Belarus-EU Thaw: Will It Last This Time?
On 13 July, the Council of the European Union once again removed restrictions against several Belarusian officials and entities subjected to an EU-wide travel ban and asset freeze.
That decision amended Belarus sanctions listings introduced after the failure of Belarus authorities to meet OSCE commitments to democratic elections in 2006 and 2010.
EU foreign ministers have already eased sanctions against Belarusian regime more than a few times. The current change in the EU policy toward Belarus resembles the rapprochement between Minsk and Brussels ahead of the 2010 presidential election.
While the sanctions against the regime of Aleksander Lukashenka have failed to influence his policies, lifting them will not bring about positive change either. History has shown that the West’s mixing of pragmatic and normative approaches in dealing with the authoritarian regime has neither fostered closer cooperation with Belarus nor protected the democratic opposition from persecution.
A Deeper Look at the Current Thaw
The war in Ukraine has dramatically changed the geopolitical situation in Eastern Europe. Minsk was thrust into the international spotlight when it hosted the cease-fire negotiations. Preoccupied with stability and predictability of domestic politics in the countries neighbouring the EU, Western politicians saw this as an opportunity for cooperation with the Belarusian president.
The EU’s decision to extend its sanctions for another year until 31 October 2015 shortly after the Minsk Protocol on 5 September 2014 demonstrates its concern about the problematic human rights situation in Belarus. The reality of that ruling, however, is more complicated.
Together with the decision to extend the sanctions, the EU’s foreign ministers also removed 24 persons and seven entities from the restrictions list. More than 200 persons and 14 entities have remained under sanctions, but among those removed are those regarded by many as key financial sponsors of the Lukashenka regime and Belarusian oligarchs – Uladzimir Peftijeu and Anatoly Ternavskiy. From the seven de-listed entities, in turn, three belong to Yury Chiz, another financial supporter of the Belarusian president, even though the owner’s name remains in the restrictions list.
Since the post-election crackdown in 2010, the EU has de-listed more than 15 per cent of Lukashenka’s supporters and more than half of all sanctioned entities, not having received any concessions from the Belarusian government.
Besides the lifting of restrictions against several persons and entities, the EU has removed sanctions against a state-owned Belarusian energy company Belarusneft, suspended the travel ban against Belarusian Foreign Minister Uladzimir Makiej, extended the invitation to the summit in Riga to Belarus and expanded visa services at the Embassy of the United States in Minsk. These clear signs of the EU’s warming toward Belarus were motivated not by the improvement of the domestic situation in Belarus but by the outbreak of war in Ukraine.
Befriending Belarus: Did It Work Last Time?
The EU’s current rapprochement with Belarus resembles the EU-Belarus thaw of 2008-2010, when the war between Georgia and Russia in 2008 made Russia’s neighbours, including Belarus, worry about the future of their own independence. The conflict fuelled the already ongoing disagreement between Russia and Belarus over energy prices. With the relationship between the EU and Russia strained and Lukashenka seeking better ties with the West, European foreign ministers decided to relax the restrictions on the Belarusian government in the hope of luring the country away from Moscow’s sphere of influence.
The West was happy to reward President Lukashenka’s behaviour and initiated a thaw in the relationship with Belarus after the Belarusian government released political prisoners, granted legal status to the political movement of the former presidential candidate Alexander Milinkevich, and lifted the restrictions on two opposition newspapers.
As a reward, the Belarusian president received invitation to a summit in Prague. At talks in Luxembourg in 2008, EU foreign ministers suspended a travel ban on Lukashenka and several his associates, introduced after the falsification of the 2006 election. In 2009, the EU’s Foreign Policy Chief Javier Solana paid a visit to Lukashenka to discuss bilateral relations and regional issues.
That thaw did not end well, however. Up to 700 opposition activists, including seven presidential candidates, were arrested in the post-election crackdown.
Shouldn’t We Learn From Our Past Mistakes?
Tough sanctions have always pushed Belarus to the east instead of changing Lukashenka’s ruling style. In 2011, in an interview with BELTA, Lukashenka compared sanctions to flea bites, annoying but relatively minor and benefiting neither the West nor Belarus. In a situation when sanctions have not been an effective instrument of pressure on the president and the regime in Belarus, many Western policymakers seem to forget the lessons of the past and start daydreaming about the benefits of engagement with the incumbent regime.
Belarusian authorities cannot make a geopolitical turn to Europe. Russia remains Belarus’ most important trading partner and absorbs almost half of Belarus’ international trade. Economic dependency of Belarus from Russia and interest of its president in preserving his political power will not allow for meaningful cooperation with the West.
In fact, Moscow already declared its support for reelection of the incumbent president in the October presidential election. On 17 July, Russia approved $760 million tranche to Belarus, in accordance with the previously agreed loan programme. The loan will contribute to the strengthening of Belarusian ruble before the election.
