BELARUS NEWS AND ANALYSIS

DATE:

22/10/2008

Belarus: Turning to the IMF

Summary

Belarus on Oct. 22 requested a US$2 billion stabilization loan from the International Monetary Fund as "a preemptive measure," according to a spokesman for the Belarus Central Bank. The request shows that the global economic crisis is spreading through Central Europe. Moreover, it shows that Belarus wants to wean itself from Russia.

Analysis

The Belarusian government on Oct. 22 requested a US$2 billion stabilization loan from the International Monetary Fund (IMF). A spokesman for the Belarus Central Bank told Dow Jones Newswires that the loans are "a preemptive measure : to increase the country's foreign currency reserves." The move comes shortly after similar requests by Hungary and Iceland and during ongoing negotiations with Ukraine for an aid package, illustrating how the financial crisis is quickly spreading through Central Europe.

More importantly, the request by the isolated and authoritarian Belarus for an IMF loan is notable because it further illustrates Minsk's desire for independence from its supposed patron Russia. By going to the IMF, Minsk is essentially saying that it would rather allow a Western financial institution some control over its economy than ask Russia for (another) loan. An IMF loan would be more palatable to Minsk than going to the European Union, since the EU would want significant political changes in return, whereas IMF's conditions are mainly economic.

Russia and Belarus have a complex relationship. Belarusian President Aleksandr Lukashenko once hoped that he would replace Boris Yeltsin as the most powerful figure in the former Soviet Union through the nascent Union State of Russia and Belarus - a loose supranational organization - and resents being treated as a junior partner since Vladimir Putin's rise to power. The Kremlin has mostly rebuffed Lukashenko's repeated calls for a full and concrete partnership with Russia that would be strengthened within the framework of the Union State.

A political opportunist concerned primarily with staying in power, Lukashenko has repeatedly tried to influence Moscow - whose support he needs, in the end, to stay in power - with hints that he has other options. One of these options is closer collaboration with the EU - a difficult strategy since it would mean political liberalization which could eventually precipitate a loosening of Lukashenko's hold on power. He has also criticized Putin for Russia's impotence in preventing Kosovo's independence, still has not recognized South Ossetia and Abkhazia, initially delayed offering support for the Russian intervention in Georgia and got into a spat with the Russian natural gas behemoth Gazprom over gas prices. Most recently, on Oct. 20, Lukashenko criticized the Kremlin for not getting more involved in the Commonwealth of Independent States and making the organization worth something to its members. Naturally, these acts raise doubts within the Kremlin on whether Belarus is indeed a "staunch ally."

Lukashenko, however, is wary of becoming any more dependent on Russian aid since such aid inexorably comes with links - or rather chains. On Oct. 21, Russia agreed to give Minsk a US$2 billion loan for natural gas purchases that Belarus - whose economic fundamentals are already in bad shape - cannot make due to the financial crisis. As winter approaches, the ability to afford sufficient natural gas supplies is key to keeping political opposition to Lukashenko at a minimum. With no deal set yet on the actual price of Russian natural gas for Belarus, Russia is in a position to make things very difficult for Lukashenko at any moment.

The proposed IMF loan is therefore yet another shot across the Kremlin's bow. IMF loans inevitably come with conditions on government spending, capital and trade controls, taxes and other political policy decisions - conditions that could very well impact Russia's dominance of Belarus. That Lukashenko is considering choosing a Western financial institution over Moscow is a signal that he is open to cooperation with the West and that he wants to become more independent from Moscow.

This is unacceptable for the Kremlin. Belarus - along with the Baltics, the Caucasus and Ukraine - is a key geographic buffer against the West. Furthermore, since Belarus is perceived as the most committed CIS member and Russian ally, it is bad for Moscow's image to have Belarus asking the West for loans - particularly when Russia made it so clear that it has enough capital to rescue potential allies, such as its offer of a 4 billion euro (US$5.43 billion) loan to Iceland.

Lukashenko is playing a very dangerous game in this case. With overtures to the EU and now the IMF, he has repeatedly shown Moscow an independent streak that makes him an unreliable ally. Open sedition by its supposed allies is not something that a resurgent Kremlin is likely to tolerate for too long.

Source:

http://www.google.com.au/search?hl=en&q=Lukashenko%20Minsk%20Ghetto&btnG=Google%20Search&meta=

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