Eurasian Integration: Does Lukashenka Have a Choice?
Aliaksandr Lukashenka expressed his resentment over exemptions and restrictions in the Eurasian Economic Union treaty during a meeting with a chairman of the upper chamber of the Russian parliament on 5 May.
However, Lukashenka had effectively no other choice as to agree on the creation of this economic bloc a week earlier, because the Belarusian economy heavily depends on Russia and the benevolence of its leadership.
In the short-term, Eurasian integration and associated benefits of good relations with Russia will help to resolve Belarus' economic problems, such as a high current account deficit and low international reserves.
In the long-term, however, it creates risks for Belarusian independence and its overall development. It condemns Belarus to stagnation and second-rate modernisation in the likely scenario that Russia's conflict with the EU and the US will continue for some time.
A commitment to EU integration can be more beneficial, but the government must adopt large-scale structural reforms to follow this path.
Exemptions Illustrate the Russian Dominance in the Union
Leaders of the new union aim to establish a common market of 170m people based on four freedoms – the freedom of movement of persons, goods, services and capital. Armenia and Kyrgyzstan also plan to join in 2014.
At the moment, though, the union is undermined by a major exemption from the single market rules. Integrators postponed creation of the single electrical energy market to 2019 and the single financial and oil and gas markets to 2025.
For Belarus, that means uncertainty over functioning of its major assets – oil refineries and transfer of Russian oil, gas and petroleum products to the EU. Therefore, the Belarusian president signed the Eurasian Economic Union Treaty unwillingly, bitterly opposing the exemptions.
To sweeten the pill, Russia offered Lukashenka a $2bn loan and the Russian state-owned bank VTB agreed to issue a $1bn bridge loan that is supposed to reach the state's coffers in the following 14 days. Besides, Russia signed a firm agreement on the amount of Russian oil supplies to Belarus (23m tonnes in 2015 and 24m tonnes from 2016 to 2024) which can be increased if Belarus creates new oil refineries.
In addition, Russia allowed Belarus to keep $1.5bn of Russian oil export duties in its state budget in 2015. The sides agreed on a further step-by-step reduction in the amount of duties due to be repaid to the Russian budget, with the prospect of keeping the full amount of $3.3-4 bln at home earlier than 2025. Nevertheless, Russia wants to keep the Belarusian leadership on a short leash and exercise leverage over its reluctant partner, so this issue remains within the framework of bilateral relations.
While some commentators and members of the general public believed that Lukashenka was genuinely willing to frustrate the integration talks with Russia and Kazakhstan, he could hardly do so.
Lack of Viable Alternatives
The reason for a relatively fast acceptance of integration on Russian terms lies in the high level of dependence of the Belarusian economy on Russia. Close ties with Russia serve as the main pillar of Lukashenka’s socio-economic model, with the total amount of Russian support in subsidies estimated at 15-16% of the Belarusian GDP.
The Belarusian economy is currently experiencing significant problems, including a high current account deficit, low international reserves and a troublesome situation in the foreign exchange market.
If Lukashenka abstains from the Eurasian integration project, Russia can quickly change its stance towards Belarus and make it comparable to the Ukrainian one, making harsh demands that would be unbearable for the weak Belarusian economy. That is the last thing the Belarusian ruler wants ahead of the upcoming presidential election.
Some Belarusian opposition parties, such as the Belarusian National Front or the Belarusian Christian Democracy, have criticised the Eurasian Union agreements, saying that they bind the country even closer to Russia. However, a strong opposition to this integration process does not exist in Belarusian society as the majority depends on the state and its paternalism.
Such opposition also does not make great sense for the economy, which remains unreformed and can quickly experience a currency crisis similar to what happened in 2011 if relations with Russia worsen.
To disappointment of EU advocates in the country, the demand for redistribution of rents instead of reforms remains very high among the establishment and the population alike. However, some other aspects of Eurasian integration may encourage the Belarusian leadership to change the country’s development model.
Eurasian Union as a Threat to Sovereignty
Vladimir Putin is building the Eurasian Economic Union with a clear political agenda, even though his counterparts have yet to admit it publicly. As he said in his Crimea accession speech, he wants to build and strengthen the "Russian World".
