Belarus Engages Ukraine, Moldova, Improves Ties with EU and US – Foreign Policy Digest
The summer holidays proved to be productive for the relations of Belarus with both "old" and "new" Europe.
Foreign minister Vladimir Makei ended a continued pause in high-level contacts with Belarus' southern neighbour by an unconventional five-day long visit to Ukraine in mid-August. There, he took the risk of enraging Russia by meeting its mortal foe Mikheil Saakashvili in Odessa.
The EU Council significantly reduced its sanctions list against Belarus on 31 July and a US congressional delegation came to Minsk two days later. In exchange, Minsk agreed to discuss human rights with its Western partners, seemingly ending a long tradition of denial of any major problems in this sphere.
Will Minsk's diplomacy manage to continue befriending Russia's foes without alienating its main sponsor until right after the October presidential election?
Step-by-Step Cooperation with the West
On two separate occasions in July, the EU Council removed 26 persons and 4 companies from its Belarus' sanctions list. On 3 August, the Belarusian foreign ministry called this decision "a step in the right direction yet insufficient" and conditioned the normalisation of relations between Belarus and the European Union by the full withdrawal of restrictions.
On 28 July in Brussels, Belarus and the EU held the first round of a human rights dialogue at the level of experts. Two months earlier, on 14 May, Belarus conducted similar consultations with the United States in Washington, DC.
On 2 – 4 August, a three-person US congressional delegation led by Dana Rohrabacher, the chairman of the subcommittee on Europe, Eurasia and emerging threats visited Belarus. In Minsk, the congressmen met with President Lukashenka, deputy foreign minister Alexander Guryanov, and National Bank chairperson Paviel Kalavur. The parties discussed bilateral relations, human rights and democratisation issues, the state of the Belarusian economy, and regional security, including the crisis in Ukraine.
Belarus implements a step-by-step agreement with the West in the run-up to the election Read more
These decisions and meetings hardly represented a chaotic chain of events. They manifest specific agreed steps in the step-by-step strategy adopted by Belarus and its Western partners in the run-up to the 2015 presidential election. In the near future, one should expect more similar events. The release of Mikalaj Statkievich, the most prominent political prisoner in Belarus, at which Lukashenka hinted during his interview to independent media outlets on 4 August, may become one of the key items in the list.
Ukraine: Trade, Peace-making or Both?
Belarusian foreign minister Vladimir Makei surprised many observers with his unusually long 5-day visit to Ukraine. Belarusian media provided scarce coverage to this trip, which took place on 12 – 16 August. The fact that public opinion in Belarus predominantly sympathises with Russia in its conflict with Ukraine may explain this discretion.
In Kyiv, Vladimir Makei met with his counterpart Pavlo Klimkin and Ukrainian president Petro Poroshenko. The parties claimed to have discussed a wide variety of issues, from cooperation in international organisations to joint projects between Belarusian and Ukrainian regions.
Two issues clearly dominated in the visitors' agenda: the conflict in southeast Ukraine and trade relations. The Belarusian minister seized the opportunity to re-emphasise Belarus' merits in the peace process. However, he took care to restrict the country's role to technical and logistic support for the negotiations, stressing that Belarus had no ambitions as a peacemaker.
Belarus unequivocally recognises Donetsk and Luhansk as an integral part of Ukraine Read more
Makei's insistence on the need of strong adherence of all parties in the conflict to the Minsk agreements served to avoid unduly worrying or alienating Russia. At the same time, answering a question from a Ukrainian journalist, he unequivocally recognised Donetsk and Luhansk regions as an integral part of Ukraine.
The visit's topmost priority was the trade relations between the two countries. In 2014, Ukraine was Belarus' second-biggest export destination. The war in Ukraine and the economic crisis in the region led to a 46.2% drop in Belarusian supplies to this country in the first half of 2015. Belarus has lost almost one billion dollars in export revenues in this single relationship.
Three weeks earlier, on 24 July, Belarus and Ukraine already discussed the alarming downfall in mutual trade at a meeting of the bilateral trade and economic cooperation commission in Chernihiv, Ukraine. The two countries decided to draft "road maps" of cooperation in the spheres of manufacturing cooperation, energy, transports and logistics.
After Kyiv, Vladimir Makei travelled to Odessa where he met Mikheil Saakashvili, the governor of Odessa region and former president of Georgia. The official explanation for this encounter was Belarus' interest in expanding its use of the transit infrastructure of Ukraine's south seaports.
The peculiarity of this meeting is that Saakashvili remains one of the most hated personalities in Russia, in Belarus' closest ally. However, despite his strong pro-Western views, Saakashvili often supported Lukashenka in his contacts with influential Western leaders, as a token of gratitude for Belarus' refusal to recognise the breakaway Georgian regions.
Eastern Partners Remain in Favour
Despite the widely publicised strategy of opening new markets for its exports, Minsk still seeks to develop trade with its tried-and-tested partners. In May, Alexander Lukashenka visited Georgia. During the recent few weeks, besides sending his foreign minister to Ukraine, Belarusian president received his counterpart from Moldova, Nicolae Timofti, and Azerbaijani prime minister Artur Rasizade.
Belarus will assemble MAZ buses in Moldova Read more
Lukashenka reaffirmed that Chisinau's policy of association with the EU would not hamper bilateral relations or entail any retaliation from Belarus. Two countries have decided to move from regular trade to manufacturing cooperation. The knockdown assembly of Belarusian tractors and trolleybuses has already become a success. The next project is to start assembling Belarusian MAZ buses in Moldova. In its turn, Moldova will open a winery in Belarus.