While Belarus appears more attractive than the engaged in turmoil Ukraine, trusting the words rather than the deeds of the Belarusian authorities and closing eyes to the human rights agenda ahead of the presidential election in Belarus would be a mistake.
Why Belarus Struggles to Stop Subsidising Its Enterprises
This month, the Belarusian Ministry of Finance will issue bonds for $425.8 million to bail out Gomselmash (abbreviation for Homiel Rural Machine Building), the most important industrial holding company of the second largest city in the country. The large cost of issue reflects the size of Gomselmash’s problems.
The holding fails to sell its products, is reluctant to lay off people and cannot pay salaries to its employees. Many other Belarusian enterprises face similar problems. The state recently limited assistance to state-owned enterprises, which still dominate the Belarusian economy but has no choice but to provide even more help.
The Main Problem of Homiel
In May, Prime Minister of Belarus Andrej Kabiakou stated that the authorities should assist Gomelselmash because it remains a Belarusian national brand. In fact, the factory has a long history: it emerged in the late 1920s, during the Second World War it was evacuated, but was still producing mines. After the war it became one of the five largest manufacturers of agricultural machinery in the world.
Now the plant is going through its worst times. Sales fell several times, and the plant shortened its employees working week to four or three days in winter, spring and summer. The reduction in sales was primarily a result of the economic crisis in Russia and high prices. Salaries in the company fell by 3-4 times. Moreover, the number of staff members decreased by 10% in one year only
|Holding Companies||The number of employees in 2014||
The number of employees in 2015
|OJSC "Gomel Plant of Foundry and Fasteners"||4755||3810|
|OJSC "Research and Development Centre of Combine Harvester Engineering"||683||600|
|OJSC "Svetlogorsk Machine-Building Plant"||251||251|
|OJSC "Gomel Factory of Special Instruments and Technological Equipment"||no data available||no data available|
|OJSC "SP-Build"||no data available||no data available|
Data: Ministry of Finance
The enterprise appeared at second place among the most unprofitable enterprises in Belarus in the first quarter of 2015. The newest data remains unavailable, but introduction of the bailout program means that the second-quarter results can bring no difference.
Gomselmash is no longer able to service its loans or cover the costs of electricity and gas necessary for production. Gomselmash cannot even issue its own bonds, so the Ministry of Finance would have to do it instead. Minsk Tractor Plant, who will also get help this month.
Belarusian authorities believe that Gomselmash remains too big to let it fall. Belarus, however, no longer has the money for direct state subsidies, as the amount of exchange reserves does not allow to keep printing money. Therefore, the authorities came up with the idea of issuing bonds for $425.8 mln that will be acquired by four banks.
Without this state aid Gomselmash would be unable to pay its debts and that would lead to serious problems in the banking sector Read more
According to Aliaksandr Chubrik, Director at IPM Research Center, "this measure does not contradict to stabilization efforts of the authorities and is in line with their general approach: not to allow further aggravation of problems in financial sector". Without this state aid, he told Belarus Digest, Gomselmash would be unable to pay its debts and that would lead to serious problems in the banking sector. Therefore, Belarus subsidises state companies to keep them afloat, even though these same enterprises led the economy to the current state in the first place.
The International Monetary Fund, that is currently negotiating a new program with the Belarusian authorities, could as well, according to Chubrik, understand the reasons behind the help to Gomselmash. Moreover, the Belarusian authorities never promised to stop enterprise bailouts and start economic reforms. And possible donors, like the IMF, know that things cannot change for the moment.
Keeping the Status Quo
Given the state of Gomselmash, it makes sense that the Belarusian authorities decided to help the holding. However, these tactics will probably not save it, but rather increase its debt and worsen the economic situation of the whole country.
Today, Gomselmash's problems are associated with low levels of innovation, but the money it will receive will not go to research and development. The law signed by Lukashenka does not provide extra subsidies for Research and Development of the Centre of Combine Harvester Engineering, Gomselmash's R&D subsidiary. The poor quality of machinery does not appear to bother the authorities at all.
Most major enterprises in Belarus belong to the state and, according to the Ministry of Finance, a quarter are not profitable Read more
According to Chubrik, the money will go to pay off previous debts and to ensure the basic functioning of Gomselmash. However, it remains unknown whether the holding will be able to upgrade its production or repay its debts. It also seems that this is not the last check picked up by the government for the company.
The bailout of Gomselmash would not be a topic for discussion if it did not open the gate for other enterprises to seek government money. Most major enterprises in Belarus belong to the state and, according to the Ministry of Finance, a quarter are not profitable. They certainly would like to have some financial help from the state.
According to a report released this month by the Ministry of Statistics production in machine building fell by 20%, while in rural machine building, as in case of Gomselmash, it fell even further.
The situation clearly shows the dilemma that Belarus faces: if it wants to keep the economy afloat, it has to continue to subsidise its enterprises. Other options, like privatising or discussing how to restructure dysfunctional enterprises with the IMF's help, remain on the table, but the authorities remain reluctant to choose them.