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Belarus moves into uncharted territory

As public's trust withers, Lukashenko might be forced into reforms to his Soviet-style autocracy.

Belarus economy youth 06 06 2011Enlarge
Members of the Belarusian "Pioneers" state youth organization salute as they march during an official ceremony marking National Flag Day in Minsk on May 8, 2011. (Victor Drachev/AFP/Getty Images)

VITEBSK, Belarus — It is a sign of the magnitude of the economic earthquake that is shaking Belarus right now, that even in this tidy, sleepy city near the Russian border, tremors are being felt.

Vitebsk, with a population of about 300,000, is known more for its annual summer music festival, and as the birthplace of modernist painter Marc Chagall, than it is for any political engagement. On a recent Sunday afternoon, its winding streets were crammed with students and families, seemingly more concerned with enjoying one of the first warm days of summer, than with any economic developments in the rest of the country.

But underneath the laughter and bonhomie ran a current of anxiety. People, when asked, all said that they were suffering from the country’s deepening financial impasse, brought on by a sharp devaluation of the national currency, the ruble.

The crisis has resulted in a sharp rise in prices, while more stable currencies like dollars and euros have disappeared from the country’s banks. Some Belarusians are spending their rubles in a flurry of panic buying, before the tender loses any more of its value.

“Of course we are feeling the crisis,” said Slava, a university student, as he drank beer with friends in an outdoor restaurant. “There’s no hard currency in the country. Only rubles, which are no use to anyone.”

“All our salaries are in rubles, and the banks don’t give out any dollars,” he continued. “God knows what is going on.”

Belarus has entered uncharted waters, politically and economically. During the 17-year rule of its authoritarian leader, Alexander Lukashenko, the country has operated according to an unspoken “social contract.” Lukashenko maintained a quasi-Soviet, state-run economy, which guaranteed high economic growth rates, full employment, an extensive social safety net, and political stability. In return, the population for the most part did not question his iron-fisted methods of preserving order.

But now, this social contract lies in tatters, experts say. Lukashenko’s economic model is at its end, as cheap Russian oil and gas — which kept industrial costs low and made Belarusian products more competitive — is no longer available. In addition to the devaluation, factories have begun to lay off workers, albeit in small numbers. Officials say that they will also slash social spending by the end of the year.

And the political situation is also suddenly shaky. Protests following presidential elections in December resulted in a crackdown on the country’s anti-government opposition. More than 40 leaders and activists have been tried and many have received lengthy jail sentences.

A deadly bomb in a central Minsk metro station during rush hour in April, which killed 14 and injured more than 200, sent out further shockwaves. Some Belarusians began to question the benefit of an authoritarian state if it could not provide basic protections, such as preventing bloodbaths on public transport. The authorities’ contradictory statements during the investigation — at various times assigning completely different and conflicting motives
for the attack — further undermined some of the public’s trust in the government.

“The Belarusian people tolerated [Lukashenko] and voted for him because he assured some kind of stability,” said Jaroslavl Romanchuk, a former presidential candidate and economic expert. “Now we don’t have political stability, we don’t have economic stability, we don’t have savings stability. So I think that [support for him] will be over.”

But if Belarus is entering a Brave New World, what will happen now?

It is not entirely impossible that Lukashenko and the Belarus government manage to stabilize the ruble and weather the economic storm. This could even provide a boost to the country’s economy, since the less expensive national currency would make Belarusian products more competitive abroad.

“The currency problem will be settled, sooner or later, with a cheaper ruble, that will stimulate exports,” said Andrei Savinykh, Belarus’s foreign ministry spokesperson. “Definitely. And the higher exports will stabilize the economy.”

If the ruble does indeed firm up, it will prepare the path for anticipated, painful economic reforms. Lukashenko, according to experts and diplomats, must privatize large portions of the country’s industry, or face further economic decline. These reforms however will probably result in widespread layoffs, as outside investors take a knife to the factories’ bloated workforces.

Much depends on the country being able to secure billions of dollars in stabilization loans. So far, this is not a sure thing. Minsk has asked the International Monetary Fund (IMF) for a bailout of up to $8 billion. But the IMF has already been burned once in assisting Belarus, after Lukashenko’s government failed to carry out the conditions of a $3.5 billion dollar aid program two years ago. And the IMF member states, like the United States, may refuse to bail out Lukashenko while he holds political prisoners.

The other source of assistance, Russia, is also driving a hard bargain. Moscow, through the Kremlin-led Eurasian Economic Community, approved this weekend a $3 billion dollar loan to Minsk, staggered over three years. The first tranche of $800 million should be released in the next two weeks.

But some say that Russia will exact a high price for its assistance, demanding significant parts of the Belarusian economy in return.

http://www.globalpost.com/dispatch/news/regions/europe/110606/belarus-economy-loans-russia-imf