This idea is clearly hostile to independence of Belarus as a country where 70.2% of the population speaks Russian in their everyday life, according to a 2009 census. Russia dominates the Eurasian Union and will not hesitate to exercise its leverage to ensure its interests in Belarus, including the privatisation of the most attractive assets in favour of Russian businessmen.
The redistribution of oil and gas rents serves as a locomotive for integration between authoritarian leaders. They remain reluctant to take any decisive steps to put an end to their overreliance on oil revenues at the expense of their respective manufacturing sectors.
Though Belarus has a higher share of manufacturing in its GDP (25% as compared to 15% of Russia and 12% of Kazakhstan) and a lower share of fuel in its merchandise exports (38% as compared to 71% of Russia and Kazakhstan), the sustainability of the country’s economy still largely depends on preferential oil agreements with Russia. In addition, if Russia continues its self-isolation from the Western world, this factor will frustrate technical modernisation and economic liberalisation.
EU Integration Provides More Benefits
In the long-term, EU integration would appear to be a more beneficial option for Belarus because of the substantially larger size of the EU market. Technologically advanced investments from EU countries may facilitate the restructuring of the Belarusian economy and offset its current account deficit.
At the moment, Belarus has the lowest foreign direct investments (FDI) stock per capita ($1,514) among all its neighbours, both in the EU and outside.
A high level of state-owned property indicates that Belarus still has a large untapped potential for the attraction of FDI. A massive influx of FDI into the countries neighbouring Belarus has been made possible due to their commitment to rigid EU accession conditions that have promoted liberalisation of trade and capital flows, as Bronk (2002) argues.
However, the Belarusian government must implement painful structural reforms to pursue this agenda. The period of Eurasian integration must be strategically used to prepare for a momentum of change in attitudes of EU citizens from the fatigue to an interest in further integration.
The Ukrainian crisis has attracted a lot of attention to the region and opened a window of opportunity that Belarus should not miss. Otherwise, Eurasian integration may preserve the nation's Soviet-like economic model and bind the country to Russia for a very long time to come.
Will the Belarusian Authorities Learn from the Ukrainian Crisis?
The conflict in Eastern Ukraine has brought some benefits to the Belarusian authorities.
Due to the instability outside Belarus, Lukashenka's position in his dealings with the West has been strengthened. His recent phone conversation with Polish Prime Minister Donald Tusk proves this point. Belarus plans to capitalise on its role as an intermediary in certain sectors of Ukrainian-Russian relations. Meanwhile Lukashenka's approval rating has hit 39.8%, the highest it has been in some time.
However, long-term losses exceed the potential benefits. Lukashenka can no longer predict the actions of Putin, who despite expecting further sanctions presses on, a point that Belarus has yet to concede. The long-term slowdown of the Russian and Ukrainian economies will greatly damage Belarus.
If the conflict deepens, Belarus will lose even more. Therefore, Lukashenka's regime must reform the country and begin to gradually increase cooperation with the West. The European Union must recognise the limits of cooperation with the Belarusian authorities, but also be ready to consider a bailout for Belarus.
Short-Term Benefits
According to the Independent Institute of Socio-Economic and Political Studies, Lukashenka's approval rating over the last three months has increased by 5% and his trust rating exceeded his distrust rating.
On the background of the events in Ukraine, the Belarusian state leader appears to be a stable and effective leader, while relatively portraying Belarus' slowing economy as not particularly threatening to the nation. Moreover, Lukashenka’s popularity extends not only to Belarus. During an interview on Ukrainian TV, 100% of the audience voted in agreement with the Belarusian head of state on some of the statements he made.
The West is also beginning to look at the Lukashenka's regime differently Read more
The West is also beginning to look at the Lukashenka's regime differently. In April, the first time after the 2010 elections, Polish Prime Minister Donald Tusk talked with the Belarusian ruler for a few hours. Over the last month, Deputy Foreign Minister Alena Kupchyna held consultations in Slovakia and Germany. On 28-29 April, she also participated in the meeting of foreign ministers of the Visegrád Group and of the Eastern Partnership, where Kupchyna had a bilateral meeting with Štepfan Füle.
