A case in point is the statement by Zas' who on 2 July said,
We are carefully watching the situation in Ukraine. It is necessary to fortify the borders, to maintain public order. And the most important point is that our people, our countrymen shall understand the value of peace and serenity, realise that they are fragile and defend them.
Before the October presidential election in Belarus, these words sound as a warning about danger of massive protest actions.
Belarus faces ever more risks related to the conflict in Ukraine. These risks can ruin the country and its independence, if destabilisation and foreign intervention occurs. Yet these risks can also help Minsk to move on the way to changes and building a viable independent statehood. Both scenarios are probable, and much depends not on Belarus.
Why Are Belarusian Economic Forecasts Constantly Inaccurate?
According to the official five-year Socio-Economic Development Programme For 2011-2015 the GDP was supposed to increase by 62-68 per cent by the end of 2015. In reality, the growth is likely to hit around 6 per cent. How did the government manage to get it wrong by such a large disparity?
After 25 years of transition, the Belarusian state forecasts remain unreliable. But Belarusian independent think tanks, commercial banks and international organisations also frequently overlook the real economic trends and have to revise their forecasts several times throughout any given year.
The Belarusian quasi-socialist economy is hardly suited for macroeconomic forecasting. Irrational decision-making by the Belarusian authorities and incentives for officials to polish the data hinders sound forecasting. Additionally, official statistic gathering and reporting is still in its infancy and competition between those making the forecasts is scarce.
Systematic Errors in Forecasting
Belarusian state-employed economists regularly fail to provide accurate predictions about the economy. They often fail to provide proper predictions even for economic growth, probably the most important macroeconomic indicator for any economy. The government's annual forecasts continuously underestimated the GDP's actual growth by almost a quarter from 2000-2006, while from 2009-2015 their figures exceeded its actual performance by almost three quarters.
In other words, in 2009-2015 official economic forecasts exceeded the true GDP's growth on average by 5.1 percentage point per year. Hence, forecasts even just the year ahead have been highly inaccurate.
The forecasting errors in Belarus have become even clearer after comparing them with more developed post-socialist countries. True, the annual GDP forecasts projected for Poland’s central budget also happened to miss the actual economic growth in 2000-2015.
Nevertheless, in contrast to Belarus, the margin of error was much smaller and offset one another in consecutive years. In particular, in 2009-2015 they fell in a range of -2.5 to +2.4 p.p. but their sum in the whole period was only 0.8 per cent of GDP. Neither the global financial crisis nor other external factors spoiled Poland’s governmental forecasts.
Frankly speaking, the poor results of economic forecasting in Belarus also concern Belarusian think tanks, individual economists, commercial banks, and international organisations (such as the IMF or the World Bank). For instance, in the last week Priorbank, the 6th largest bank in Belarus, reduced its GDP forecast for 2015 to -3.5 per cent. Yet, early this year in its first weekly economic review the bank projected economic growth at 0.5 per cent. Thus, in the absence of a war or a major natural disaster, 4.0 per cent of the GDP evaporated in less than seven months.
Unpredictable decisions of Belarusian authorities
Political discretion stands at odds with economic rationality in Belarus where state-owned enterprises (SOEs) account for 70 per cent of GDP (according to the EBRD). Belarus has a very weak market economy and whereas in other market-oriented countries an unprofitable state-run enterprise that regularly goes bankrupt would be dropped, in Belarus the authorities rescue SOEs at virtually any expense. Recently, Lukashenka ordered $0.6bn in financial aid to be sent to state automotive plants to stabilise their financial situation. Therefore, the authorities violate the very principles of economic predictability by ignoring some of the basic laws that rule any market economy.
Administrative decision-making play a bigger role in Belarus than in the average market-oriented economy. At times, it is very difficult to predict what the economically irrational choices of Belarusian authorities may be. Take, for example, the policy of raising the nominal average salary by 46 per cent over 12 months before the presidential elections in December 2010. Eventually, the officials’ continuous interference in the economy leads to macroeconomic instability.
Moreover, as Lukashenka regularly approves the official macroeconomic forecasts, state officials are encouraged to try to alter what is really going on with their statistics to make the outcomes look better than they really are. For instance, in autumn 2011 the government submitted to the President a draft forecast that had predicted 1.5 per cent GDP growth for 2012. Lukashenka’s harsh critique forced officials to promptly revise its growth forecast to 5.5 per cent but, needless to say, the GDP ended up growing by 1.5 per cent, after all.
Technical Obstacles For Forecasters
Technically, Belarusian statistics contain insufficient data to make accurate forecasts – relatively coherent data are available from 1995, but they cover only the last 20 years. Given this short time frame, it is difficult to determine the range and number of general business cycles that Belarus has witnessed (perhaps three of them). Moreover, during each business cycle Belarus has experienced several extraordinary events unfold such as its decision to abandon market reforms in mid 1990s, the period of generous energy subsidies in 2000s, and the 2008 global financial crisis. However, precise economic forecasting requires stable and replicable trends, something which Belarus currently lacks.
Additionally, the Belarusian state statistical committee suffers from a low level of credibility among both Belarusian and international experts alike. This distrust stems from the data from the 1990s and the beginning of the 2000s, a period of hyperinflation in Belarus. At a relatively high level of inflation, even minor errors in calculating the GDP might lead to a serious misrepresentation of economic growth that was the result of shifts in prices rather than levels of production. In a country report from 2004, the IMF stated that the Belarusian national accounts were overstating their real growth by about 1-2 per cent.
Little Competition Among Forecasters
Belarusian economists are reluctant to develop advanced macroeconomic models for forecasting due to the low level of competition between their counterparts to develop more accurate predictions. Very few economic units systematically produce forecasts in Belarus (the primary outlets are the National Bank of Belarus, Ministry of Economy, Ministry of Finance, IPM Research Center, and some commercial banks), but even fewer of them make their results public.
Without strong demand for sound economic forecasts and their subsequent assessment by an independent body, economists will continue to produce low-quality economic forecasts. Perhaps the National Bank of Belarus, alongside the national media, could set up and conduct a contest for the country's best macroeconomic forecasts. By drawing the attention of potential employers – be it the state ministries, businesses and think tanks – such a contest has an opportunity to attract the best economists and create incentives to improve their forecasting skills.