Lukashenka – the Main Beneficiary of the Ukraine Talks in Minsk
On 26 August, Minsk was the centre of attention for the international community, attracting hundreds of international reporters. The Belarusian authorities hosted a meeting between the Eurasian "troika", the Ukrainian president Petro Poroshenko and three EU commissioners.
The very fact that they are holding such a meeting in Minsk became a major foreign policy success for the Belarusian authorities. Lukashenka's regime has secured Minsk's role as a venue for discussing important regional issues.
The government found a way to participate in settling the Ukrainian crisis and broadening its lines of communication with the European Union.
Who Initiated the Talks: Minsk, Moscow or Kyiv?
Lukashenka first voiced the idea of holding multilateral talks, possibly involving the Ukrainian president, on 8 August.
During his meeting with Russian and Ukrainian Communist bosses Gennady Zyuganov and Petro Symonenko, he made public his plans to hold a series of meetings between "the presidents of Belarus, Russia, Kazakhstan and Ukraine (if Ukraine agreed to them and there is no rejection) … to discuss fundamentally what is happening here."
During his bilateral meeting with Poroshenko on 26 August, Lukashenka said that the idea of meeting and discussing the implications of the association agreement had originally come from the Ukrainian president.
This may be partly true as Ukraine is indeed interested in overcoming Russian resistance to its economic integration with Europe. However, its hopes will never become reality until another major player finds it acceptable.
There are good reasons to believe that Vladimir Putin was the original instigator of this meeting in Minsk. In fact, just a day before, the Russian president called Lukashenka to discuss, among other things, the developments in the Ukrainian economy caused by the signing of the EU association agreement.
Vladimir Putin is merely using his Belarusian counterpart as an intermediary, to arrange his encounter with Petro Poroshenko under the guise of a trade-related meeting.
Deeply entrenched in an economic war with the West and facing a very real possibility of a military defeat in Eastern Ukraine, Putin may be coming to Minsk to seek a way to save face. Direct contact with Poroshenko, under the auspices of a multilateral event, may be a good start to finding an appropriate solution for Putin.
Better than Expected
Lukashenka has always emphatically denied his interest in becoming an intermediary in the conflict between Ukraine and Russia. The excuse provided by Moscow was ideal for Lukashenka. Instead of being a mediator in talks that have a low probability of leading to a positive outcome, he has become a party to larger negotiations, with Belarusian interests directly at stake.
It took almost two weeks of extensive negotiations to arrange the summit in Minsk. Ukraine conditioned its agreement to take part in these talks on representatives from the EU taking part in them. Lukashenka first mentioned the possibility of this third-party participation in his phone call with Vladimir Putin on 13 August after having discussed it with the Ukrainian president a day prior.
Poroshenko's demands were also much to Lukashenka's liking. Without it, he could not dream of hosting three high-ranking EU officials in Minsk at a time when sanctions against his regime were still in full force.
The EU and the US introduced financial and visa sanctions against a large number of Belarusian officials and companies after the regime cracked down on the opposition in the aftermath of the 2010 presidential election.
The last time an EU representative of this level visited Minsk was back in November 2010, when Štefan Füle, the EU Commissioner for Enlargement and European Neighbourhood Policy, came to the captial city before the presidential election took place. The format of the Minsk talks has far exceeded Lukashenka's original expectations.
Minsk as a Regional Hub of Diplomacy
Minsk has become a regular and habitual venue for regional Eastern European summits. Vladimir Putin and Nursultan Nazarbayev have already come to Minsk on several occasions as well as Petro Poroshenko's predecessors.
However, top level EU officials have never joined the leaders of these leading post-Soviet states in Minsk. Indeed, the High Representative of the European Union for Foreign Affairs and Security Policy Catherine Aston, Vice President of the European Commission and EU Energy Commissioner Günther Öttinger and EU Trade Commissioner Karel De Gucht are the cream of the EU bureaucracy and their presence significantly raises the notoriety of the talks in Minsk.
