Top 10 stories on Belarus Digest published in 2016
In 2016 Belarus Digest readers were particularly interested in our articles on security issues and relations of Belarus and Russia.
Other popular stories covered visa policies of Belarus as well as topics such as migration to Poland, potash trade and the 30th anniversary of the Chernobyl disaster.
Belarus Digest team wishes its readers a healthy, productive and happy new year!
Below is our top 10 most read stories published in 2016.
Recently, the Russian Ministry of Defence disclosed logistical data of railway traffic to other countries for the upcoming year. It revealed that the Kremlin is planning to significantly increase the amount of military cargo headed for Belarus. This may be a sign that Moscow is preparing to redeploy a large number of Russian troops to Belarus in 2017.
An earlier piece by Belarus Digest predicted that the Kremlin was trying to transform Belarus into a flash point for menacing NATO and Ukraine by deploying its military capabilities on Belarusian territory. Unfortunately, this prediction is corroborated by the aforementioned logistic data, as well as the fruitlessness of the recent meeting between Alexander Lukashenko and Vladimir Putin in Moscow.
On 26 October 2016 a new visa-free area along the Augustow Canal, a conservation protection zone in the Hrodna region on the border with Poland and Lithuania became effective. Tourists will also be able to visit adjacent districts of Hrodna region as well as the city of Hrodna (population 300,000) visa-free, an unprecedented measure in the history of sovereign Belarus.The visa-free regime will last until 31 December 2017. This will make it the second visa-free zone in Belarus after the national park Bielaviežskaja Pušča opened up in 2015; foreign citizens can stay in the forest for up to three days.
These initiatives appear to be an experiment before Belarusian authorities implement a more comprehensive simplification of the visa regime: future plans also include the long awaited authorisation of local border traffic. Belarusian authorities have long overlooked tourism as a source of profit, but the crisis in traditional industries has forced them to consider this option.
Since the Russian-Ukrainian conflict began, the Kremlin has persistently tried to expand its control over Belarus, a process that has had quite the opposite effect as Belarusian government policy became more independent in 2014-2015. There has always existed a paradox in the simultaneous contingence and estrangement in Belarusian-Russian relations.
Estrangement looks the stronger of the two today, evidenced by the decrease in Belarus’ military dependence on Russia and its refusal to allow the establishment of a Russian military base on its territory; the reduction in the Russian economy’s role in Belarus; discrepancies in the foreign policy and media spheres; and conflicts between the political elites of both countries.
On 28 January the Polish Union of Entrepreneurs and Employers proposed granting residence permits to a million migrants currently in Poland. The majority of them are Ukrainians, followed by Belarusians and Vietnamese. In recent years Poland has been aiming its immigration policy at absorbing a young labour force from the regions of former Polish rule, and has created unique preferences for foreign citizens in the form of the Card of the Pole.
The card gives its holder the right to work and study in Poland, and later to obtain Polish citizenship. Many Belarusians see it as an opportunity to work and study in Poland with the prospect of getting EU citizenship in the conditions of the ongoing economic crisis. The authorities of Belarus definitely dislike the initiative, but have proved unable to counter it so far.
5. 2016 Will Be Tough, Reforms Or No Reforms – Digest Of Belarusian Economy by Kateryna Bornukova
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.
On 14-20 September 2016 the Belarusian Armed Forces conducted large-scale military drills. Despite the fact that these military exercises were planned, they demonstrate a significant shift in security policy as Minsk increasingly takes into consideration possible risks and challenges from Russia.
It seems that the Belarusian Armed Forces are preparing for a possible Donbass-like hybrid conflict in light of increasing pressure from the Kremlin.
On 22 January, President Alexander Lukashenka approved changes to Belarus' military doctrine. This document reveals fundamental changes in the mindset of the Belarusian establishment. Learning Ukrainian lessons, Minsk is putting issues of military security at the top of its priority list.
Belarusian strategists have also identified which threats are to be countered. They include violent political changes, which Minsk suspects may come from Ukraine and pro-Moscow forces' attempts to repeat in Belarus their exploits in Ukraine.
Minsk is also reevaluating its alliance with Russia. The Kremlin for years ignored Minsk's interests and is embarking on an increasingly chauvinist path. Last week, Russian President Vladimir Putin criticised Soviet-era international borders as 'arbitrary', implying that they could be changed through a Crimea- or Donbas-like scenario.
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.
June 2016 became a breakthrough month for the potash industry in Belarus. The state-owned company “Belaruskali” managed to sign two long-awaited contracts with two major potash consumers – India and Bangladesh. However, the main news came from China: on June 17 Belarus received a $1,4bn loan from the China Development Bank for construction of a new mining and processing factory.
The parties reached this agreement after negotiations lasting more than one year. Although Belarus and China provided no information about a new potash contract, the very fact of this loan's existence provides grounds to suggest that such deal has been concluded.
On 26 April 1986, an explosion at Charnobyl Nuclear Power Plant released huge amounts of radiation into the atmosphere contaminating large territories of Europe. Belarus ended up the most badly affected taking 70% of the fallout from the power plant.
The Soviet Union sought to cover up the accident. The news about the explosion came out only two days later, after Sweden registered an increase in radiation levels on its territory. The evacuation of the population in the immediate vicinity of the plant began only several days later.
