28 March 2024, Thursday, 16:42
Support
the website
Sim Sim,
Charter 97!
Categories

Bloomberg: Hour of Reckoning Drawing near For Belarus

Bloomberg: Hour of Reckoning Drawing near For Belarus

This primarily means the end of dreams and the hour of reckoning for Lukashenka.

In Europe, Belarus is known as the “last dictatorship of Europe”. Its 65-year-old ruler Lukashenk, at power since 1994, turned Minsk into a kind of Soviet theme park. This is a kind of idea of what, in his opinion, the situation would have been if they had managed to avoid the collapse of the communist system in 1991, Bloomberg journalists Marc Champion and Aliaksandr Kudrytski write (translation - inosmi.ru).

Statues of Lenin and other Bolshevik heroes still dominate cityscapes. Stalin-era buildings and boulevards are immaculately maintained and painted; parks are manicured and pavements swept clean. The very existence of the system was made possible by billions of dollars’ worth of de facto annual Russian energy subsidies, in the form of large quantities of crude oil which Belarus buys at a discount. Russia is withdrawing those subsidies through a so-called tax maneuver, which will eliminate an exemption that benefitted Belarus. Its refineries already pay 80% of the world price for Russian oil—up from 50% five years ago—and as a result of the tax change they will pay full price by 2025, at a cost, says the government, of $10 billion over those six years. (Belarus also pays as little as half as much as Western European countries for Russian natural gas. Negotiations to continue that discount are ongoing.)

Without compensation for these lost subsidies, Belarus may have to restructure its legacy state-owned factories, losing many of the jobs and welfare systems they sustain. “What you have to remember is that Belarus is an oil economy. It doesn’t look like an oil exporter, but it is, because all the time it has been getting cheap oil from Russia,” which it then refines for re-export to Europe, says Sergei Guriev, a former chief economist for the European Bank for Reconstruction and Development. “That’s about to change, and we have this hour of reckoning.”

The Kremlin is making any compensation to soften the blow contingent on a deal to integrate the two countries. That’s forcing Lukashenka to navigate a choice he has long sought to avoid: Cut a deal with Russia, at the risk of being seen to sacrifice sovereignty, or put the nation’s heavy industry on a commercial footing and turn westward for support, risking retribution from Moscow. An agreement resulting from months of intense negotiations is due to be signed on December 8.

The price Belarusians have had to pay for that stability, in terms of lost human rights protections and political freedoms, has been exorbitant. The domestic security service is still called the KGB. A 2018 United Nations report cited abuses that ranged from police torture to restrictions on the freedom of expression.

Yet a lot has changed since Belarusians voted in a referendum to keep the Soviet Union intact by a margin of 84% to 16%, shortly before it collapsed in 1991. On coming to power, Lukashenka, a former collective farm director, took advantage of that nostalgia to turn the clock back on liberal reforms made in the aftermath of the Soviet collapse. Among other measures, he abolished some direct local elections, limited the right to buy and sell farmland and restored Russian as an official language. He also moved Independence Day to mark the Soviet liberation of Minsk from Nazi occupation, in 1944, instead of Belarus’s 1990 declaration of sovereignty from the Soviet Union.

He wasn’t shy about his views on private enterprise, either. “In 10 years, I’ll shake the hand of the last entrepreneur,” he said in 1995, according to local media reports. “Entrepreneurs are lousy fleas, there is no need for them!” Four years later, he signed a deal with Russia to merge the two countries’ political and economic institutions to form a partially reunified state that he seemed—in the days before Vladimir Putin took over in Moscow—a viable candidate to head.

For a long time, Lukashenka’s hostility to private enterprise made that development difficult. The problem for Belarus is that “while they have achieved the impossible—preserving all the advantages they had—so that they now have a future,” that strategy has left the country dependent on Russia to an extent that trade data underestimate, says Vasily Kashin, a defense specialist and senior research fellow in Moscow’s Higher School of Economics.

For example, MTZ exports more than 90% of the 32,000 tractors it makes every year, with Russia—by far the largest market—buying about a third of them. Belarus’s other big machinery plants are at least as dependent. A quarter of exports to Europe, meanwhile, are petroleum products, dependent on discounted crude coming from Moscow. “Russia could shut them all down within months; the economy would collapse,” says Kashin.

The economy as a whole has grown at a snail’s pace since the global financial crisis (an average 1.7% per annum since 2009, compared to 7.5% over the previous decade). According to one estimate, that slide has coincided with a drop in Russian energy subsidies to between 5% and 10% of Belarus’s GDP, from a pre-crisis high of 20% of GDP. A top official at state oil company Belneftekhim said at the end of October that Belarus refineries lost $250 million over the first nine months of this year, a result of the latest changes to Russia’s tax code.

The government has been racking up debt to keep its economic model afloat. The economy has also begun to look less egalitarian, with wealth concentrating in tech-heavy Minsk as most other regions fall behind. The International Monetary Fund forecasts that unless Lukashenka can secure compensation from Moscow, the change to Russia’s tax rules for its energy companies will cost the country a further 5.2% of its annual $60 billion GDP by 2023. The solution, according to the fund: Either restructure, privatize, or close those big, legacy Soviet factories to cut government spending on subsidies, much as was done elsewhere during the 1990s.

Published annual accounts suggest MTZ turns a profit. If that’s accurate, it’s likely thanks to a basic $12,000-$14,000 tractor model that remains popular across the former Soviet Union, Africa, and Asia because it’s inexpensive and simple enough for farmers to fix themselves. Others among Belarus’s legacy industries have struggled harder to keep markets or find new ones.

Daneyko, the business school director, was recently hired to advise on a turnaround plan for one of these, the state-owned combine harvester maker OSJC Gomselmash. Restructuring such ex-Soviet behemoths, he says, will inevitably lead to privatization. And with that could come the end of Lukashenka’s post-Soviet dream.

Write your comment

Follow Charter97.org social media accounts