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Opinion
March 1, 2019 www.intellinews.com I Page 20
economic weakness. More likely, the choice will
not be so black and white; the economy in Belarus may suffer in the 1-2 year outlook, but Moscow
will ultimately compromise, accepting technical preparations for integration that will keep its geopolitical options open. Indeed, Minsk may be prepared accept a period of economic challenges, with its extensive experience in muddling-through and crisis management. Moreover, we expect that following a dampening in growth, Belarusian GDP will recover to the extent that it will outpace Russia, amounting in 2020 to at least 10% higher in real terms compared to 2015, compared to Russia’s 6%.
Natural partners for “economic & political merger”?
Technically speaking, deeper economic integra- tion could occur between Belarus and Russia with relative ease. However, the long-term economic and political incentives are less clear.
At first glance economic integration could make sense given the extent to which Belarus relies on Russia for its oil and gas, as well as its domestic market.
If “direct investments” from Cyprus are included, it is clear that Russia dominates the foreign direct investment stock in Belarus (60-70%). Similarly, Russia accounts for 50-55% of its foreign trade. Closer integration with Russia could also resolve Belarus’s chronic currency and balance of payments crises.
However, in the long-term Belarus and
Russia’s economic structures are insufficiently complementary such that much additional value could be created. Mineral raw materials are the dominant export and import commodity in Belarus and, of course, the dominant export commodity in Russia. In this respect, further integration would not bring many additional trade gains. So even in view of Russia’s economic dominance, it cannot control Belarus with economic "soft power" alone.
Minsk’s policy trajectory has increasingly been to position itself opportunistically between West and
East with respect to trade and foreign affairs, and has little incentive to stop.
The Russian economy is currently showing little dynamism, weighed down by stagnation and isolation. Minsk is clearly determined to chart
its own political and economic course, having adopted stability-oriented economic policies, as well as some liberalisation measures, limiting the risk that it would require large-scale assistance from Russia. Nonetheless, Minsk is confident
that it still enjoys an effectively explicit Russian guarantee to extend support if needed.
This confidence is reflected by leading ratings agencies and current market pricing, which show that Belarus is regarded more as a Russian risk rather than an economically unstable country on the verge of bankruptcy (such as Ukraine, Egypt or Pakistan). Indeed, although leading rating agencies rate Belarus and Ukraine almost equally, longer- term Ukrainian dollar-bonds currently yield about 9%, while Belarusian bonds yield about 6-7%. Russia, in comparison, ‘only’ has to offer a yield of 4-5%. There would need to be considerably greater economic upside before Minsk agreed to a full- scale economic integration or common currency with Russia, or other such strategic convergences.
All in all, the coming 2-3 years will be crucial to gauge whether unification could become more realistic at a later stage – most likely before the 2024 Russian election, when Vladimir Putin may seek a way to bypass presidential term limits.
However, we assess that the political will for “unification” only exists insofar that it allows both sides to engage in geostrategic hedging. It is noteworthy that a full “political merger” is not on the table; the Treaty on the Union invoked by Moscow only envisions steps towards a single currency and common tax, customs and courts.
Even this is fanciful: integration is expensive, especially if it entails fiscal transfers, as the reunification of Germany demonstrated – and unlike West Germany, Russia is not in an