This latest gathering may become an important step towards confirming Minsk as one among a handful of European cities which serve as a regular venue for international and regional talks. In the 1990s, Minsk became the capital of CIS and put itself forward for conducting the OSCE peace process for the Nagorno-Karabakh conflict. The Belarusian capital also hosts the Court of the Eurasian Economic Community.
On 31 July, Minsk hosted a meeting of a tripartite contact group on Ukraine which included representatives of OSCE, Russia, Ukraine and, informally, the Russian-sponsored Ukrainian rebels. The decision to hold them in Minsk can be seen as recognition of Belarus' non-partisan status in a conflict where it is extremely difficult to remain neutral.
Belarus as the Main Beneficiary of the Ukraine Talks in Minsk
By becoming a participant in a meeting dedicated to clarifying the implications of the association agreement between the European Union and Ukraine for the latter's trade with CIS countries, Belarus will be better positioned to protect its economic interests.
As of now, Minsk has a much better chance of influencing any of Russia's future potential retaliatory actions that would harm Belarus' trade with Ukraine. At the same time, it can discuss and address any genuine concerns it has arising from Ukraine's new status.
Belarus has also become one of the parities involved directly in the talks, a development which may eventually lead to the resolution of conflict between Ukraine and Russia. If the talks finally succeed, Minsk will be able to highlight its role in this process. Should they yield less favourable results, it will be difficult to present Lukashenka as a failed mediator.
Seizing the Moment to Improve Relations with Europe
The ultimate victory, in any case, is the result of Belarusian diplomacy, which has been successful in getting top EU commissioners to visit Minsk. Lukashenka was certainly delighted to hear the words of appreciation for his diplomatic initiative that came from EU's foreign minister Catherine Ashton at their meeting in Minsk.
Obviously, Ashton and her colleagues spent most of their time at the multilateral meeting. Still, the Belarusian president had the rare opportunity of having direct contact with senior EU officials. Alexander Lukashenka has definitely made use of his personal charisma to incite the European Union into thinking of softening its stance towards his regime.
Lukashenka's peace-making activity in the region is unlikely to serve as sufficient grounds for the EU to revise their current policy towards Belarus. Much still depends on the Belarusian authorities' willingness to take some steps that will be viewed as political concessions by the West (i.e. releasing all or most remaining political prisoners).
If the regime has the courage to take these initial steps, the EU may well reciprocate by abolishing or downgrading the current sanctions against it, taking into account the current regional context.
This window of opportunity before Lukashenka right now, at a time when both Russia and the West need good relations with Belarus, may not last long.
At this crucial juncture, Belarus has a chance to show the veracity of the old adage that wars are not necessarily won by those who participate in them.
Sanctions as New Opportunity, Less State Support for the Economy – Belarus Economy Digest
The National Bank continues to gradually reduce its refinancing rate. The latest reduction, which occurred in August 2014, may help make receiving financing for legal entities easier.
And yet, despite their best intentions, these steps contribute to the accumulation of macroeconomic imbalances in the country.
An analysis of the pros and cons have forced the Belarusian authorities to come up with an agreement that will normalise trade relations with Ukraine. The possibility of a real deterioration in their mutual trade relations has encouraged the officials in Minsk to push for the removal of all announced limitations imposed on Ukraine.
The introduction of food sanctions by Russia provides Belarus with a chance to accumulate foreign currency through bolstering its exports. Conversely, these developments come the risk of rising prices and food deficits on domestic market go up as well.
The existing imbalances in the economy force the authorities to reduce the amount of state support they provide and to change how it is doled out among its enterprises.
Changes in refinancing rate
In the middle of August the National Bank of Belarus (NBB) reduced its refinancing rate by 0.5 percentage points. Thus, beginning August 13, the rate will be set at 20.0%. Favourable tendencies in the monetary arena are the official reason behind the Bank's decision to reduce the rate. They have appeared in the form of a growing influx of ruble deposits from households alongside an excess currency supply in July.
