Belarus: Balancing foreign policy and reviving the economy

Arseny Sivitsky, Center for Strategic and Foreign Policy Studies

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Despite some negative forecasts, the Belarusian economy demonstrated positive dynamics in April, while Minsk foreign policy attempts led to specific results, following the negotiations with Russia and new prospects in the relations with China

Domestic Policy: Presidential address and force dominance

The State of the Nation address delivered by the President of the Republic of Belarus to the people of Belarus and the National Assembly on 21 April, 2017 was the main political event. Despite its central role in political agenda determining, this document was in many ways of a transitional nature. The main feature of the Belarusian president speech was the national unity issue, sovereignty and independence of the Republic of Belarus. One of the key points of the address was the state attitude to unemployment. Better financial support for unemployed was declared a priority, however, following a priority of facilitating employment.

Alexander Lukashenko’s address included important messages regarding attracting potential investors (especially Chinese partners), announcing widespread measures to improve the conditions for business owners and reducing the control of the state institutions. It was of a special interest that the President in fact put back the reforms of the government on the agenda.

Even though the authorities corrected its policy in many aspects, the period was marked with continued repressions of the participants of the protests of February–March, 2017. Alexander Lubenchuk, a cameraman for “Belsat” TV channel, a rights advocate Tatiana Revyako, an anarchist Vyacheslav Kosinerov, a street-art project coordinator Oleg Larichev, an activist Yury Lynsha were fined or detained. The opposition leader Nikolay Statkevich was detained as well, but most likely that it was done as a precaution before the unsanctioned protest on 1 May in the October Square in Minsk. Just as before, the court made a sentence based on a false testimony provided by the law enforcement officers, while the attacks on the activists themselves were left without any proper investigation.

Economy: Pursuing economic growth

Within the period the positive economic dynamics and growing economic optimism was seen among the Belarusian authorities. Despite the International Monetary Fund’s negative forecast for Belarus (GDP decline by 0,8%), the government is confident in reaching the economic growth already in the first 6 months of 2017. The first quarter demonstrated GDP growth of 0,3% (against the projected 99,6%) In general, taking into account the 2017 results, the government expects GDP growth of 1,7% and more.

Positive dynamics is seen when it comes to the ruble deposits of the population. The first quarter showed their growth of 6,5% (plus 192 million rubles). The average interest rate for the new loans in Belarusian rubles (exclusive of privileged credits) went down 3,6 interest points (in March1,7) in three months and reached its annual forecast (16,9% annual interest rate against the projected 17%). Inflation is going down and is placed within the projected parameters of 1,7% against the projected first quarter rate of 4,8%. While problem assets of the Belarusian banks started to increase again, their share in the banking system made up 13,7% as of 1 April. According to the foreign experts, the problem assets growth in the banking system of Belarus is determined by the fact that the authorities started to reduce state support for the inefficient state sector to slow down the inflation.

Manufacturing output grew by 1,2% in March, with first quarter level of output making up 104,3% by 2016. In January–February Belarus increased its export of goods by 20% against the same period last year and reached up to $3.781 billion with oil products export going down 15% (to $677.5 million).

Formally, it looked like Minsk in fact exacted concessions from Moscow regarding all key issues of the bilateral relations

With positive macroeconomic dynamics in the background, living standards of the population continue to decline. In January–February the level of the real disposable income decreased 3,2% against the last year level. However, in March the average Belarusian salary made up 770.6 rubles (9) ($406), which is 54.1 roubles ($28,6) less than in February.

Foreign Policy: Stabilizing relations with Russia, having active relations with China, and Ukrainian factor

The BelarusRussia agreements reached against the background of the terroristic attack in St. Petersburg on 3 April, 2017, remained uncertain and to a great extent illogical to observers during the period of ten days following the date when they were signed, until they resulted in specific contracts.

Formally, it looked like Minsk in fact exacted concessions from Moscow regarding all key issues of the bilateral relations, in exchange for a formal acknowledgement of the debt for Russian gas and its settlement. Given the context, the observers started to search for the hidden, non-economic implications in the reached agreement. To be more precise, analysts drew attention to the fact that Alexander Lukashenko emphasized such an aspect of the negotiations with Vladimir Putin as security issues for the both countries. Moreover, a special interest was captured when the Belarusian leader asked his Russian colleague to consider Belarusian interests when holding negotiations with the leading world countries, first of all the USA and the European Union. Some experts interpreted these words as an alleged surrender of the Minsk sovereignty and independent relations with the USA and the European Union while delegating the corresponding functions to Moscow. There are also speculations regarding Lukashenko allegedly agreeing to place some Russian military infrastructure and soldiers in Belarus. However, the following events proved there is no additional evidence of such an agreements in public space and they are not factually accurate.

The essence of the concessions made and the agreements reached is as following. Belarus 1) acknowledged its gas debt and paid back $730 million; 2) signed the Customs Code of the Eurasian Economic Union. Russia 1) restored the former volume of the oil supply (up to 24 million tons per year); 2) refused its requirement for Belarus to supply 1 million tons of the oil products to Russia at a domestic price; 3) provided a gas discount (the price of $130 instead of earlier $142 for 1000 cubic meters in 2017, $129in 2018, $127in 2019); 4) restored its work contacts to resolve conflict situations in export of the Belarusian food and the agriculture products to the Russian market; 5) undertook an obligation to provide financial support to Belarus (from $750 million to $1,6 billion).

China continued to be the source of the important “balancing news” in the given period. In the course of a meeting between Lukashenko and the Chairman of the Standing Committee of the National People’s Congress Zhang Dejiang, the Belarusian leader voiced “a list of the requirements” for the Belarusian cooperation with China. Namely, there were three of them: a priority implementation of the high technology projects in the ChinaBelarus Industrial Park; improving of a trade balance between the two countries; and a financial support of the Belarusian side. However, Lukashenko also voiced his full political support for the continued strategic cooperation between Belarus and China. His visit to China on 14 May, 2017 in order to participate in “One Belt One Road” Forum in Bejing was also confirmed.

Besides the essential “Chinese factor”, the cooperation at the highest political level with the Ukrainian authorities made a huge stabilizing impact on the Belarusian authorities. The meeting and negotiations held by Alexander Lukashenko and Petro Poroshenko  on 26 April, were of a critical importance both from the point of view of dealing with the negative aftermath following the March, 2017 crisis (more on the mass protests can be found in the Issue 3  and the Issue 4  of the Digest), and from the point of view of the strategic aspects for the further Belarus positioning in the region. The Belarusian side endorsed its position of a regional stability and security donor, as well as its obligation to oppose the use of its own territory  to threaten the national security of Ukraine or the international security of the region in general.

The parties announced that they reached an agreement for cooperation in the joint manufacturing sector, as well as in the oil and gas industry, which could mean not only continued oil product supply from Belarus but also developing of a scheme of alternate oil supply. Moreover, it is likely that the military and technological cooperation will also continue. Finishing the demarcation of the border, announced by the Ukrainian leader as a near-term prospect, will become a crucial factor for the better stability and predictability of the BelarusUkraine relations.