BELARUS NEWS AND ANALYSIS

DATE:

02/08/2007

Belarus: Gas Row Raises Concerns For Economy's Health

August 2, 2007 (RFE/RL) -- Russian gas monopoly Gazprom announced on August 1 that it will cut gas supplies to Belarus by 45 percent as of August 3 because of an unpaid gas bill of $456 million for deliveries in the first half of 2007. The move could be problematic for the government of hard-line President Alyaksandr Lukashenka.

The country's economic stability -- or what Belarusian officials call an "economic miracle" -- has been largely due to cheap energy and favorable loans from Russia. RFE/RL correspondent Luke Allnutt asked Vitali Silitski, the director of the Belarusian Institute for Strategic Studies, about how the move could affect the Belarusian economy.

RFE/RL: Is Belarus on the verge of economic collapse?

Energy consumption [compared] to GDP in Belarus is perhaps double what it is in Central Europe.

Vitali Silitski: Not at all. The problem is rather technical and, as a matter of fact, if they wanted to pay that, they would have. It's more the political and economic maneuvering by the Belarusian side that led to this situation. Talking about the issue in question, it's about $500 million, and if they had wanted to pay it they could pay it with the money they received from the sale of [gas-pipeline operator] Beltranshaz.

RFE/RL: So why don't they pay?

Silitski: That's a very good question. There are several versions. One of them is that they are trying to use the debt as a pretext to get a new Russian loan and that they're sort of stocking up money in advance. The issue is not the economic difficulties right now, but the economic difficulties they would face in the future when the prices grow. So I think they wanted to receive a Russian loan in advance.

RFE/RL: So gas prices in 2011 will rise to reach EU levels. You mentioned that in the short-term Belarus won't face any immediate economic difficulties, but in the medium and long terms could they face problems?

Silitski: If they're not capable of adjusting to these prices then, of course, they will. So it's no question.

RFE/RL: What do you think the Belarusian economy needs to do to adjust?

Silitski: Well, they have to start reforms that have been delayed for a decade and a half, starting with the energy sector and going down to privatization and restructuring of the economy. One of the reasons why this energy conflict is so prominent is that [Belarus] has just got used to their low energy prices for so long and the state-owned enterprises are just not that efficient.

Probably energy consumption [compared] to GDP in Belarus is perhaps double what it is in Central Europe. They are trying to avoid privatization, but then it cost them. Right now their short-term strategy is to replace any serious restructuring of the economy by just borrowing.

RFE/RL: And why are the Belarusian authorities trying to avoid restructuring of the economy?

Silitski: Just because it is an issue of political control.

RFE/RL: Meaning if, for instance, there was a factory that employs 30,000 people...

Silitski: Absolutely, if they started employing 5,000 people, what do you do with 25,000 people? And if you give away property into private hands, how do you control it and another bunch of issues.

RFE/RL: There have been hints from Belarusian officials that they do want to privatize, perhaps not big enterprises, but at least small- and medium-sized enterprises. Are there are any realistic signs that Belarus could begin a privatization program?

Silitski: This government will not start any privatization until all other options have been used, and right now they're running out of options. Right now they're trying to replace privatization with state-run modernization of state-owned enterprises again by using foreign borrowing and just a few weeks ago they announced a major modernization of the cement industry and again they refused to privatize. [Instead] they want to borrow some half a billion dollars on the international markets to invest in these enterprises. So that's their strategy. They will pursue it until a) the external resources, the loans, are unavailable; and b) they encounter the situation where they have to privatize. But it will be a very difficult decision for them for the reasons I just mentioned.

RFE/RL: And turning to Russia's relations with Belarus. Has Putin now had enough of Lukashenka?

Silitski: I don't know whether it is really a political issue right now. It's not clear for me. They just failed to pay their debts and the one thing Russia wants from Belarus right now is money. Such situations were frequent a decade ago, but at that time it was pretty easy for Lukashenka to get some postponement or be forgiven the debt, but [this situation] is no longer. So Russia is definitely getting more tough on Lukashenka.

RFE/RL: And apart from Russia, is there anywhere else Belarus could get the money from?

Silitski: Oh, very easily. It's not an issue of politics all the time. Private borrowing is private borrowing. It is given by private commercial banks. Unlike Russia, Belarus has a very good record dealing with Western partners in terms of borrowing and returning debts. And interest rates that Belarus will be charged will be higher than in [Western] Europe, so it's pretty profitable to loan money to Belarus. Also there are these fraternal states like Venezuela, etc. But it's not that important, it's not that big money compared to Europe and Russia.

RFE/RL: Some analysts have said that in the long term this could be good for Belarus as it could be forced into market liberalization and that could mean, in turn, more political freedom. Do you think that's an accurate analysis?

Silitski: Well, in the long term, without doubt. Yes, I sort of think it will be good for Belarus. But the relationship between economy and politics is not linear. Even if the [Belarusian authorities] go for some economic reform, they will do it only to the extent where they will be able to keep political control. So even if you have some economic liberalization, political liberalization [can lag behind] for quite some time. It's simply not that easy.

Source:

http://www.rferl.org/featuresarticle/2007/8/362a1607-d3b8-4776-8397-cb323c0ab1b6.html