Nomenclature and the Hope for Democracy in Belarus
The latest agreements with Russia have saved the Belarusian regime at the most critical point in its existence. Now Minsk has to pay a big price for it by giving Russia more leverage in Belarus. But it had no choice: this summer and autumn Lukashenka's state was in its most precarious position since the 1996 coup d'etat. Only the weakness of the opposition let it survive. Meanwhile, the hard times have demonstrated cracks in the Belarusian establishment.
Since the late 1990s, nothing of this kind has ever happened. If some high-ranking official challenged regime policies – for example, Kazulin or Marynich – he first left for the opposition. In the last two months, however, the 'rebels' managed to stay in their positions. The hot topic was economic policy.
Last month the Ministry of the Economy and the Cabinet, including the prime minister, personally attacked Sergey Tkachev, the presidential aide for the economy, a powerful figure in Belarusian politics, where somebody's influence is linked to his or her closeness to Lukashenka. It is hard to imagine a more unlikely rebel than Prime Minister Mikhail Myasnikovich – a Soviet-era bureaucrat with no outstanding features as a politician. Other critical voices belonged to people without any dissident affiliation – Vice Prime Minister Siarhei Rumas and Minister for the Economy Mikalai Snapkou.
Not All The President's Men: What Regime Insiders Want
Despite their loyalist background, they rebelled and even created the illusion of an almost public political struggle in a country where the opposition is in disarray and an entire society has for years lived under tight control. Some commentators hurried to dismiss the whole conflict as irrelevant to national political development since, after all, everyone involved in this story was a proven follower of Lukashenka.
Yury Drakakhrust of Radio Liberty, however, stated that there were a lot of examples of regime change in the world with transformation starting as quarrels among loyalists. For example, Mikhail Gorbachev's 'perestroika' started along Communist party lines, yet finally derailed the whole Communist system.
The mutineers in the Belarusian government demanded little; they simply proposed to critically examine a dire situation in the Belarusian economy – huge inflation, lack of money and eagerness to print it in order to finance doubtful state programs. It is hard to even say they asked for liberalization, as it was rather an attempt to open eyes. Siarhiej Chaly prophesied that such rows would continue as the level of rationality in Belarusian economic policy rose as well. However, once Moscow has given money and subsidies to Belarus, Lukashenka will have more opportunities to shut down such critics for a while.
The breaking lines in the cabinet emerged along some symbolic splits. The prime minister's group confronted not only the presidential aide for the economy, but also ideological hardliners like Anatoli Rubinau who supported a voluntary line of financing of state expenses by essentially printing more money.
Curiously, one of the most outspoken among hardliners was another vice prime minister – extremely pro-Chinese Anatol Tozik, former ambassador to Beijing. Lukashenka already tried this summer to enlist Chinese expertise and help, apparently looking for an opinion more aligned to his beliefs than what the IMF mission has proposed. The Chinese did propose to take foreign currency away from common citizens, but failed to help financially.
This time, the Belarusian leader, quite predictably, was much closer to the hard line group as he lashed out against pragmatists around the prime minister and demanded that the government give up the idea of revising the working plans for lack of funds and implement all the tasks as they were initially set.
There is no reason to doubt that the Belarusian regime is currently undergoing a radical transformation – it cannot be otherwise in the aftermath of the collapse of its political economy following Russia stopping Lukashenka's lucrative oil deals with Western Europe. Its gradual evolution from personal rule towards more loose authoritarianism and competition between clans is quite natural; according to existing scholarship, such regimes always evolve this way. In addition, Lukashenka has had only ad hoc charisma and failed to create his personal cult. Therefore, in the context of the current economic hardships, no one can expect that regime insiders will stay loyal to their lord out of faithfulness.
Democratisation will not be achieved over night in Belarus. Even the Ukrainian Orange revolution brought out a contradictory balance, and Ukraine requires years to change, although it has never been under such tight control in the way Belarus has experienced for years. One of the most important problems in Belarus is the weakness of its democratic opposition. In such circumstances, to oppose Lukashenka's system, one has to work with people who may have a murky background and unsympathetic positions – with regime incumbents.
Western sanctions, isolation and lack of Western contacts with the Belarusian nomenclature might be dangerous for Belarus as an independent nation, argues Dzianis Melyantsou of the Belarusian Institute for Strategic Studies. Having run out of options, on 25 November Lukashenka signed agreements with Russia which endangered national interests, but which were also against the pragmatic interests of the EU and Western democratic hopes for Belarus.
If Belarusian incumbents have no other options they will also turn to Moscow and follow increasingly authoritarian political trends there. Yet ideologically a number of them are unable to resist the benefits of the West, and while denying democracy and human rights to their own people, they nevertheless try to send own children to the West to study and enjoy a better life.
Belarusian political scholar Yury Chavusau points to recent unconventional behavior inside the establishment as a factor which facilitates a new rapprochement of Lukashenka's regime to Russia.
The fundamental difference in attitudes to property and political power displayed by Belarusian and Russian ruling elites made impossible the integration of both regimes in 1990s. … Now, the Belarusian ruling group's attitude to economics and personal fortune is seemingly forming according to the Russian example: special services' generals in our country wish not merely to 'control' business, but also really and legally run it.
Accordingly, it can help a new integration project with Russia as Belarusian elites are becoming more compatible with contemporary Russian elites' attitudes and values.
Of course, the West can keep demonstratively punishing the Belarusian regime, but it should beware of the consequences, especially linked to Russian influence. And it is pointless to lash out at Minsk while engaging with much more repressive Azerbaijan and Kazakhstan. Such engagement of Belarus would not be a betrayal of any democratic values. It would be politics – struggling for an aim with available means. Isolation and sanctions have proved so futile not only in Belarus but throughout the world; Iran and Iraq are the most prominent cases.
