European Dialogue on Modernization: Last Chance to Reform Belarus?

Belarusian President Alexander Lukashenka highlighted the need to modernise the Belarusian economy in his annual speech for the national Parliament on 8 May. These words coincide with a goal of the new EU project "Dialogue on Modernization for Belarus". But the two sides see the process of modernization quite differently. Minsk wants to avoid any political reforms while the EU is ready to provide financial assistance only after the release of all political prisoners.

Despite Lukashenka's bravura rhetoric, reforms in Belarus are inevitable as the country will be forced to become a WTO member soon. Moreover, Russia guaranteed Belarus beneficial oil and gas supplies only for the next 3-4 years. It means that the country may be approaching its last chance to conduct necessary reforms before another deep crisis hits its Soviet-style economy in 2015-2016.

Prepared Reforms for Faster Transition

The EU launched a new initiative for Belarus called "Dialogue on Modernization" at the end of March 2012. It is supposed to help lay the foundation for a successful transition of authoritarian Belarus to liberal democracy and market economy. Four key areas are subject to reforms: political system, people-to-people contacts, economic policies and trade reform. The real content of this reforms is unclear at this point. 

Polish diplomats who played an important role in the establishment of the dialogue want to see "a catalogue of reforms" as a result of the process. They note that Leszek Balcerowicz’s reforms in Poland were successful because they had been prepared beforehand and were implemented in the first 90 days of transition.

At the initial stage, experts and civil society representatives will be the main participants from Belarus. European officials hope to see the preparation of reforms with their help before the parliamentary elections in September. They also hope that Belarusian authorities will release all remaining political prisoners before then, which will allow the EU to start high-level political negotiations.

if political prisoners remain in custody, the road maps for reforms will be not used and become obsolete

However, observers fear that if political prisoners remain in custody, the road maps for reforms will be not used and become obsolete. Besides, it is hardly possible that Belarus will change its geopolitical orientation if the EU does not promise concrete investments and aid.

Should Belarus Authorities Participate?

Opposition leaders Anatol Lebedzka and Siarhei Kaliakin were recently unable to attend a large conference on privatisation in Warsaw due to a travel ban imposed on them by Belarusian authorities. This illustrates the possible implications of ignoring the authorities in the dialogue. They will just create all kinds of obstacles for the Belarusian opposition leaders and experts, leaving the EU face-to-face with a failure of their new project.

Unfortunately, today the EU can talk only with a very small group of Belarusians. Opposition leaders do not have communication channels with the wider Belarusian society. Thus it could be reasonable to normalise relations with Belarusian authorities in order to transmit the European message through state-owned mass media that have a greater audience. Analyst Yury Chavusau says that the dialogue should involve those state officials that possess information about the real situation in the state.

Rent-Seeking State Forced to Modernise

At the same time, it is not the EU to be blamed for the lack of reforms in Belarus. Belarusian authorities are reluctant to conduct political and economic liberalisation because they fear losing power. Moreover, they do not have any strategic vision of Belarus' future and prefer to make ad hoc decisions.

one does not have to be a genius to sell natural resources

What is more important, the EU should understand that Belarus is an export-oriented rent-seeking state. Petrochemicals and potash fertilisers constituted 83,8% of its export in January 2012. The share of other exported goods is just 16,2%. This is why Belarusian authorities do not care much about modernization: one does not have to be a genius to sell natural resources.

Despite that, modernization of Belarus is inevitable. Belarus is a part of the Single Economic Space launched this year with Russia and Kazakhstan. After Russian accession to the WTO, Belarusian trade with other states will be regulated according to the WTO rules. It means that Belarus will be forced to start active negotiations on its WTO accession soon. Otherwise, it will be not beneficial to trade with foreign partners and Belarusian goods will be less competitive in the world market.

In addition to that, Russia does not guarantee that its generous subsidized oil and gas supplies to Belarus will last forever. They may stop in 3-4 years and Belarus will face another economic collapse similar to that in May-July 2011. Moreover, Belarus' neighbours are increasingly integrating into the Single European Market through Free Trade Area agreements. There are no more opportunities to live in Lukashenka’s dreamworld of a post-Soviet reality and only ensure the continued isolation of the country.