Alexander Lukashenka decorated Azerbaijani prime minister Artur Rasizade with the Order of Peoples' Friendship. These two political long-timers meet regularly to discuss economic relations between Minsk and Baku. As is the case with Moldova, Belarus prioritises cooperation in assembling Belarusian equipment in Azerbaijan.
Belarus has been persistent in strengthening cooperation with its Eastern Partnership neighbours despite the fact that most of them adopted the policy of estrangement from Russia. Minsk has thus been demonstrating its preference for pragmatic approach and emphasis on trade rather than geopolitics.
Russian Loans for Belarus: Postponing The Transition
On 28 July Belarus received a long-awaited loan from the Russian government worth $760 million. This was just in time to transfer the funds to the pockets of other borrowers – on the same day Belarus was due to pay $1 billion to the 5-years Eurobonds’ holders.
However, initially, it aimed at the repayment and servicing of Belarus’ debts to Russia and the Eurasian Fund for Stabilisation and Development (EABR). Thanks to this shift the international reserves has not changed that much recently and forced no panic on the currency market.
This year Minsk faces a peak of foreign debt payments of over $4 billion. A big piece of this debt Belarus owes to Russia. On the other hand, the international reserves of the Belarusian National Bank holds reserves of only $4.7 billion. Without additional resources Belarus could experience a significant currency depreciation in the short run, and stagnation in the long run unless the state launches economic reforms.
Urgent Credits From Russia On Preferential Terms
On 25 December 2014, Putin and Lukashenka agreed that Russia will provide Belarus with up to $2 billion in additional loans in 2014 to counteract the economic slowdown. The next day the Russian government approved the allocation of a $450 million loan for 10 years with a 4% interest rate, which is less than a half compared to average market rates for Belarusian Eurobonds. The resources quickly reached Minsk. However, that was only the beginning of the Kremlin's generosity.
In 2015 the government has already received two loans on very favourable conditions to refinance Belarusian payments to Russia. Earlier this year, Belarus collected $110 million to repay the interest on the Russian loan issued in 2010. Recently, at the end of July, the Russian government provided another $760 million. Both loans mature in 10 years and their first instalments are to be paid in 2019. Their interest rate is floating on the market, and currently amounts to slightly over 1.5%.
On the other hand, the loans hardly satisfy the needs of the authorities, since the economic situation deteriorates in unexpected ways. In January-July 2015 the economy plunged by 4%, resulting in the first recession since 1997. Hence, in July Belarus asked Russia for a new loan of $3 billion, particularly the EABR in return for promises of structural reforms in the coming years. Since Russia holds the predominant share in the organisation, the decision remains with the Russian government.
Commercial Loans On Market Conditions
Russian state-owned banks also directly support the Belarusian economy by offering commercial loans. In general, this scheme is more expensive but the government uses it in case of emergency, especially when Moscow holds back decisions on new financing. For instance, at the end of last month the biggest Russian bank, Sberbank, gave a €550 million loan to the biggest Belarusian enterprise, Belaruskali, for five years. Eventually, the resources arrived in the central bank’s international reserves.
In 2011 Belaruskali also received $1 billion from Sberbank, although on truly market conditions. The bank granted the one-year loan under dual warranty – the guarantee of the Belarusian government and the guarantee of a 51 percent shares in the Naftan refinery. The interest rate amounted to around 8.7%, more than the average economic growth of Belarus. Nevertheless, the authorities hardly had a choice because of serious economic problems.
Moreover, in December 2010 Belarus placed government bonds denominated in Russian rubles on the Russian financial market. It placed two-years bonds worth of $225 million. Two Russian state-owned banks, the Sberbank and Gazprombank, helped with the bond issuance. Though, the interest rate at 8.7% was very high again.
History Of Indebtedness
All in all the Belarusian authorities borrowed from Russia over $12 billion for state purpose since 2007, more than $1.3 billion or 2% of GDP on average per year (see the table). That includes many intergovernmental loans, credits from the Eurasian Economic Community in 2011-2013, resources from Sberbank and the Russian stock exchange. However, Belarus borrowed even more due to business credits for enterprises, and last but not least the huge credit for the nuclear plant.
In 2014 Russia offered Belarus a state credit line of up to $10 billion to build the nuclear plant by 2020. But, in fact, that is an export credit facilitating Russian companies, since the resources may cover only the supply of goods, works and services from the Russian authorised organisation. Hence, Moscow eliminated the possibility of spending the credit to create economic stabilisation.
Big Brother Always Helps
Belarus faces a challenging economic situation prior to the presidential elections in October. In order to avoid the financial turmoil just after the election it needs more loans, especially cheap ones. Only the Russian government can privilege Belarus in this way with low interest rate loans which are spread over a long period of time.
Furthermore, since the Russian government lends in Russian rubles, for Belarus it will be cheaper to pay them back due to the depreciation of the Russian ruble.
The ineffective quasi-socialist economic system survived in Belarus for over 20 years largely thanks to the financial support from Russia. In the long run, however, Belarus should start transition and pursue structural reforms, particularly when Russia itself experiences economic decline. Otherwise, the external debt stock will keep on growing, forcing Belarus to take a new loan to pay back the previous one. Eventually this will bring the economy to collapse.
Until now, in the most urgent situations Russia has always supported Belarus with quite beneficial aid. Sometimes it required some steps in return, real ones or at least political promises from Lukashenka. But Russia has never abandoned its partner, perhaps the last permanent ally of Russia. Currently Minsk hopes for another $3 billion from the Eurasian Fund for Stabilisation and Development. Sooner or later Minsk will get it.