A prominent Belarussian dissident has warned that the economic foundations of president Alyaksandr Lukashenko’s rule are crumbling, as talks between Minsk and Moscow on a $3 billion-plus loan package near completion.
“Moscow has been holding back agreeing to the loan, in order to keep Lukashenko hanging on a hook”, Pavel Sheremet told Emerging Markets in a telephone interview from Moscow.
“Russia has its conditions: it wants to participate in privatization sales of Belarussian state companies, and it wants Lukashenko to come up with a plan to pay off all the debts that have accumulated. Moscow has just had enough.
“Lukashenko’s government has long been accused of brutality and of falsifying elections. But since the [presidential election of] December last year, economic policy has become thoughtless and disjointed”, Sheremet, who fled to Russia in 2004 after imprisonment and harassment in Belarus, said.
Lukashenko was reported in Belarussian media as saying that Russia was set to offer $6 billion, after he had a phone conversation with Russian president Dmitry Medvedev on Wednesday. Half would be funded by the Russian treasury and the Eurasian Community, a grouping of post-Soviet states, and half in prepayment for Belarussian imports to Russia.
But Russian finance ministry officials have referred only to the $3 billion loan. Moscow sources have indicated that Belarus could get cash by selling such key assets as the 50% of the gas transit company Beltransgaz still held by Belarus, or stakes in the truck manufacturer MAZ or the potash miner Belaruskali.
The country’s fiscal crisis is twinned with a monetary crisis: the central bank is fighting a losing battle against further devaluation of the Belarussian ruble, while foreign exchange reserves fell by one fifth to $4 billion in the first two months of the year, due largely to a hefty trade deficit.
The most urgent issue to be addressed is the multiple exchange rate that is undermining the monetary system, Tatiana Orlova, emerging markets analyst at Nomura bank in London, told Emerging Markets. This week the national bank web site quoted an exchange rate of 3,130 Belarussian rubles to the dollar, while rates at exchange booths in Minsk were more than double that.
Orlova said that Belarus had weathered the recession of 2008-09 with IMF support, but had then “gone on a spending spree”, citing a 50% increase in public sector wages and social spending in the run-up to the December election.
“This approach has become unsustainable. Oil prices have been rising and Russia has gradually been withdrawing its subsidies”, she said, referring to the increase in natural gas prices and the phasing-out over recent years of Russian tax breaks for Belarussian oil refineries.
Orlova said: “The Lukashenko regime may finally have outlived itself. The president has been manoeuvring between the EU and Russia but now neither side is keen to help him because of his lack of interest in reforms.”
Sheremet said: “Lukashenko has become a prisoner of his own social policies – or to be more exact, his slogans about social policies.”