Critical Engagement

The EU should inform Belarusian authorities of its readiness to provide Belarus with adequate financial assistance for large-scale reforms, because they will not be cheap. If it manages to convince them that this money may be allocated even under Lukashenka, they may show more willingness to participate in the process.  

After the release of all political prisoners, the EU should also restore full contacts with Belarusian authorities and engage in a dialogue with businessmen and other major stakeholders of the regime. They may lack democratic aspirations, but they decide on what is going on in the country. Real modernization is impossible without their involvement.

The dialogue is especially necessary with government and liberal ministries in charge of finance and the economy. State experts should participate in seminars and conferences on the EU territory. Experience of the Office For a Democratic Belarus in Brussels shows that it may be quite efficient. Civil servants should be ready to govern the state properly during reforms.

Support for Belarusian Society Is a Key to Pro-European Reforms

Modernization is a long-term project that will definitely fail if it changes continuously depending on street actions or detentions in Minsk

Even if EU-Belarus relations are restored after the parliamentary election, the modernization programme should not depend too much on political situation inside Belarus. Modernization is a long-term project that will definitely fail if it changes continuously and is dependent upon street actions or detentions in Minsk. Multilateral cooperation within the Eastern Partnership framework has been significantly undermined due to the EU's inconsistent approach towards authoritarian Belarus.

Modernization should also be accepted by Belarusian society. According to recent opinion polls, Belarusians show higher support for Russia by 10% than support for the EU. This is in contrast with the geopolitical choice registered one year ago, when 60.5% of Belarusians were ready to integrate with the EU. The EU may increase pro-European sentiments through easier access to Schengen visas for Belarusians, including unilateral abolishment of the application fee.

Finally, education is a key to bringing Belarus closer to Europe. The EU should continue to support such initiatives as the Open Europe Scholarship Scheme and promote internships for government officials and young professionals in different spheres. It is hardly possible to expect much from Soviet-educated politicians and economists. The more people with European values and education in Belarus, the more changes will be possible.

Belarus Trapped Into Eurasian Integration

The Ambassadors of Poland, Lithuania and Sweden have returned to Minsk and their colleagues are on the way to the Belarusian capital. It seems that EU-Belarus relations have broken the deadlock, but they remain difficult and the EU has few carrots to offer its restive authoritarian neighbour. Unlike countries like Moldova and Armenia, Belarus is increasingly integrating into the Eurasian Economic Union without any serious interest in European integration. 

The reason for this is oil and its financial dependence on Russia. If the EU wants to establish democracy in Belarus, it should offer a comprehensive package of assistance in reforms. But even if Belarus decides to take European path, it will take at least 3-4 years to reach the same level of relations as exists with Georgia or Ukraine. And there are plenty of obstacles: from WTO membership to an obligation to secure permission from the yet to be established Eurasian Commission.

Changed Environment

The planned return of all EU ambassadors to Belarus marks the end of the worst EU-Belarus political conflict since it regained its independence. Swedish Foreign Minister Carl Bildt says that the EU is ready to restore the status-quo in its relations with Belarus that existed before the notorious presidential election in December 2010. 

return to the year 2010 is no longer possible because Belarus increasingly integrating into the new Eurasian Economic Union

Unfortunately such a return to the year 2010 is no longer possible because Belarus is increasingly integrating into the new Eurasian Economic Union advanced by Russian president-elect Vladimir Putin. He offered significant discounted oil and gas supplies to Belarus which helped the country survive the economic crisis that  began in April-May 2011. Recently Standard & Poor's has even revised the outlook on Belarus from "negative" to "stable" despite pessimistic forecasts of local analysts.

Russia managed to obtain the main Belarusian gas pipeline tranpsortation system (Beltransgaz) in return for assistance in hard times. Moreover, approximately 70% of all enterprises in Belarus are still state-owned. The country plans to privatise 133 of them with the total amount of $2.5bn this year. And guess who will own most of them soon? That's right — their big neighbour to the east.

