With Economy In Free Fall, Belarusian President Running Out Of Options

Belarusian President Alyaksandr Lukashenka seems to be running out of options. Rapidly.

Minsk applied to the International Monetary Fund (IMF) for a bailout of up to $8 billion, that on top of the $3.5 billion the fund provided following the 2008 global financial crisis and the $3.5 billion package that the Russia-led Eurasian Economic Community pledged last month. China has also provided about $1 billion in trade credits.

The latest request to the IMF comes as the country scrapes the bottom of its hard-currency reserves, experiences growing double-digit inflation, and watches the national currency lose value by the day.

The meltdown was sparked largely by increases in the rates Minsk must pay for Russian energy and a lavish, populist campaign of public spending that Lukashenka rolled out in the run-up to the December 2010 presidential election.

The IMF might offer Belarus a lifeline, but the conditions will be harsh, says Matthew Rojansky, the deputy director of the Russia and Eurasia Program of the Carnegie Endowment.

"A bailout should be possible, as long as the necessary nonpolitical conditions can be imposed. But I think the IMF would take in some ways a similar approach as the Eurasian Economic Community in demanding that there is proof of action before the money gets released," Rojansky says. "It would be foolish for them to do otherwise, to give Lukashenka even the first tranche, which he would use to prolong his short-term survival and then probably maneuver for some other alternative without undertaking the necessary reforms."

Bitter Medicine

An IMF team wound up a visit to Minsk on June 13, warning Lukashenka that "structural reforms" must be implemented if Belarus hoped to receive further assistance. Such reforms would break his vise grip on the Belarusian economy. The Bloomberg news agency ran a stark headline on June 14 that encapsulates the situation: "Lukashenka Must Choose Between Belarus Control or IMF Aid."

The head of the IMF team in Belarus, Chris Jarvis, told reporters in Minsk that any new assistance would be contingent upon "a strong program" that addressed the deficiencies of Belarus's state-dominated economy. "We would also have to be sure that all actors -- the president, government, and national bank -- are committed to that program," Jarvis said.

And that has long been a problem in a country that has been autocratically ruled by Lukashenka for 17 years. Yury Shautsou, director of the Minsk-based Center for Problems of European Integration, says the economists in the National Bank have trouble implementing their policy suggestions.

Shautsou says that while there are "some very good people" in the National Bank and Finance Ministry, he has "spoken to many of them and they say, 'We prepare good documents but then the presidential administration issues instructions or orders that say the exact opposite thing.' This raises the question of who is making decisions about the Belarusian economy."

A Threat To Lukashenka?

The economic situation in Belarus -- which is a relatively small and isolated economy -- is increasingly presenting political challenges to the Lukashenka government. In addition to a sweeping crackdown since December against the political opposition that has provoked the ire of the West, Belarusian security forces have put down numerous protests sparked by the crisis.

On June 12, police in Hrodna forcibly dispersed a demonstration of drivers who were protesting draconian new rules imposing customs fees on cars leaving the country with more than 5 liters of gasoline more than once every five days. On June 14, Lukashenka vowed to "strike hard" against any further public protests in the country.

Economist Anders Aslund of the Peterson Institute for International Economics in Washington, said in an interview posted on the institute's website that the Belarusian meltdown presents more of a political problem than an economic one for the country's neighbors.

Aslund said that while Belarus was "not sufficiently important" to threaten a regional economic contagion and the country that most concerned is Russia, which "can easily take it. So, if there would be a contagion, it would be political. It would be like the Arab Spring, and it could go to Ukraine and to Russia, because Lukashenka can not take this politically."

Aslund sees the crisis as similar to the collapse of the state-centered economic model of the Soviet Union.

Analyst Rojansky agrees that the economic meltdown is likely the beginning of the end of Lukashenka's rule in Belarus, although he avoids saying the president's departure is imminent. Nonetheless he urges the West and Russia to begin planning for a post-Lukashenka Belarus.

He says that although Russia's oligarchs are pushing hard for the opportunity to buy up Belarusian state assets at fire-sale prices, Moscow's long-term interests in the country are similar to the West's.

Rojansky says Russia and the West "can agree that we don't want a humanitarian crisis. We can agree that if there is real political instability in Belarus -- even if we don't agree on what the outcome should be -- that we don't want violence and we don't want to be reacting to one another in the kind of hostile way that you saw around the Georgia crisis in 2008."




By Robert Coalson. Published on 14 June 2011
Copyright (c) 2011. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/ Radio Liberty
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The views expressed in this article are the author's own and do not necessarily reflect those of S & D.