Although the power plant was located in the Ukrainian town of Prypyac, two thirds of the fallout landed on Belarusian territory. Photographer Siarhei Leskiec documents life in the contaminated parts of Belarus today, thirty years after what is considered the worst nuclear plant accident in history.
Under pressure from Eurasian Economic Integration – digest of the Belarusian economy
As of 26 December 2016, the oil and gas dispute between Belarus and Russia remains unresolved.
Moreover, Russia persistently rejects any tradeoffs: this deprives Belarus of a substantial part its foreign exchange earnings from petroleum product sales, thus aggravating the economic recession in Belarus.
In turn, the growth of state debt points to the formation of stable insolvency for most state-owned enterprises and increases the risk of a banking crisis in the economy.
The energy sector: losing ground
The current oil and gas dispute between Russia and Belarus has deteriorated since the beginning of the year. Minsk has decided to pay its own gas price of $73 (a fair price which conforms to the agreement on the transition to equal-income prices between countries). However, the contract claims that the price should be $132.
As a result, according to the Russian gas monopoly Gazprom, Belarus owes approximately $340m for gas deliveries from January to September.
In response to this debt, Russia decided in the middle of the year to nearly halve the quantity of oil supplies to Belarusian refineries: from 5.3m to 3.5m tonnes in the third quarter of the year, and to only 3m tonnes in the fourth quarter. Moreover, on 23 December 2016 Deputy Prime Minister of Russia Arkady Dvorkovich announced the court proceedings on the gas dispute.
Meanwhile, after some improvement at the end of last year and in the first quarter of this year, the country's economic growth has worsened again. One of the main reasons for this is the reduction in the amount of Russian oil processed.
According to Prime Minister of Belarus Andrei Kobyakov, the loss of 1.6m tonnes of oil in the third quarter has led to a chain reduction in industrial production and wholesale trade resulting in a 0.3 per cent GDP drop. By the end of 2016, this drop could reach 0.5 per cent (see Figure 1).
In turn, this reduces the real income of the population and effective demand within the country, thus creating preconditions for the formation of deeper systemic problems in the economy. For example, the number of foreign companies to close has overtaken the number of newly registered ones in Belarus in 2016.
Economic integration: a time of tough decisions
The main Belarusian argument in the energy dispute is grounded in the process of Eurasian integration, which implies four key economic freedoms for the participants in the Eurasian Economic Union (EAEU): free movement of goods, services, capital and labour.
However, this integration project includes various exemptions and limitations. In particular, the plans for the formation of a single energy market has been delayed until 2025.
At the same time, the creation of a common electricity market for the EAEU is scheduled for mid-2019. However, Russia and Belarus must first reach a compromise. Since Belarus produces electricity mainly from gas, the country urgently needs equal prices with the Russian regions by 2019.
However, Russia has so far shown few signs of willingness to radically amend its position (by transitioning to equal-income prices); it is offering to compensate only $300m a year for the difference in gas prices and only through resale abroad of part of the Russian oil supplied to Belarusian refineries.
This scheme thus reduces the oil flow to Belarus, as well as the amount of petroleum products produced from it, further decreasing its foreign exchange earnings. Moreover, Russia wishes to determine the volumes of oil supplies to Belarus on a quarterly basis, increasing Belarus's economic dependence even further.
In addition, Russia may insist on other tough conditions, including a requirement to redirect the export of oil products from Baltic to Russian ports and to sell the Minsk Wheel Tractor Plant – a very important asset for the Russian defence industry.
State debt: missing the target
The problems in the energy sector put pressure on the internal and external debt of Belarus. In particular, in 2017 Belarus may have to return approximately $3.5bn to its creditors.
At the same time, the economic slowdown in Russia (the main trading partner of Belarus) has led to the weakening of external demand for Belarusian products. As a result, export earnings have decreased and a substantial part of enterprises transfer from profitable to unprofitable, further limiting the ability of Belarusian enterprises to finance their debt obligations.
On 15 December 2016 Alisher Mirzoyev, the Director of the project group on financial loans of the Eurasian Fund for Stabilisation and Development, stated that the decrease in efficiency of state-owned enterprises (SOEs) and the low efficiency of long-term projects financed primarily through directed lending have formed a significant part of the debt burden in Belarus.
The directed lending has created large imbalances in the economy. For example, interest rates on preferential loans in 2015 reached only 9 per cent versus market rates of around 35 per cent. Therefore, according to the Deputy Minister of Economy of Belarus Dmitry Krutoy, in 2016 the volume of directed lending has decreased almost by half (from $20bn) in comparison with 2015.
However, risks of insolvency of SOEs still lead to loss of revenue for the country's budget. Moreover, deterioration of the financial conditions of SOEs lead to an increase in problem assets of the banking system and exacerbate the problem by creating an additional crisis in this sector of the economy.
For example, since the beginning of this year the share of problem assets of Belarusian banks has increased by 2.2 times. If at the beginning of January they constituted only 6.8 per cent of risk assets, in November they reached 14.9 per cent (see Figure 2).
Thus, the problems in the energy sector aggravate the economic recession in Belarus further, affecting the capabilities of profitable enterprises to repay their debts and harming the overall investment attractiveness of the country.
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)