Page 51 - Buy Russia - bne IntelliNews monthly magazine April 2017

bne April 2017 Eastern Europe I 51
gross international reserves of $4.9bn as of January 1. The difficulty this
year is the external debt now maturing amounts to $3.4bn, or just under 70% of the country’s entire stock of hard cur- rency. Belarus has suffered several big currency devaluations starting in 2010 and if Minsk can’t refinance this debt it will have another one this year.
So far Minsk has been able to turn in its search for extra cash to the Russia- led Eurasian Fund for Stabilisation and Development (EFSD), a sort of International Monetary Fund (IMF) for the EEU members. Last year,
the EFSD paid out the first $800mn of a $2bn loan facility, but the pay-outs are painfully slow; the last tranche of $300mn was withheld. Moscow has been using the tranches to put more pressure on Minsk, as Belarus searches for the means to pay and service its external government debt of $13.5bn.
At the same time, Belarus has been talk- ing to the IMF about a possible new $3bn stand-by loan. But since Lukashenko hates being told what to do by outsid-
ers and lacks the required deep reform programme, Minsk is unlikely to see any of this money.
In late October, Lukashenko even publicly urged his government "to stop talking about the need for reforms" of his country's battered economy. "Without order and dis- cipline, especially now, we will not be able to make progress," Lukashenko added.
A month earlier, the IMF published its staff report, noting the Belarusian authorities' interest in a lender-supported programme, and "underscored the importance of strong commitment at the highest level to con- sistent macroeconomic policies and deep, market-oriented reforms".
That is not to say Lukashenko is doing nothing. The looming crisis has forced the government to tackle some of its problems. Minsk has introduced a sweep- ing set of regulation measures designed to end wasteful government-sponsored investment programmes. These mea- sures were praised in the latest Heritage Foundation economic freedom rank-
ings released on February 27. The whole
state procurement system has also been overhauled and put under the control of the new Belarus Development Bank, but it is all too little, too late.
“Belarus has achieved minor success in deregulation, but more liberal economic policies have not been a priority. Pervasive state involvement and control hamper the economy. Restructuring of the economic system has been very slow, and the small private sector is marginalized. Undercut by domestic structural weaknesses, the economy has little resilience against exter- nal shocks,” Heritage said in its report.
The economics are a problem, but what has really driven the wedge between Moscow and Minsk is Lukashenko’s refusal to support Putin in his fight with the West, and it seems that he is making a genuine effort to loosen ties with Moscow and improve them with Brussels.
This has shown up in many ways. Most obvious have been the political conces- sions; Minsk released its political prison- ers thanks to US prompting and allowed two opposition politicians to enter parlia- ment in the last elections. For these acts Brussels withdrew most of its sanctions on Belarus, imposed after the government brutally cracked down on rioters follow- ing rigged 2010 parliamentary elections. But despite the improving climate these reconciliations have had no beneficial impact on the Belarusian economy.
Meanwhile, Lukashenko seems to have gone out of his way to poke Putin in the
eye. At the start of the Ukraine con-
flict with Russia, Lukashenko reached out with supportive words to Ukrai- nian President Petro Poroshenko, and Belarus has refused to recognise Russia’s annexation of Crimea. More recently, Minsk balked at the establishment of a Russian airbase at Bobruisk and then unilaterally dropped visa requirements for 80 countries despite having an open border with Russia that requires visas for almost all these nationals.
Lukashenko is now looking at a brick wall. Unwilling to make the reforms that the IMF demands and unable to bully Putin into more subsidies, Lukashenko’s neo-socialist model is broken.
Belarus’s GDP fell by 2.6% last year and is now at 2007 levels. Exports have decreased by 13% and there is no way for the country to grow itself out of its hole. In what smacks of desperation, the authorities have sparked country- wide protests, the largest since 2010, by trying to impose a so-called “social parasite” tax on people with no jobs.
Belarus can probably muddle through for the moment, but Russia is now in a position to trigger the collapse of the Belarusian economy simply by turn- ing the oil and gas spigots a bit more
or delaying the next bail-out tranche for a few more months. At the same time, there is a chance, albeit slim, that another round of domestic protests could radicalise and turn into a colour revolution that ousts Lukashenko.
Find more Eastern Europe content at www.bne.eu/eastern-europe Selected headlines from past month:
· Russia’s great daylight bank robbery. The bank robbers have until recently gotten away with their crimes with impunity and many of them are to be found living openly in luxury in London. But the crackdown is gathering momentum and starting to affect the Russian elites.
· Yanukovych-era corruption schemes implicate Ukraine’s current elites. “A million dollars here or there made little difference to them back then,” says Taras Chornovil, a former close associate of Ukraine’s now-fugitive ex-president Viktor Yanukovych, in an interview about the under-the- counter cash payments that still grease the wheels of Ukraine's elites.
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