Will Inflation Deal the Final Blow to Current Government?
Yesterday the National Bank of Belarus allowed private banks to increase foreign currency exchange rates. Previously, all banks were limited by a very low ceiling. Now officially banks received full freedom to establish the rate. However, various sources suggest that the recommended US exchange rate should not be higher than BYR 4,000. Most of the Belarusian banks now set the buying/selling rate at BYR 3,990/4,000. Yet they almost had no currency for sale on Tuesday.
In the morning, the USD exchange rate in black market, the only place to get foreign currency now, was around BYR 3,900/4,100-4,200 (selling/buying). As a result of the National Bank’s move, in the afternoon the black market rate reached BYR 4,800/5,000. It is the most clear evidence of how the situation is getting out of the government’s control. No wonder that in such circumstances many small businesses are closing down. Those who receive salaries from state institutions and state-owned firms, are terrified by prospects of their income being eaten up by high inflation.
As usual, the government is trying to blame someone else for these developments, in particular people who are hurrying to buy cars abroad. In July, new import duties will become effective making Western cars almost unaffordable for ordinary Belarusians. Very few in Belarus took seriously today’s statement by the state statistics office Belstat that in 2011 the inflation in Belarus was just 10.9%.
According to Belstat, the consumer products and services price index in April increased by 4.5% comparing with March, and by 10.9% comparing with December 2010. As a matter of fact, in April prices for many products increased by 30-100% and there are almost no goods which did not become more expensive.
Bad news for the government came also from Moscow, as Kremlin declared again that it would not give Lukashenka the loan he was waiting for. Russian Finance Minister Alexei Kudrin proposed the Belarusian government to ask the International Monetary Fund for money and privatize the state owned enterprises.
Minsk wanted a USD 3 billion loan from Russia and Russia-dominated EurAzES, Euroasian Economic Space. EurAzES is a form of cooperation of Russia, Belarus and most Central Asian post-Soviet nations. Moscow is willing to discuss only a much smaller loan of less than USD 2 billion from the EurAzES. And no money from Russia itself.
Kudrin said that probably Russian Prime Minister Putin would visit Minsk to finalize the deal next week. Due to desperate situation of the Belarusian government it will not be capable to resist any Russian demands. Kudrin believes, Belarus cannot avoid resorting to the IMF help and privatizing state owned enterprises for around USD 2 billion.
Interestingly, the Swedish Foreign Minister described recently exactly scenario at the Warsaw conference. He predicted problems with getting the help of IMF and US, and said that finally Belarus would have to turn to the EU.
Of course, there is not much precision in politics, yet one thing is clear: the Tuesday’s fall of the Belarusian ruble may be the first blow which will result in fundamental changes in Belarus. Whether under external pressure and privatization or due to large-scale social protests Belarus may see serious changes.
Is Russia interested in regime change in Belarus?
This week Russia's Finance Minister Kudrin made it clear that Moscow was not interested in bailing out the Belarusian economy with no conditions attached. That stimulated discussions that Russia finally decided to get rid of Alyaksandr Lukashenka. However, these discussions are based the premise that Russia`s intention is regime change.
Certainly Russia has no interest to support further Lukashenka’s geopolitical juggling between the East and the West. Despite the noisy anti-Lukashenka campaign and speculations over possible support to opposition candidates, Russia`s intention has not been changing Lukashenka.
For Moscow any other president would mean a new large opening to the West. The Russian efforts more intends to guarantee the loyalty of Belarusian leader and to get the most important economic assets of Belarus – energy transit, oil refineries, potash and some other – under control. Russia certainly does not want to weaken Belarus too much and therefore could support Lukashenka’s regime financially (as it has happened before), should it be absolutely necessary. But not now. Moreover, Belarus makes ideology is based on, may no longer remain as the only option.
For Moscow any other president would mean a new large opening to the West. Read more
In this context, the Western press is eagerly discussing the lack of the right EU policy toward Belarus. But Brussels has tried everything from isolation to engagement by now. With the renewal of sanctions based approach, the EU policy has returned to the same point after a full circle.
Moreover the visa-ban itself is a great show case how much the West knows Belarus: dozens are left the positions, another dozen are not responsible for the actual court decisions, there are two heads of presidential administration and even a dead person on that list. Perhaps now it would be worth learning what is really happening in Minsk first of all in order to make the Western policy and assistance a better fit.
It is time for the West to think out of the box – consider that nothing can make the EU more attractive in the eyes of Minsk than ignorance. This is exactly what happened with the US before the elections. The American ignorance two years ago after the row over the US Embassy in Minsk when Minsk forced the US to reduce its diplomatic corps from 34 to a mere 5 prompted Minsk to give up its enriched uranium before the elections. Although the delivery is in question, the path toward a new policy is there.
Thus, a new viable mid-term strategy for the West at this moment is not to isolate but to ignore Alexander Lukashenka, meanwhile focusing on broader society as a whole. It is not an easy task considering the strong intention of the West to be (at last) principled with Belarus.
Having no oil or gas, Lukashenka has developed another commodity – his own image of a dictatorship. Read more
Having no oil or gas, Lukashenka has developed another commodity – his own image of a dictatorship. Until the West will reduce the importance of this commodity, it will keep continue to play its part from the Lukashenka's script. As Lukashenka is in the corner he is sending different messages every day: insulting European Commission President Barosso while offering dialogue with the EU. Hold your breath.
The Western press and policymakers, rightly so, have pushed for a tougher response. In the meantime a new policy must finally acknowledge that Belarus provides a more complex challenge than it seems. It is not only about Lukashenka but about a society that approves and supports order and stability and does not mind a lack of freedom in return.
To make Belarus embrace European values – such as normal leadership change through free and fair elections – the West needs to engage with all layers of society. Unless the West is able to expand its contacts and influence amongst the bureaucrats it will have a little chance to support a systemic reform and build public support for it.
Mr Jarábik is Associate Fellow at FRIDE in Madrid, Spain. The full version of this paper is available at FRIDE web site.