Both an EU Partner and Russia’s Satellite? – Belarus Foreign Policy Digest
Two of the main events in Belarus' diplomatic life in May were China's presidents visit to Minsk and Belarus' participation in the Eastern Partnership summit – both of which have fitted well into Minsk' foreign policy priorities.
These priorities include developing alternatives to Russia's dominant role in the economic and security arenas and strengthening the country's economic viability through increasing exports and attracting investment.
The Belarusian authorities have largely managed to break free from their diplomatic isolation from Europe over the course of the past year. The joint declaration adopted at the Eastern Partnership summit in Riga includes several positive references to Belarus. They lay the ground for continued dialogue between Belarus and the West, which will include human rights issues, on the eve of the presidential election.
Austria and Hungary in Focus
On 4 May, Sebastian Kurz, the world's youngest foreign minister, came to Minsk from Austria on a working visit. Welcoming the Austrian minister, Belarusian president Alexander Lukashenka explained the reasons for Austria's strategy of maintaining closer relations with Belarus than most of its European partners. In the Belarusian ruler's opinion, the West has designated "curators" of former Soviet republics after the breakup of the USSR. Belarus fell into Austria's "zone of responsibility" and apparently has remained there ever since.
While this "sharing of responsibilities" may be a figment of Lukashenka's inventive mind, Vienna indeed has long been seeking closer economic ties with Minsk. During the last ten years, Austria has remained among the top five investors in the Belarusian economy, with annual investment varying within a range of $500,000 – 1mn. Some aspects of bilateral business, however, have led to scandals in Austria a few years back.
Hungary's foreign minister Péter Szijjártó visited Minsk a week earlier, on 28 – 29 April. While he was not lucky enough to meet with the Belarusian head of state, the top Hungarian diplomat held extensive talks with his counterpart Vladimir Makei. Péter Szijjártó has long been a driving force behind Hungary's Eastern Opening strategy, which has greatly facilitated the expansion of ties between Belarus and Hungary.
Hungary's foreign minister: The EU must reward Belarus for its stability and role in the Minsk agreements Read more
Minsk and Budapest agreed on a five-point action plan to expand cooperation in trade, investment and education. The two strongmen-led countries also share many conservative values, in particular, on safeguarding traditional family values and favouring interventionist policies with their economies.
Returning home from Minsk, Péter Szijjártó spoke out in favour of the EU changing its attitude towards Belarus and establishing close cooperation with Minsk in order to reward Belarus for its stability and the significant role it has played with the Minsk agreements.
Over the last month, Belarusian diplomats also held meetings in Minsk and other European capitals with senior-level diplomats from Austria, the Czech Republic, Finland, France, Germany, Poland, and Sweden.
Partnering with Europe
Besides bilateral issues, most meetings with European diplomats have focused on Belarus' forthcoming participation in the Eastern Partnership summit in Riga. Vladimir Makei also travelled to Luxembourg on 20 April and Bratislava on 15 May to discuss preparations for the summit with fellow ministers.
Both Europe and Belarus regarded the Eastern Partnership summit as an opportunity to strengthen various positive dynamics already in play with regards to their relations. While most European countries were psychologically ready to see Lukashenka coming to Riga, the Belarusian leader decided that the time was not yet ripe and sent Makei in his stead.
Some observers have interpreted Belarus' refusal to join in the quasi-unanimous condemnation of Russia's illegal annexation of Crimea in the summit's final document as evidence of Minsk's support of Russia's aggression and the insincerity of Belarus' rapprochement with Europe.
Belarus actively participated in an event, which Moscow sees as anti-Russian Read more
It would be foolish, however, to expect Minsk to endorse a language that would openly condemn its closest ally and sponsor. In fact, Minsk failed to prevent the inclusion of a rephrased reference to the illegal annexation of Crimea in the summit's declaration, though it could easily sabotage its joint adoption.
The very fact of Belarus' participation in an event, which a senior Russian diplomat called "negative", and its continued status as an EU partner at a time of very strained relations between Russia and Europe is very telling when one considers Belarus' true intentions. This is also true of Lukashenka's recent visit to Georgia, a country that has severed its diplomatic ties with Russia.
