Moscow Gives Belarus Arms and Seems to Abandon Airbase Plans
Belarus has managed to persuade Russia to supply it with arms and renounce plans for a Russian air base on Belarusian territory.
The Belarusian official military daily newspaper admitted at the end of December that some (apparently four) Russian aircraft are still stationed in Baranavichy. But Minsk has managed to postpone or even cancelled Russian plans for an air base in Belarus. To do so Minsk was forced to finally invest in the overhaul and modernisation of its fighter aircraft. That was completed in November.
This will help Belarus not only to avoid a Russian air base being established in the country and to receive Russian equipment for the army; it will also help convince Moscow that its Belarusian ally possesses real force. Minsk has strengthened its position in any negotiations with Russia and made clear its readiness to defy any attempts to undermine the Belarusian state.
Belarus repairs the equipment which Russia scraps
In November, the Belarusian Air Force received a batch of aircraft overhauled at the 558th Aircraft Repair Works in Baranavichy. All the overhauls planned for 2015 – 13 aircraft and six helicopters – have been completed.
What is more, instead of the planned eight MiG-29 fighter jets the defence industry delivered ten overhauled MiGs. Minsk needs its own fighter jets to fulfil its functions as a participant of the Single Air Defence System with Russia.
Seeing Belarus' inability to do so, Moscow moved in 2013 to impose a Russian air base on Lukashenka. Minsk has tried to avoid this at any cost. Facing Kremlin pressure to host a Russian base in Belarus, President Lukashenka in April 2014 ordered that ten MiG-29s be overhauled.
That decision meant a lot. If in 2012 Lukashenka reassured Belarusian pilots that soon they would fly more modern aircraft, in 2014 he gave up waiting for the Russians to deliver and ordered the repair of Belarus' existing equipment to strengthen the national air force.
Indeed, Belarusian companies had already overhauled and modernized drafts for MiG-29s to the level of MiG-29BM in the early 2000s. But then Minsk launched plans jointly with Moscow for rearming the Belarusian army. The Belarusian army expected new aircraft from Russia and put aside its own overhaul and modernisation plans.
The Chief Commander of the Belarusian Air Force Aleh Dvihalyou says that the overhaul of MiG-29s cost less than half the price of new aircraft, but Minsk had no money even for an overhaul. Only some four MiG were modernised to the level of the MiG-29BM to demonstrate achievements of national industry.
At any rate, the issue of fighter jets for the Belarusian air force remained unresolved for years. In the meantime, Moscow gradually started to decommission the MiG-29 altogether. It opted for modernising another Soviet fighter jet, the Su-27, which is much more powerful and heavily armed.
Minsk, on the contrary, has decommissioned the Su-27 and as the situation in the region became tense, in 2014 launched overhauls of its MiGs. According to the Belorusskaya Voennaya Gazeta, the official military daily, the overhaul and modernisation will not end with the delivery of the ten MiGs in November.
Minsk avoids Russian air base and gets newer equipment
Minsk succeeded not only in tinkering with older planes. It achieved by that two major military and political objectives.
Firstly, now it can better argue that Belarusians are able themselves to guard their segment in the Single System of Air Defence and that Moscow should refrain from establishing a Russian air base in Belarus. On 18 December, TASS news agency reported a Belarusian Defence Ministry official as saying that the issue of the prospective Russian air base “was not discussed [at the recent meeting of Lukashenka and Putin] and will not be discussed [anytime soon].”
Secondly, Moscow seems to have agreed to help in rearming the Belarusian air force. Recently Belarusian officials one after another reiterated that Belarus will get new planes from Russia. For instance, on 22 December Defence Minister Andrei Raukou said that soon the army would receive from Russia not only the Yak-130 training aircraft or Tor-M2E surface-to-air missile system (SAM), but also newer Su-30 fighter jets. Russia will give them not as gifts, but will sell them on favourable terms.