A decrease in its refinancing rate will lead to a decline in the rates on ruble deposits and loans and will likely stimulate growth of demand for currency deposits. In general, these reduction measures raise concerns about growing inflation.
In January-June it was held at 19.8% and there are no reasons to expect a slowdown in the rates' growth in the near future. The potential for further inflation, combined with a decline in deposit rates and devaluation expectations, may affect the volatility of the national currency and decrease demand for it.
Decreased probability of a trade war with Ukraine
From the middle of August Belarus and Ukraine stopped using restrictive trade measures against one another. Ukraine agreed to stop collecting duties on Belarusian beer, tires, confectionary and dairy products imposed, duties that were imposed in the middle of July as a response to similar Belarusian actions. For its part, Belarus has decided to abolish restrictive instruments like licencing requirements for its Ukrainian partners.
The Ukraine-Belarus trade conflict developed after Belarus imposed licencing on beer, confectionary products, pasta and their operating supplies from outside the Customs Union and required a set minimum price level in exchange for the acquisition of a licence to be sold in Belarus.
Counter measures from the Ukrainian side forced Belarus to re-evaluate the pros and cons of a potential trade war, especially when considering the fact that Ukraine remains one its most important trading partners (one of the largest recipients of oil products exported from Belarus) and around 10% of Belarusian exports goes there.
New opportunities on the Russian market
At the beginning of August Russia imposed a ban on the importation of a range of foodstuffs from the EU and USA, which was a response to the sanctions previously introduced by the West against Russia. The restricted goods include beef, pork, poultry, fruits and vegetables, dairy and other products. This is one-year embargo opens up a number of new opportunities for Belarusian producers.
Russia introduced the sanction without negotiating with either Belarus or Kazakhstan despite the fact that they officially have equal rights as members in the Customs Union with Russia. Belarus and Kazakhstan refused to support the sanctions.
Despite Belarus' unwillingness to introduce the same sanctions in Belarus, Alexander Lukashenko agreed to protect the Russian market from re-exports of western products and at the same time requested that domestic producers raise their export production volumes in order to improve Belarus' overall trade balance. However, there are certain risks associated with raising the level of food exports, including a food deficit and rising prices in Belarus.
On the other hand, by bringing the conflict to an end and returning to normalised trade relations with Ukraine, Belarus has new opportunities in terms of its increasing its volume of exports to Russia. Belarus also has a chance to accumulate additional volumes of raw agricultural products which previously went directly to Russia.
Under these new conditions Belarus could potentially reprocess them, as well as other European food products, and send them on to the Russian market afterwards. At the moment it is unclear whether Russia will actually attempt to block these supplies or, quite the opposite, will hold a favourable opinion of Belarus' new potential role.
Industry subsidies instead of individual support
The Belarusian authorities are preparing to introduce a new instrument to stimulate growth with the state's support. According to a resolution of the Council of Ministers, the new rules of the game call for a shift from individual support to industrial subsidies.
This essentially means that only strategically important state, sectoral and regional programmes will receive state support on a competitive basis. It also assumes that enterprises of all types of ownership will have equal rights and access to these financial resources.
Given the importance of the new policy for the country's economic growth, the potential for the efficient usage of the state's support and the rate of return will the main keys to securing financing.
These changes will also affect the agricultural sector. According to Alexander Lukashenka, infrastructure, improvements in land resource management and general melioration will be the main targets of the government programme. As for agricultural enterprises, again, only strategically important projects, especially those associated with exports, will receive these special privileges.
Thanks to this process of optimisation, the total reduction in number of programmes of state financing in 2014 will amount to BYR 3.7 billion in savings. The reform, if executed, will force state enterprises to change their usual way of doing business and think about ways to improve their performance and increase their efficiency.
Maryia Akulava, 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)