Locked In the Eurasian Union

At the same time the majority of Eastern Partnership countries, in particular Moldova, Georgia, Armenia and Ukraine, conduct negotiations with the EU under the Association Agreement and Deep and Comprehensive Free Trade Area (DCFTA or Free Trade Agreement).

The Free Trade Agreement is key to understanding why Ukraine does not want to participate fully in the creation of the Customs Union with Russia, Belarus and Kazakhstan. This type of agreement implies progressive liberalisation of bilateral trade through lifting tariff and non-tariff barriers. It also extends to legislative and administrative regulation of trade. As a result these countries should approximate to the EU standards as closely as possible, as if they were Norway or Switzerland. 

The Free Trade Agreement is the main "carrot" of the Eastern Partnership as it opens the EU Single Market for Eastern Partnership countries. Their advantages are obvious, because the EU GDP by purchasing power parity is almost seven times greater than the GDP of the Russia-led Customs Union.

And economic integration is more beneficial with prosperous countries, not with oil-rich backward Russia and Kazakhstan which want to protect themselves from foreign competition. If Ukraine is a member of the Eurasian Economic Union, it would have to pay high levels of compensation for its trade partners outside the Union as the country has lower import tariffs under its WTO obligations.

a member of the Eurasian Economic Union does not have a right to conduct separate trade negotiations with any countries

What is more important, a member of the Eurasian Economic Union does not have a right to conduct separate trade negotiations with any countries. Instead, it should ask for permission of the supranational Eurasian Economic Commission and take into account economic interests of all member states. It means that in practice Belarus can not launch negotiations with the EU on Free Trade Agreement without Russian consent even if all political prisoners are free.

Why Belarus Chose Eurasian Integration?

petrochemicals amount to more than 65% of Belarusian export to the EU countries

As many other Eastern Partnership countries, Belarus has at least 25% EU share in its trade balance. As opposed to them, petrochemicals amount to more than 65% of Belarusian export to the EU countries. Only Azerbaijan surpasses Belarus with its 99.5% share of oil and gas in export to the EU. Whether it is a coincidence or not, both countries are authoritarian and are not WTO members.

However, while Azerbaijan has its own oil, Belarus mostly relies on Russian oil producers. In January 2012 its export to the EU increased fourfold from $439m to $1.74bn as compared with the previous year due to favourable conditions of oil supplies from Russia.

EU-Belarus relations on a political level may make Russia angry and thus put an end to its oil paradise

But the significant improvement in EU-Belarus relations on a political level may make Russia angry and thus put an end to its oil paradise. Benefits from reduced import tariffs in trade with the EU will not cover losses from a decrease in the amount of oil refined in Belarus. The reason for Eurasian integration is very simple: Belarus is badly dependent on Russia.

Belarusian Authorities Live For The Moment

Another reason for choosing the Eurasian integration is the unwillingness to undertake any significant reforms. Belarusian authorities would like to maintain the existing political and economic status quo for as long as they can. Most of the Eastern Partnership countries on the contrary intend to improve their administrative and legislative systems according to European standards in order to attract foreign investments.

It clearly illustrates the dilemma that the Belarusian ruler faced in 2010. On the one hand, he could follow the path of modernization and liberalisation. It was a sound strategy, but it demanded large sums of money and could have caused social and political instability. On the other hand, he could restore deteriorating relations with the Russians and reinstate their generous support in exchange for promises of future concessions.

Finally, Lukashenka prefers short-term benefits over long-term advantages and is unwilling to invest money in the democratic future of Belarus.

To Support Reforms In Belarus

Belarusian authorities are forced to rely on Russian support to survive, but Russia may soon get control over all strategic assets in the country for cheap. Thus participation in the Eurasian Union poses a threat to Belarusian sovereignty. But it also has at least one positive consequence – Belarus will be forced to become a WTO member and this will consequently encourage authorities to make economic reforms.

Russia does not guarantee that it will keep its oil and gas discounts for a very long time. Sooner or later Belarusian authorities will face the prospect of the collapse of their economic model. At that moment the EU should be ready to offer Belarus a comprehensive package of financial and technical assistance in reforms and enter into a dialogue with authorities and businessmen on the future development of the country.