Likewise, on 22 December the state ONT TV channel reported that to replace the obsolete S-200 SAM systems, Belarus has acquired from Russia four more S-300 missile batteries. It failed to add that these are second-hand systems decommissioned by Russia's army after it introduced more advanced S-400s. Belarus too asked for S-400s as long ago as 2010. Moscow openly says that there is no chance of Minsk receiving them any time soon.
Who guards the sky over Moscow?
The Belarusian army daily published on 17 December an article with the eloquent title "Special Role of Air Defence Among the Interests of Union State [of Belarus and Russia]". Indeed, Moscow cannot live with a literal hole in its defence perimeter caused by the degradation of the Belarusian air defence system – both its ground-based and aviation component.
Vice Chief Commander of the Belarusian Air Defence and Air Force Major General Siarhei Trus recently told Belarusian media that the military command in the past two years deployed 24 aircraft to guard Belarusian airspace as part of the Single System of Air Defence. That is just one regiment, yet Belarus by the early 2010s had difficulty in maintaining this amount of fighter aircraft in flight. Minsk decommissioned all its Su-27s and neglected until 2014 to repair its MiG-29s.
So, instead of providing Belarus with some newer aircraft, Moscow sent its planes. On 10 December 2013 four Russian Su-27P interdictor fighter aircraft started their duty at the Belarusian Baranavichy airfield. Despite President Lukashenka earlier this year claiming that these planes had again left for Russia, in December the Belarusian media confirmed that the Russian Su-27P remained in Baranavichy.
Minsk realises that Moscow is more interested in maintaining a functional Belarusian air defence than the Belarusian government. This situation creates numerous opportunities for Minsk to haggle with the Kremlin, using Belarusian air defence services as a payment for political and economic benefits from Russia. But in order to be able to do so, Minsk must demonstrate its own air defence capacities – fighter aircraft and SAM systems.
And as shown above, it cares about them, unlike other equipment which it easily sells. A case in point is the 2013 decision of the Belarusian military command to decommission Su-24 bombers. The planes were allegedly useless and even dangerous due to their age. In early December, however, investigative web-site Bellingcat reported that the 558th Aircraft Repair Plant in Baranavichy might be preparing three more Su-24M for export to Sudan. Sudan reportedly ordered twelve Su-24s from Belarus.
For Minsk, having a robust army means not only possessing some of the military attributes which every real government has. It is also a major bargaining chip in negotiations with Russia on political or economic issues. Trading Belarusian services in providing security to Russia for material benefits can be a way of overcoming the huge imbalances in the capacities of Belarus and Russia.
2016 Will Be Tough, Reforms or No Reforms – Digest of Belarusian Economy
After several years of slow growth, 2015 became the first year of true recession. GDP fell by 3.9 per cent in January-November; employment declined over the year. The Belarusian rouble depreciated by almost 60 per cent.
Despite significant changes in the economic policy, 2016 will not be different. The official outlook (based on the oil price of $50) predicts zero growth, while the independent research centres expect modest decline. The recession is not deep enough to launch reforms quickly, and the positive effects from any possible reforms will come in only after 2016-2017.
The recession of 2015
The 2015 became the first recession year in Belarus after 20 years of economic growth. In January-November 2015 the GDP of Belarus declined by 3.9 per cent. Manufacturing and construction took the hardest hits.
As the Russian economy tumbled down, and the depreciation of the Russian rouble went faster than that of its Belarusian counterpart, Belarusian exporters of manufacturing products lost the Russian market. The exports of goods to Russia declined by one third, despite the rise in the re-exports of the sanctioned products from Europe. The drop in the production was most pronounced for many of the Belarus signature products: harvesters, TV sets, lorry trucks, tractors and textiles.
The current crisis in Belarus is often connected to the drop in oil prices, and this is partially true. Low oil prices affect the Russian economy, Belarus' main trading partner; they also make Belarusian oil refining business less profitable. But another part of the story is the structural problem in the Belarusian economy.
