BELARUS NEWS AND ANALYSIS

DATE:

03/06/2009

Broke Belarus Slaps Lender Russia in the Face

By Nikolaus von Twickel / The Moscow Times

The Belarussian Central Bank's web site is not exactly what you call an exciting read, but surfing its statistics section these days is harrowing, to say the least.

The numbers make it quite clear that Belarus, one of Russia's staunchest allies, is on the verge of bankruptcy.

Foreign currency reserves stood at $3.75 billion on May 1, yet foreign currency debt at the beginning of the year had reached $14.8 billion, $7.9 billion of which is short term.

A government budget of $25 billion and a massive trade deficit complete this bleak picture.

"The financial situation is incredibly serious, and it is worsening every month," a senior Western diplomat said by telephone from Minsk, requesting anonymity because of the sensitivity of the issue.

Yet help is at hand, with billions of dollars pouring into the small, landlocked country of 10 million people wedged between the European Union's eastern rim and Russia. The money is coming from Russia, which has promised a $2 billion loan, and the International Monetary Fund, which is to extend a credit line of up to $2.4 billion.

But paradoxically, Belarussian President Alexander Lukashenko, a former collective farm director who has kept an iron grip on the country since 1994, has bluntly slapped Moscow in the face.

Last week, Lukashenko lashed out at Finance Minister Alexei Kudrin, who had questioned Belarus' worthiness of getting the last $500 million tranche of the Russian loan and speculated that the country might be insolvent by the end of the year.

"[Kudrin] joined ranks with our hoodlums who bark for Western money and teach us how to work," an angry Lukashenko said.

He said Belarus would not "whine and weep" if things did not work out with Russia but "look for better luck in other parts of the world."

President Dmitry Medvedev retorted Wednesday that the outburst was unacceptable. "We have never tolerated and we will we never tolerate giving personal characteristics to other countries' leaders," he said at an economics meeting, Interfax reported.

The clashes throw into doubt long-standing efforts to form a "union state" of both countries.

Despite the fact that he has been labeled Europe's last dictator, Lukashenko has recently embarked on a carefully staged rapprochement with EU countries, culminating with a visit to Rome in April and Belarus' accession into the European Union's Eastern Partnership program in May.

Yet Russia kept its cool amid Lukashenko's outbursts, with officials effectively saying relations are fine and the money should keep flowing.

Kudrin said Monday, several days after his initial assessment, that the $500 million loan was still being discussed and that Moscow would even consider raising the credit line for Minsk from $2 billion to $3.2 billion.

Analysts said that despite Belarus' dire financial situation, Lukashenko was in a comfortable position because both Russia and the EU could not afford to let the country's economy collapse.

The Europeans fear a domino effect that could send shockwaves across the continent, said Tomas Valasek, a director with the Center for European Reform, a London-based think tank. In addition, a lot of Western investment in Belarus would be at risk, he said.

Belarus has seen a surge in foreign direct investment since opening up its economy in 2007, following a gas dispute with Russia that increased the amount it paid for gas by more than 170 percent.

Russia, on the other hand, is ready to go to great lengths to tolerate Lukashenko in order to maintain its influence in the so-called near abroad, said Masha Lipman, an analyst with the Carnegie Moscow Center.

"Lukashenko is still much closer to Moscow than to Europe, and the Kremlin is extremely sensitive to Western influence encroaching on Belarus," she said.

Lipman added that despite Lukashenko's recent maverick behavior, he will not cross any red lines to alienate Moscow. "After all, his well-being depends on relations with Russia."

Valasek said the main difference between the Russian and Western approach to bail out Lukashenko was that Moscow would like to control Minsk's foreign policy, while the IMF and Western donors just wanted their money back.

He noted that the EU had not offered any special aid and preferred to work through the IMF.

Yet the EU's Eastern Partnership - which offers six former Soviet states free trade, economic integration and economic aid - obliges participants to commit to democracy, rule of law and sound economic and human rights policies. The program has been criticized by Moscow as an intrusion into its traditional sphere of influence.

Elmar Brok, a former chairman of the European Parliament and prominent lawmaker for German Chancellor Angela Merkel's Christian Democrats, said that the European policy goal must be to safeguard Belarus' independence.

"There is a lingering threat that the country will be swallowed by Moscow," he said by telephone from Hamm, Germany.

He said Minsk's refusal to recognize the independence of Georgia's rebel regions of South Ossetia and Abkhazia provided evidence that Belarus still controlled its own destiny.

The EU has made it clear that recognition of the two regions would unravel any progress being made with Belarus.

But Brok warned that Europeans should not be drawn into a conflict with Moscow in their talks with the Belarussian government. "We have to be wary because the government had been crafty toward both sides in the past," he said.

Brok also said that when talking about aid, Europeans should stick to stringent conditions. "We must watch out that Lukashenko does not just go panhandling," he said.

Belarus, meanwhile, is demanding another $9 billion from Moscow on Tuesday. Prime Minister Sergei Sidorsky sent a letter to Putin on Tuesday seeking the loan to build a nuclear power plant and related infrastructure.

Source:

http://www.moscowtimes.ru/article/600/42/377719.htm

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