Baltic Rim Economies - Baltic Port List

Expert article 907 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011
Belarus – no economic miracle for free
By Anaïs Marin
Last summer the Belarusian blogosphere circulated an
announcement inviting internet users to the virtual funerals of
the “Belarusian economic miracle”. Recent developments in
Belarus-Russian relations show that the death notice was
premature however: albeit weakened by a year of financial
hardships, Belarus’ unsustainable economy has once again
been rescued.
Isolated by the West since his last controversial re-election
on 19 December 2010, Aliaksandr Lukashenka had but
Moscow to turn to for economic support. In signing a series of
agreements he recently secured the inflow of the Russian
credits and subsidies desperately needed for maintaining the
Belarusian economy afloat. These funds should also help him
save his own skin in the process. Lukashenka’s paternalistic
governance model being the cornerstone of his alleged “social
contract” with Belarusians – whereby they would accept his
autocratic rule in exchange for relative prosperity – any
reduction in the generous social policies towards the
population could jeopardize the stability of the regime itself.
Salvation has a cost however. Preserving Belarus’ Sovietlike
economic model implies further delaying the structural
reforms deemed indispensable to make the Belarusian
economy competitive. More importantly, Russian support does
not come for free, but in return for concessions which make
Belarus more dependent on its neighbor for direct investments,
cheap energy resources and hard currency.
Shortage of foreign currency is actually what triggered the
down-spiraling of the Belarusian economy starting in January
2011, when the deficit of Belarus’ trade balance almost
reached $1bn. It is now estimated to approximate $5bn, while
foreign currency reserves have dwindled to $4bn, although
Belarus would need three times more cash to cover three
months of its export needs. The third alarming macroeconomic
unbalance that appeared in the course of the past
years is public indebtedness: Belarus’ foreign debt increased
to $25bn in January 2011 and it now amounts to over 56% of
GDP.
The combination of these factors has put inflationary
pressures on the already weakened Belarusian economy.
According to Central Bank estimates, inflation could bypass
100% year-on-year by the beginning of 2012. The authorities
responded to the subsequent depreciation of the national
currency in devaluing the Belarusian ruble, first in late May by
56%, then again on 20 October, bringing its value against the
US dollar to BYR 8680, whereas it was slightly over BYR 3000
one year ago.
The social consequences of the unfolding crisis are
manifold. Several industries that cannot pay back their debts
had to cut their production and lay off personnel. Inflation,
devaluation and rising unemployment have eaten up the
populist pay raises decided before the elections, when the
average monthly salary of state-paid employees (ie. 70% of
the Belarusian workforce) was raised to the symbolic level of
$500 equivalent. In real terms, the average purchasing power
of Belarusians has now fallen to $230.
Belarusians have reacted to this worsening economic
situation with strategies of “exit and voice”. Labor emigration
has exploded over the past months. Already before the crisis,
1mln Belarusians (20% of the working population) was
employed abroad. The figure is on the rise, with Russia and
Ukraine as favorite destinations, given that in the absence of a
framework agreement on visas and mobility, access to the EU
job market is almost closed for Belarusians.
Disappointment with the regime for mishandling the
economic crisis was first voiced out in June when car-drivers
68
organized a slow-down action that paralyzed central Minsk
following an increase in gasoline prices. The two following
months, silent street demonstrations gathered thousands of
protesters in several Belarusian towns on Wednesdays.
Organized through social networks, this unprecedented wave
of social unrest seriously worried the regime, which responded
with violent repression and a tightening of the anti-riot
legislation.
Adding to the ongoing crackdown against the political
opposition, the worsening of the human rights situation in
Belarus deprives the regime of any hope to obtain loans from
Western countries and the IMF. Against this background, the
aid package provided by Russia in November, the most
generous “present” Belarus ever received in the past 20 years,
is a godsend for Lukashenka: it allows his regime to “buy”
social peace. This should be facilitated by the transfer of the
second tranche, worth $400mln, of a $3bln three-year loan
granted by the Eurasian Economic Community’s Stabilization
Fund earlier this year.
In exchange, official Minsk apparently committed itself to
supporting Russia’s reintegration plans of the post-Soviet
economic space, made public by Vladimir Putin on 4 October.
Lukashenka enthusiastically responded to this initiative of
creating a “Eurasian Union” on the basis of the existing
Customs Union of Russia, Belarus and Kazakhstan and on 18
November he signed the subsequent trilateral declaration. That
same day, Russia’s Sberbank granted a $1bln loan to Belarus.
Moscow’s aid package includes several other “rewards”,
but such generosity is not altruistic: in trading its financial aid
for geopolitical loyalty, Russia is strengthening its control over
Belarus.
This is especially true in the energy field. On 25 November
the representatives of the Union state of Russia and Belarus
signed a contract on the conditions for supply and transit of
Russian natural gas for 2012-14 which provides for prices to
decrease to $165 per 1000m³. This is about 40% less than
what Belarus is currently paying, and represents a saving of
$2bn annually. In return for the rebate, official Minsk agreed to
finalize the sale to Gazprom of the remaining 50% stakes of
Beltransgaz, the state company owning the Belarusian pipeline
network. Other privatization deals should follow that will allow
the Belarusian regime to amass hard currency in exchange for
selling out Belarus’ industrial assets.
Lukashenka’s unsustainable economic model has once
again been miraculously rescued, but Belarusians will have to
pay Russia back in kind – thus putting the very sovereignty of
their country under serious threat.
Anaïs Marin
Researcher
Finnish Institute of International Affairs
Finland
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