BELARUS NEWS AND ANALYSIS

DATE:

31/07/2007

Russia Refuses to Bail Out Lukashenko

By Dmitry Babich
Russia Profile

Refusal of $1.5 billion Loan from Moscow Signals Gloomier Prospects for Belarusian Regime

The failure of negotiations on a new loan to Belarus, held in Moscow on July 30, make clear that this time Moscow is serious about making its western neighbor and ally switch to market principles in bilateral economic relations.

The talks, held between Russian prime-minister Mikhail Fradkov and his Belarusian colleague Sergei Sidorsky, were supposed to clear the way for a $1.5 billion Russian loan to Belarus. Belarusian president Alexander Lukashenko asked for the loan saying he needed it in order to make up for the losses caused by Moscow's much publicized price hike for Russian natural gas supplied to Belarus, which began on January 1, 2007. The price went from $46.68 to $100 per one thousand cubic meters, which is still less than what other post-Soviet countries have to pay. Despite Lukashenko's protests, Russian natural gas giant Gazprom refused to back off, saying that $100 was still far less than the "European" price, which Gazprom estimates at $200. Lukashenko was forced to bow to Gazprom's pressure only after the Russian monopolist partially cut Belarus' gas supplies in January 2007.

Gazprom's move also indirectly affected their highly prized EU clients as Lukashenko siphoned gas destined for the EU out of the trans-Belarusian pipeline in order to compensate for his country's losses. The other blow to the Belarusian budget was dealt by Russia's decision to raise export duties on oil exported by Russian companies to Belarus. This move made Belarusian oil refineries less attractive for Russian oil majors, a situation which could cost Belarus billions of dollars and thousands of jobs at oil refineries.

Both the Russian and Belarusian premiers looked tired and unhappy, refusing to explain why the loan could not be made now. Russian prime minister Mikhail Fradkov called on the companies of both countries to work on ironing out their differences "in parallel" with the government. "This is a difficult question, one cannot solve it overnight," Fradkov said. "I hope they [the companies] will reach agreements which will help raise the effectiveness of our economic ties on an inter-government level."

So, for the moment the loan is a non-starter. But what will be the consequences of this for the Belarusian economy and will this situation lead to a bankruptcy of the Belarusian regime, which Western and liberal Russian analysts have been vainly anticipating since Alexander Lukashenko's coming to power in 1994?

Experts warn against expecting an overnight collapse. In fact, Moscow made some provisions for cushioning Belarus against the "gas shock." It was agreed that Minsk will pay only 55 percent of amounts due for the first six months of 2007. Payment of the remaining 45 percent has been off-set and discounts will continue until 2011, reducing to 33 percent 2008, 20 percent in 2009 and 10 percent in 2010.

Besides, Gazprom agreed to buy 50 percent of Beltransgaz, owner of the Belarusian pipeline system, for $2.5 billion, committing to payments in yearly batches of $625 million. The first such batch already arrived in Belarus's coffers this year. "The Russian side expected that Belarus will use this money to pay the debt for gas which went up to $500 million during the first six months of 2007. But this did not happen despite the fact that the payment was due on July 23," Moscow based Vremya Novostei daily reported.

Despite asking for a loan, Lukashenko made no signs of toning down his bitter rhetoric on Russia. "The Russians say they are guided by market principles. But a market presupposes free competition. And we are faced by a Russian monopoly - Gazprom," Lukashenko said in a recent interview to the French daily Le Monde. "We Belarusians and Ukrainians built Gazprom, together with Russians in Soviet times, constructing gas pipelines in Siberia. That is why we have the right to get energy at the same price as Russians. All this is a part of the project of the Union State, which Russia itself destroyed."

Russian officials may hardly be impressed by these lamentations, as under Putin Russia showed more interest in privatizing Belarusian industries than in the visionary plans to share a currency and legal code in a largely non-existent Union State of Russia and Belarus.

In Belarus itself, energy saving measures have so far been limited to numerous official calls not to waste electricity and hot water and some vague projects to use alternative fuels. Households and industry continue to receive energy at subsidized prices. President Lukashenko proudly praised himself on national television, declaring that "not a single social program was stopped" after the January price hike. In July, Lukashenko announced plans to stop subsidizing ineffective companies saying that they had enough time to reform themselves during the last 10 years. However, experts doubt Lukashenko's sincerity because changing the system of economic preferences in Belarus would mean changing the very nature of his regime.

"Every working Belarusian is a complicated economic phenomenon receiving all sorts of privileges and subsidies. He buys bad expensive sneakers produced by subsidized plants, rides subsidized trolleybuses, works out in state-financed gyms," said Viktor Martinovich, deputy editor of opposition daily Belgazeta in Minsk. "In neighboring Lithuania for the same amount of money he could buy Puma sneakers and a private gym would cover its expenses in six months. Wouldn't it be easier for us to produce quality footwear selling it at its real price? Yes, it would be easier. But then we are faced with the big Belarusian question: why do we need the state? So, when Lukashenko suggests minimizing subsidies, he is in fact suggesting minimizing himself."

Source:

http://www.russiaprofile.org/page.php?pageid=Politics&articleid=a1185881141