The summit's joint declaration highlights participating countries' appreciation of "the contribution of Belarus in facilitating negotiations" in the Ukraine crisis and welcomes "the steps taken in EU-Belarus relations". It also welcomes Belarus' accession to the Bologna Process and its initiative on a digital economy.
Prioritising Asia and the MENA region
China's president Xi Jinping paid a state visit to Belarus on 10 – 12 May. This was the first trip from China's dignitary to the country, one whom rarely receives the world leaders.
Does China need Belarus to conduct trade with Europe? Read more
Alexander Lukashenka outdid himself with his signs of hospitality that he extended to China's "paramount leader". The Belarusian authorities jumped at this opportunity to lure more Chinese investment into the country and get Beijing interested in importing more Belarusian goods.
The leaders of the two countries exchanged many compliments and signed numerous agreements paving the way to expanded economic cooperation. Some experts have expressed doubts about the strength of these agreements, particularly regarding China's genuine interest in Belarus' exaggerated offer of becoming a China's gateway to Europe.
Later in May, Alexander Lukashenka received parliamentary leaders from two Southeast Asian nations. On 22 May, Khin Aung Myint, the speaker of the upper house of Myanmar's parliament and a former general, agreed to Lukashenka's proposal to focus on a few priority areas. Belarus seeks to sell agricultural, mining and military equipment to this "discipline-flourishing democracy", as well as to train its military and civilian personnel.
On 25 May, the Belarusian president and Irman Gusman, the speaker of the regional chamber of Indonesia's parliament, discussed ways to radically increase the trade turnover between two countries, which now stands at about $215m. Belarus want to stake on establishing joint ventures of Belarusian mechanical engineering corporations in Indonesia. For his part, Irman Gusman promised to lobby an expeditious opening of an Indonesian embassy in Minsk.
In late April and May, deputy foreign minister Valentin Rybakov visited Mongolia, Algeria and Saudi Arabia and talked to a delegation from Iraqi Kurdistan in Minsk and his colleague Alexander Mikhnevich received a delegation from Oman. In all instances, diplomats paid primary attention to trade and economic cooperation.
Expanding Belarus' presence in new and less developed markets and maintaining positive dynamics in relations with the West, without alarming Russia, are set to remain Belarus' foreign policy priorities in the months preceding the forthcoming presidential election.
Fears of Economic Turmoil, Banking Sector Problems – Belarus Economy Digest
According to the press release published by International Monetary Fund on 19 May the possible losses for the Belarusian economy in 2015 will amount 2.3 per cent of the GDP and $2bn of its foreign exchange reserves.
The consequences of the economic crisis in Belarus have multiplied and more problems are on their way.
The intensification of economic relations with China suggests that a simple solution could be improving the status of manufacturing and increasing the economy's competitiveness.
However, several questions remain: how to use any loans effectively, taking into account the criteria that any deals with China stipulate that most of the spending finds its way back to China, and how not to expose the most savoury sectors of the Belarusian economy to the ferocity of the Chinese dragon.
Beyond this, the banking sector shows warning signs. One troubling indicator is the National Bank's recent move to recall the licences of several commercial banks.
Belarusian Economy: the Great Slowdown
Belarus's economic figures for May have, to put it mildly, been disappointing. According to data published on 19 May, the economy is dealing with a number of serious issues. Nearly all of the primary economic indicators are in a downward spiral. For one, GDP has dipped by 2.6 per cent (see figure 1). Foreign direct investment fell by 37.6 per cent over the course of a year. Manufacturing is not providing the same kinds of profits that it once did with industrial output decreasing by 7.5 per cent.
The economy is also suffering from rising levels of indebtedness, which has recently climbed by 40.9 per cent. Retail sales have also slowed down: growth is sitting at 1.3 per cent, a sad figure when compared to the same period from a year ago, when it was considerably stronger at 12.8 per cent. This sends a disappointing signal for the emergence of consumption as a driver of growth.
A stronger Belarusian ruble and weak Russian demand have squeezed exports by 28.6 per cent over the course of a year. The number of people that are officially registered as unemployed skyrocketed 73.1 per cent as of the end of March 2015 when compared to the same period of 2014. Foreign exchange reserves have dropped by $238.1m.
