Thursday, April 03, 2014

Can the EU help Belarus to guard its independence?

Belarus is the forgotten member of the EU’s Eastern Partnership. The EU has negotiated ‘action plans’ with the other five members – Armenia, Azerbaijan, Georgia, Moldova and Ukraine. These involve the EU promising benefits in return for commitments to reform. And of those five, all but Armenia and Azerbaijan have signed or will sign association agreements with the EU. Belarus has been excluded because of its human rights record. However, following Russia’s annexation of Crimea, both Minsk and Brussels are thinking seriously about a closer relationship.

Events in Ukraine have worried the regime of Alexander Lukashenko, Belarus’s president since 1994. His government, of course, dislikes popular revolutions of the sort that overthrew Viktor Yanukovych in Kyiv. But it also opposes the dismembering of a country like Ukraine. On a recent visit to Belarus, I noticed that officials became visibly nervous when asked about the new ‘Putin doctrine’ – the assertion of Russia’s right to intervene in neighbouring states to protect the interests of Russians or Russian-speakers (ethnic Russians make up 8 per cent of the population of Belarus; everyone speaks Russian but 15-20 per cent also speak Belarusian regularly).

Belarus’s response to the Ukraine crisis has therefore been ambiguous. It has condemned the disorder of the Maidan protests, blaming the fall of Yanukovych on Ukraine’s economic mismanagement and corruption (Belarus is indeed richer and less corrupt than Ukraine). But in the early phases of the crisis, Lukashenko and his ministers spoke out in favour of Ukraine’s territorial integrity and against its ‘Yugoslavisation’. But then – presumably because of growing pressure from Moscow – Minsk stopped repeating this implied criticism of Russia. Lukashenko’s most recent public comment was to say that Crimea was now part of Russia and that, if forced to choose “Belarus will always be with Russia”. But he added that the annexation “sets a bad precedent”.

One thing that some government officials and opposition leaders agree on is that in the long term, there is a danger of the country losing its independence. Belarusians both for and against the government muse openly on whether, post-Lukashenko, there will be anyone strong enough to stand up to Russia. The self-styled ‘father of the nation’ has long played a clever game with Russia, extracting economic benefits to allow Belarusians to maintain a reasonable standard of living, in return for making promises that he often wriggles out of (per capita GDP is about 50 per cent higher than in Ukraine, and almost as high as in Russia). Around 10-15 per cent of the country’s GDP derives from Russian subsidies, mainly in the form of cheap oil and gas. Recent Russian credits were tied to the privatisation of state-owned industries, so that Russian industrial groups would be able to buy them, but the privatisations never happened.

Though Lukashenko’s slippery behaviour has infuriated Russia’s leaders, they have tolerated it since they see him – as Franklin Roosevelt supposedly said of Nicaragua’s President Somoza – as ‘our son-of-a-bitch’. Russia and Belarus share a common travel area and an air-defence system; recently Russia sent a squadron of fighter jets to a Belarusian airbase.

But although almost all Belarusians want their country to be independent, they are divided on where its future lies. Opinion pollsters and political analysts say that support for the EU has grown in recent years. Some of them reckon that about a third of the people want Belarus to be democratic and closer to the EU, a third want to stay close to Russia and a third do not care. But these analysts reckon that the crisis in Ukraine has boosted support for Lukashenko: he is seen as a bulwark against the instability and chaos of their southern neighbour. The state media, of course, reinforce this message.

The main reason to worry about Belarus losing its independence is the dire state of its economy. Unemployment is negligible, thanks in part to at least 70 per cent of the workforce being employed by the state. But economic growth has almost come to a halt and the factories are full of unsold goods. Apart from a respectable IT sector, Belarus has little modern industry. It sells refined oil products to the EU, and tractors, lorries and heavy vehicles to Russia. Sales to Russia have slumped, not only because of Russia’s own economic slow-down, but also because of Moscow’s entry into the WTO; Belarus’s goods now face stiff competition from emerging economies in the Russian market. They are not competitive because productivity growth in Belarus’s state-owned industries has been minimal. Another problem is that earnings from the staple export of potash have slumped: last year a Russian potash firm pulled out of its cartel with a Belarusian partner, leading to a sharp fall in the global price.

All these problems led to Belarus’s current account deficit ballooning from 3 per cent of GDP in 2012 to 10 per cent last year – that is $7.3 billion. Although the Belarusian rouble has depreciated by 15 per cent since 2011, when there was a sudden devaluation of 36 per cent, this deficit is likely to worsen in 2014. The central bank only has $6 billion of reserves, which means that the country is going to have to borrow a lot of money. It is hard to see Western governments or institutions lending substantial sums. Which leaves only Russia, and the regional bodies it controls. But Moscow will set tough conditions on any loans, and given the weakness of the Belarusian economy, Lukashenko may be less able to resist the conditionality than in the past.

Russia’s first demand is for supportive statements on Crimea, which Belarus has more-or-less complied with (in 2008, after Russia invaded Georgia, Belarus was less compliant: it refused to recognise the independence of Abkhazia and South Ossetia). The second demand is for the privatisation of state-owned industrial assets. The third demand is that Belarus agree to the Customs Union between Russia, Belarus and Kazakhstan being transformed into a stronger ‘Eurasian Economic Community’ (EEC).