Since 2011 growth rates were too anaemic for the developing economy that Belarus is. The state-owned enterprises are loosing competitiveness on external markets despite luxury conditions within Belarus, and no oil price can return Belarus to the growth rates above 3 per cent without the structural reforms with aim to boost productivity.
The policy switch in 2015
2015 also became a year of economic policy switch, led by the National bank. The National bank finally has abandoned the currency peg, and has let the exchange rates to float. Before 2015, half of devaluation always translated in inflation.
In 2015, with currency devaluation of about 60 per cent over the year, inflation will not surpass 12-13 per cent, according to expectations (Belstat has not released inflation figures for the whole year yet). Despite the difficult year with the dramatic drop in exports, the floating exchange rate absorbed part of the shocks, and the currency reserves did not deplete completely.
The government also changed its behaviour, although less than the National Bank. With 2015 being the election year everyone expected the government to increase wages. Instead the real incomes declined, and the state-owned enterprises massively cut employment.
Unemployment insurance systems as a tool of social protection Formation of an adequate system of social protection and security as a tool to support the unemployed population is becoming one of the most pressing challenges in Belarus. Read more
While this policy worsened the welfare of Belarusians, it allowed achieving macroeconomic stabilisation and avoiding another currency crisis. Another piece of good news is that the government also plans to introduce a proper unemployment insurance, that becomes necessary in time of strict fiscal and monetary policy.
Threats to watch for in 2016
The GDP in 2016 will depend greatly on the oil price, with the independent estimates ranging from -3 to +1 per cent growth rate under different scenarios. But even soaring oil prices will not deliver high growth rates. Growth will become possible only after the structural reforms, and in several years.
Real incomes and employment will be falling or stagnating. If the National bank preserves its independence, the inflation will continue to slow down, and the exchange rate will fluctuate with the oil prices and the Russian rouble.
The banking system and the currency exchange equilibrium continue to be fragile Read more
The banking system and the currency exchange equilibrium continue to be fragile and vulnerable to external shocks. Many state-owned enterprises are drowning in debt, and the current financial situation makes it difficult to service these debts. The series of defaults in payments may cause the banking crisis.
The currency reserves are currently at the critically low level ($4 175.8mln on the 1st of January 2016, lowest level since the crisis of 2011). If some adverse external events hit the economy, the National bank will not have enough reserves to stabilise the situation, and another uncontrolled currency crisis might occur. That is why Belarus needs a loan from IMF or some other party.
Reforms to expect in 2016
The biggest problem of the Belarusian economy today is inefficient state-owned enterprises. Any reforms that aim to generate growth should first of all address this problem. The most obvious way to raise efficiency is to privatise. But so far the government has been reluctant to sell “family silver”, and there are no buyers willing to invest into indebted and inefficient enterprises.
Another way is to reform the management system while preserving the state ownership, but this strategy has rather limited potential. Which way (or combination of ways) the government will go in 2016 remains to be seen, but dealing with this problem will take at least 5-10 years.
government will most likely start implementing unpopular reforms in 2016, raising utilities bills, removing some tax incentives and increasing subsidised tariffs Read more
Public finance and inefficient social security system cause additional problems. Current social security system in Belarus relies mostly on subsidies instead of targeted, means-based support. But the economic crisis means less money in the budget and need to cut expenditures.
The recommendations of IMF and other potential creditors usually feature the demands to cut subsidies. And despite the unpopularity of these reforms, government will most likely start implementing them in 2016, raising utilities bills, removing some tax incentives and increasing subsidised tariffs.
The 2016 will not be much different from 2015. We cannot expect drastic reforms, as the economic crisis is not drastic either. But we can expect small steps towards better economic policy, as we observed in 2015. The volatility of the economy will remain dependent on external shocks, and the beginning of the year suggests there will be a lot of bumps on the road.
Kateryna Bornukova, BEROC
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)