Belarus now faces significant risks with a potential long-term slowdown in economic growth. Contrary to expectations, this sluggishness has emerged not necessarily as a result of the crisis unfolding in Russia, but rather due to the economy's virtually exhausted overall competitiveness.
Only through improvements in productivity and greater savings and investment are capable of breathing some fresh air into the economy. But according to the available economic indicators, the economy has yet to find a way to emerge from under the waves: productivity has decreased by 1.1 per cent and investment in fixed capital has dropped 5.9 per cent as of the end of April 2015 over the past year.
Rather than waiting for the situation to improve on its own, the government should remove all barriers currently holding Belarus back. The agricultural and IT-sector, for example, have much to offer.
Diversifying Belarus: In China We Trust
The nearly complete economic dependence on Russia and its interrelated industries has basically condemned Belarus to enduring its most recent economic decline. Though Russia is also suffering from losses (its GDP dropped 2.2 per cent in the first quarter of 2015), it still possesses so-called 'knowledge industries' (a vibrant service economy) that have restored its strength. Belarus has practically no trumps in its hand to play and, therefore, the new government has prioritised diversification, first and foremost with China..
Nevertheless, the past ten years of cooperation with powerhouse Chinese economy has provided almost negligible results for Belarus. Exports have seen only a slight increase, but while imports have grown considerably. As a result the trade balance from 2005 to the present has amounted to a $-1.7bn decline. Furthermore, the structure of trade has also transformed in an adverse manner. In 2005 Belarus has purchased approximately 40 per cent of consumer goods, but today its share has increased almost 60 per cent in total imports from China (see figure 2).
In May Belarus took several steps to speed up its trade and investment relationships with China. On 11 May 2015, during the Belarusian-Chinese Inter-regional Business Forum, the Minister of Economy of Belarus Uladzimir Zinouski announced that Beijing would provide more than $7bn ($3bn in the form of preferential loans, and another $4bn as a commercial loan) to Belarusian banks to finance business projects, including infrastructure development, and in support of small and medium-size businesses.
According to Zinouski China will additionally provide a special grant of 800m yuan in the form of technical assistance for various social projects. After negotiations on 10 May with Chinese officials, both parties approved 20 agreements and memorandums that will allegedly double mutual trade, promote the exchange of technologies and increase the share of scientific and technical innovations.
Nevertheless, the prospects of the successful implementation of these agreements seem unclear, especially when one takes into account the past experiences Belarus when dealing with countries like Iran and Venezuela.
Governmental representatives have tried to define how to follow China’s lead with regards to its astounding economic growth, as well as deploying its advanced manufacturing, especially in electronics. However, to replicate China’s path towards prosperity, Belarus requires three of China’s prominent advantages: low-cost manufacturing, the comprehensive automation of industry, and an excellent (and improving) infrastructure.
Banking Sector: More Serious Issues Arising
In April the National Bank extended the period of time to increase the profitability of operational activities, first of all with the short-term difference between loans granted and deposits attracted, of Trastbank, BTA Bank, and Bank BBMB.
Additionally, the national regulator has prolonged its decision to restrict TK-Bank’s operations with deposits (cash assets provided to the bank in order to gain interest profit) of individuals and legal entities, on issuing of warranties and plastic cards, and on trusts' management of assets.
In May the National Bank also ended the licences of the Nord European Bank, InterPayBank, BIT-Bank, Evrobank, and N.E.B Bank due to their failure to comply with the imposed requirements on normative capital value ($25m) and the uncertainty of prospects for their build-up.
Similar events occurred in 2011, when currency devaluation hit the Belarusian economy, and as a result eleven banks experienced the similar problems, with three banks nearly being nearly liquidated altogether. But, today’s problems differ from 2011, as banks’ difficulties are associated, first of all, with the improper regulation of the currency market; in 2015 problems have arose from exporters and their inability to repay their debts.
On the whole, the economy is continuing to decline endangering the stability of the banking sector, declining competitiveness and the pressure being applied to the National Bank to soften its monetary policy to strengthen the industrial sector and exports.
Aleh Mazol, Belarusian Economic Research and Outreach Center (BEROC)
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)