That last demand is already the subject of tense negotiations between Moscow, Minsk and Astana. The Eurasian Economic Community is a pet project of President Vladimir Putin, who says that its rationale is economic but seems to see it as a geopolitical counterweight to the EU.

The Customs Union, up and running since 2010, has many holes in it. About a third of all goods and two-thirds of all services are excluded from its rules, so that the three members can protect cherished industries. Belarus and Kazakhstan have to accept the high external tariffs that Russia has insisted on, to protect sectors such as car manufacturing. Independent economists in Belarus say that it does not benefit much, since it had free trade with Russia before the Customs Union started – with one important proviso. Russia bought Belarus’s support for the Customs Union by offering it cheaper energy prices than those available to other export customers. Officials in Minsk are more positive about the economic benefits of the Customs Union, but still worry that its institutions – notably the Commission (in theory, modelled on the European Commission) that is based in Moscow – are dominated by Russians.

The plan is for Presidents Putin, Lukashenko and Nursultan Nazarbayev of Kazakhstan to sign an agreement on the Eurasian Economic Community in May. Armenia (which last September decided not to sign the EU association agreement that it had negotiated) and Kyrgyzstan have expressed an interest in joining but are several years away from doing so. The EEC is supposed to cover the ‘four freedoms’, meaning free movement of goods, services, capital and labour. However, the rules are still being haggled over. Belarusian officials say proudly that they and the Kazakhs have blocked Russian plans for the EEC to become a political organisation; they insist that they will thwart Russia’s desire to re-establish parts of the USSR via the Eurasian Economic Community. They are also reluctant to accept free movement of capital, since that would enable Russian oligarchs to start buying up Belarus.

Many Belarusian economists think that the Eurasian Economic Community would not bring much in the way of economic benefits. However, as with the Customs Union, there is an important qualification. Every year Belarus has to transfer about $4 billion to Russia, from the export duties paid on refined products made with Russian oil. Belarus is desperate to hold on to that money, and Russia may agree – in return for the EEC treaty being signed.

Lukashenko and his ministers are keen not to become too dependent on Russia, and have therefore renewed their on-off flirtation with the EU. Foreign Minister Vladimir Makei attended the EU’s Eastern Partnership summit in Vilnius last November, since Belarus is allowed to take part in the partnership’s multilateral discussions. That visit led to the EU and Belarus starting talks on ‘visa facilitation’ (a softer visa regime) and a readmission agreement (whereby Minsk would agree to take back those who enter the EU illegally from Belarus). They are also talking about talks on what the EU might do to help the Belarusian economy.

However, EU sanctions on Belarus, imposed because of its human rights record, remain in place. There are visa bans and asset freezes on 232 individuals associated with the regime. A number of companies close to the government are also sanctioned. Belarusian ministers argue that the EU’s stigmatisation of Belarus is unfair, given that Azerbaijan is a full member of the Eastern Partnership, despite having a human rights record no better than that of Belarus.

But despite a certain degree of bitterness towards the EU, some senior figures in the Belarusian government hope for a rapprochement. Opinion in the EU is divided. Those who oppose re-engaging Belarus point out that the last attempt to do so ended in tears. After the 2008 war in Georgia, Javier Solana, the then High Representative, visited Minsk and brokered a deal with Lukashenko. In 2009 his government released all political prisoners and in return the EU suspended sanctions and encouraged the IMF to lend. But at the time of the December 2010 presidential election, the security forces clamped down hard on demonstrators, presidential candidates were locked up and then in February 2012 the EU withdrew its ambassadors. Belarusian opponents of rapprochement, such as Andrei Sannikov – a former presidential candidate who was in prison and is now in exile – argue that the regime will never change as long as Lukashenko is in power, and that engagement is futile.

But advocates of engagement, who include senior figures in Lithuania, Poland and Sweden, draw a different lesson from Solana’s efforts: that in the right circumstances the regime is capable of softening, for example by releasing prisoners. There is talk of appointing an independent mediator to broker a deal between Brussels and Belarus. One name mentioned is Solana himself, now in retirement; another is Alexander Kwasniewski, the former Polish president, who last autumn tried and failed to bridge the gap between Yanukovych and the EU. The geopolitical fall-out from the Crimean crisis seems likely to ensure that the advocates of engagement win the argument. It is not in the EU’s interests for Belarus to become a complete satellite of Russia.

In May the Ice Hockey World Championship will take place in Minsk, which may give Lukashenko an excuse to release political prisoners (the EU counts six of them) and soften aspects of his regime. Nevertheless there are clear limits to how far any rapprochement can go. The IMF is unlikely to lend billions of dollars to a country with a state-run economy that is undemocratic. That means that Belarus needs Russia’s good will and money in order to sustain its economy. If Minsk moved too close to Brussels, Moscow would have plenty of levers to pull, in order to yank it back.

Charles Grant is director of the Centre for European Reform.

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