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Money talks? Belarus’s quest for cash from the West

Speaking at the United Nations General Assembly in 2014, Belarus’s Foreign Minister, Uladzimir Makiej, criticised the imposition of “alien” political and economic models on his and other countries.

He said that weaker states were given a choice: either they accept...


Lukashenka and Head of the IMF mission in Belarus Peter Dolman. Photo: golk.by

Speaking at the United Nations General Assembly in 2014, Belarus’s Foreign Minister, Uladzimir Makiej, criticised the imposition of “alien” political and economic models on his and other countries.

He said that weaker states were given a choice: either they accept such models, or they face “threats, sanctions, and colour revolutions.”

Similar criticism of Western policy recurs in Belarusian leaders’ rhetoric over the years. Sometimes rhetoric equated the imposition of external models themselves with Western-backed regime change. Both variants surely reflect anxieties that Western states might one day move against Aliaksandr Lukashenka and his government.

Despite this many commentators see a thaw in Belarus-West relations over the past two years. This is motivated by Belarus’s disquiet about Russia’s foreign policy and the critical need for new sources of finance.

There are persuasive reasons to think that Belarus will continue to negotiate with Western partners: one reason links to its financial dependence on Russia, another reason links to a shift in Western policy. However, the fear of regime change will cast a shadow over developing relations.

Losing out to Russia

Belarus’s growing dependence on Russia compels it to seek alternative partners. In the past oil and gas transit bolstered Belarus’s bargaining position with Russia, but the sale of the pipeline operator, Beltransgaz, to Russia’s Gazprom in stages from 2011 reduced this leverage. So too will the proposed extension of the Nordstream gas pipeline.

Belarus’s bank capital largely comprises Russian money Read more

A more significant problem is that Belarus’s bank capital largely comprises Russian money. Specifically, foreign ownership – primarily Russian – accounts for more than half the capital in sixteen of the twenty-six Belarusian banks. Foreign ownership grew significantly over the past year, and Belarus will lose financial independence if the trend is not reversed.

In effect, Russian owners could withdraw the cash from Belarus’s banks. If this were to happen there would be very little liquidity in the banking sector. Economist Anton Boltačka says, “At present Belarus is strengthening its [financial] dependence on Russia. Finding non-Russian sources of financing is imperative.”

Bargaining in the West

The Belarusian leadership thinks that recent events changed Western attitudes towards Belarus. For this reason too Belarus will persevere in dealing with Western organisations. Indeed, in the case of the European Union (EU) Belarus’s leaders are correct: the EU became more pragmatic following Russia’s annexation of Crimea and military intervention in eastern Ukraine.

The EU signalled its policy shift by lifting most of its sanctions on Belarus in February. This action ostensibly rewarded Belarus for the release of political prisoners and improving relations, but in truth the sanctions were originally imposed for “a deteriorating political and human rights situation” that remains largely unchanged.

Belarus sees in the West’s revised attitude an opportunity to shop around for loans. The lifting of sanctions allows Belarus to apply to the European Bank of Reconstruction and Development (EBRD). Meanwhile the European Investment Bank provides a further prospect, and the International Monetary Fund’s (IMF) Mission returned to Minsk in mid-September.

Mutual suspicions

The Belarus-West thaw therefore looks set to continue. This most likely happens against a backdrop of mutual suspicion. For the Belarusian government, any perceived efforts to foist on Belarus “alien” economic development models augur threatening changes. Put simply, loan conditionality may threaten perceived regime security.

Some Western writers corroborate Makiej’s 2014 comments, which reassures Belarus’s leadership it is rightly suspicious. Clearly Western states dominate the IMF with preponderant voting rights, and this allows their political policy preferences to prevail – although this is slowly changing.

The suspicion cuts both ways. The IMF’s 2012 consultation report on Belarus states that the 2011 crisis was “self-inflicted.” It attributes the crisis to the reversal of structural reforms implemented as a condition of its earlier Stand-By Arrangement financial assistance.

The IMF’s 2016 consultation report finds “structural weaknesses left largely unaddressed.” Consequently, it can be expected that the IMF demands evidence current structural reforms are irreversible before lending further money. Its prospective $3 billion loan hangs in the balance.

Moreover, Western organisations attract criticism from some in the Belarusian opposition. Jaraslaŭ Ramančuk, an economist and former leading figure in the United Civic Party, argues that the so-called Washington Consensus – the standard reform proposals issued by the IMF and World Bank – reflects “no consensus” and weak conditionality. For him, IMF loans “saved the Lukashenka regime” in 2006 and 2009.

What is to be done?

In lifting sanctions, realpolitik trumped the EU’s allegedly values-based foreign policy. However, domestic pressures from human rights groups will constrain the EU from making further major concessions towards Belarus. Muted criticism came in the wake of sanctions. A recent Amnesty International press release implored that ongoing developments “must not be allowed to eclipse the dire human rights situation.”

Perhaps this explains why EU diplomats pressed Minsk in the run-up to September’s parliamentary elections. Otherwise the emphasis on free and fair voting appears odd, given the parliament’s minimal role. Emphasis on the conduct of elections therefore indicated that EU officials are unwilling to soften their stance much further.

In the short term, Lukashenka provides order and stability in the Eastern neighbourhood, and this will be welcomed. But EU capitals expect that Lukashenka will respond to their concessions more substantively.

Lukashenka is experienced enough to know how swiftly attitudes change. He has witnessed “dictators” turn from friend to foe in the eyes of the West Read more

For his part, Lukashenka is experienced enough to know how swiftly attitudes change. He has witnessed “dictators” turn from friend to foe in the eyes of the West. He watched the toppling of Saddam Hussain and Muammar Qaddafi. Accordingly Belarus can be expected to exercise continued caution. As Lukashenka told the Washington Post in 2011: “It’s better for Americans to work with us, rather than try to subvert us.”

Money for old rope?

Lukashenka also knows how swiftly the circumstances could change. The outcomes of elections in the United States, France, and Germany have implications for the maintenance of sanctions against Russia, which means spill-over effects for Belarus’s economy.

On the one hand, Belarus arguably needs the West more than the other way round given its present financial predicament. On the other hand, as Ramančuk observes: “Lukashenka is much smarter than Western officials at getting his ends.” Western organisations need to be sensitive to Belarus’s concerns, but equally shouldn’t buy old rope.

Paul Hansbury

Paul has degrees from the University of London and the University of Oxford. He is currently a doctoral candidate in International Relations, also at the University of Oxford.

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