Of course, engagement with the regime should follow engagement with the people of Belarus, and not precede or replace it. More exchange and cooperation projects in all fields as well as the complete removal of visa and travel restrictions with Belarus will cost the EU littlebut will undermine years-old Belarusian dependence on Russia at a grassroots level.
Belarus has never been a serious problem for the EU as far as illegal migration or criminality is concerned. Regime insiders want their chance to go West and common Belarusians need to see a clear European alternative.
Belarus the Indebted
The Belarusian government spent the whole year actively looking for money to sustain the collapsing socio-economic model. It was looked for everywhere: in the West and the East, in Europe, Asia and Latin America, at the IMF and EurAsEC. And over the last several weeks finally Belarus managed to get a big chunk of foreign loans. The biggest ‘gift’ came from Russia as a reward for Minsk’s support of the new wave of post-Soviet integration.
Now that the hard currency reserves have become thicker the government can take it easier for some time. But how long can the strategy of surviving on foreign loans last? Already next year the Belarusian taxpayers will feel the burden of the debt.
The Year Of Money Quest
As soon as the first signs of the financial crisis became visible earlier this year the Belarusian government went back to its once successful way of muddling through an economic turmoil with the help of borrowed money. In 2009 the country received USD 3.6 billion as a stand-by credit from the IMF which to a large extent saved it from full-scale socio-economic repercussions of the plummeted demand for Belarusian goods on international markets. Belarusian rulers reasoned that instead of opening the Pandora’s box of economic reforms in 2011 it would be less risky to look for new external borrowings.
But this year the overall situation was not as favorable for the Belarusian government. After the crackdown on the protesters on 19 December 2010 and the wave of repressions against the political opposition and civil society Belarus found itself in a severe confrontation with the EU and USA. Discussions of the next IMF loan went nowhere because Belarus refused to fulfill the necessary political pre-conditions. Moreover, the unwillingness to adjust the macroeconomic policy to the recommendations by the IMF made a loan from that institution twice impossible.
At the same time the government was looking for money everywhere else. There were hopes for Venezuela, Iran, Azerbaijan and China. But what the ‘distant friends’ were able to offer were peanuts. In July Belaruskali got USD 300 million from Azerbaijan and the money was transferred to the national reserves. At the beginning of October a USD 400 million credit was promised by Iran but with no follow-up.
There were several announcements of credits from China (including USD 1 billion in November). But Chinese credits do not look very attractive as they have a condition attached – to be spent on Chinese goods. And for Belarus it means to further expand its trade deficit.
Another source of external money was through selling Eurobonds. And in January the country completed its borrowing of USD 800 million through this mechanism. But as the financial disturbances were growing bigger Belarus’s sovereign rating and the commercial banks’ ratings were downgraded.
The sovereign rating was downgraded from B2 in January to Caa1 today by Moody’s and from B+ in January to B- today by S&P. Both agencies keep Belarus’s credit on a negative watch, which increases the likelihood of further downgrades. As a result, Belarusian Eurobonds maturing in 2015 and 2018 were trading at 20% and 17% yield respectively in late September 2011 (being originally issued at 8.75% and 8.95%).
Following the Gazprom deal on 25 November, the yields on the Belarusian 2015’s and 2018’s Eurobonds have compressed to 13% and 12%, respectively. However, even such high yields make the Eurobond market hardly attractive for the country. Should Belarus decide to return to the market, it will need to pay a hefty new issue premium and find bookrunners capable and ready to place its bonds with institutional investors.
All but one bookrunner of the previous Belarusian Eurobonds refused to work with the sovereign due to human rights abuses in the country. Sberbank is the only bookrunner who has not dropped Belarus from its coverage list.
From Russia With Love
Last but not least, there was Russia, the regime's biggest creditor and donor. However, during the first half of 2011 no money came from the ‘Big Brother’. Only in July did the Belarusian government manage to negotiate a USD 3 billion loan from the Russia-controlled Anti-Crisis Fund of EurAsEC. The first tranche of the loan (USD 880 million) arrived in the summer. Another USD 440 million was scheduled for October-November. But because Belarus has not met all the agreed macroeconomic conditions the tranche is still pending.
However, there is little doubt that it will arrive after the ‘integration agreements’ reached on 18 and 25 November. Belarus (more precisely the state-owned company Belaruskali) got USD 1 billion as a syndicated credit from Sberbank and the Eurasian Development Bank. And, finally, it was announced that Russia would provide USD 10 billion for the construction of the Belarusian nuclear power plant in Astravets. However, the credit will be allocated in several tranches.
And So It Is…
So what does the preliminary results of the ‘credit quest’ in 2011 look like in numbers?
As of 1 October 2011, the government debt was USD 11.88 billion. Provided that the second tranche of the EurAsEC credit arrives this year, the government debt will rise to almost USD 12.5 billion, which will represent 25% growth of the debt in 2011. That is an estimated 36% of the GDP which realistically will amount to around USD 35 billion this year. The gross national debt will exceed the GDP already in 2011. Given that in the Belarusian command economy there is little difference between the liabilities of the state and of state-owned banks and enterprises (about 80% of the economy), the risks are getting high. And new credits are on the way.
Thus, the external debt level is becoming a new Belarusian tragedy which can soon completely overshadow the other national concerns, i.e. current account and foreign trade deficits, and even inflation. Taking into consideration that the dominant slice of the debt is Russian, the Belarusian government’s ability to resume its geopolitical maneuvering will be significantly limited.
Yauheni Preiherman is Policy Director at the Discussion and Analytical Society “Liberal Club” in Minsk