At the moment Lukashenka looks better than the weak Ukrainian authorities or imperialist Putin. At least insofar as the Belarusian authorities are causing fewer problems for the rest of the world.
If the conflict between Ukraine and Russia deepens, Belarus can lay claim to being an intermediary in the economic relations of the countries. Belarus played this role for Russia and Georgia for a while, but on a small scale. Belarusian Airlines flights between Minsk and Tbilisi are always full of Georgians going to and from Russia, particularly when there were no direct flights between Moscow and Tbilisi.
Belarus has already declared its readiness to develop military-industrial cooperation with both countries to find contacts (and contracts) from both sides. It seems that Russia and Ukraine will continue to sell weapons to each other, but through an intermediary Belarus.
Long-Term Losses
Although Lukashenka’s regime has already won something from the conflict in Eastern Ukraine, the future costs for Belarus may be substantial.
First of all, the Belarusian authorities have lost confidence. For many years, Minsk looked at Moscow as a cash cow – a sometimes tough partner, but not an aggressive one. Now Lukashenka does not know what to expect from Putin.
The Kremlin’s possible military intervention in Belarus has become one of the scenarios that the authorities and the opposition are becoming increasingly aware of. On 22 April, Lukashenka even demanded that law-enforcement agencies “immediately eradicate any speculation about the violations of Russians’ rights in Belarus”.
Any growth in Russian imperialist fervour will only further subordinate Belarus to their eastern neighbour. Many hoped that Putin would abolish duties on Belarusian oil to maintain the loyalty of Minsk. However, it seems that the Kremlin has chosen the path of sanctioning Lukashenka’s regime rather than make concessions to him.
On 22 April, Alexander Lukashenka said he would not sign a landmark agreement on the Eurasian Economic Union if Russia leaves keeps its restrictions on the oil and gas market. However, only a week later, Lukashenka, Putin and Nazarbayev agreed to sign the treaty, although Russia will liberalise these markets only in 2025.
The Belarusian economy in the long-term will lose much as a result of the conflict. Read more
The Belarusian economy in long-term will lose much as a result of the conflict. The International environment was unfavourable for Belarus even before the conflict. Now the deteriorating economies of its largest trading partners will push Belarus into a recession. Foreign exchange reserves decrease monthly, and the authorities need to take steps such as privatisation or devaluation to simply stay afloat.
Where is Belarus’ Place in the New Cold War?
The Belarusian authorities, although they garnered some benefits from the conflict, crave the stabilisation of Ukraine. Moreover, they have become very weary of a new Cold War. If a new Cold War is launched, Lukashenka's regime will no longer be able to continue his long observed balancing act policy between the East and the West. Putin's refusal to abolish duties on key goods that boast the Belarusian economy shows that the Kremlin's strategy towards Belarus may yet become even more severe.
Russia in such circumstances seems like a natural choice, as Belarus militarily, energetically, economically and even culturally deeply dependent on it. If Belarus chooses the West, Russia may send more troops into Belarus.
Therefore Lukashenka’s regime should take real action, release political prisoners and start economic reforms. On 22 April, Lukashenka said that Belarusian nation should stay united and said that if "we lose our language, we will disappear".
This was quite a step for a pro-Soviet ruler who claimed in 1994 that the "Belarusian language is an impoverished one". National identity remains one of the most important elements of the nation's overall system of self-defence. It alone can act against the massive currents of Russian propaganda to which Belarusians are exposed to through popular Russian TV channels daily. It is precisely for this reason that Lukashenka should implement his words into practise.
Belarus' relations with the European Union must be based on mutual trust between both parties, not just a goal of irritating Russia. Modernisation projects can be a good start. The West must be aware of the limitations of Belarus, but also be prepared to confront Russia in case of regime change or increased pressure.
Unfortunately, independent and democratic Belarusian government as a result of a regime change hardly looks realistic after what Russian is doing in Ukraine. The European Union and the United States should strengthen their positions inside Belarus and help stabilise the Belarusian economy in case of a severe crisis.
However, the Ukrainian crisis should serve as a wake up call for everyone in Belarus. Belarus as a country has a difficult task ahead of it in trying to learn some lessons from Ukraine and react to growing threats to its future.
