A Long, Hot Summer for Belarus

belarus061411.jpg For the political schadenfreude in all of us, the rapid downward spiral of President of Belarus Alexander Lukashenko has been fascinating to watch, a macabre example of the precariousness and risk of despot economics. For so many years now, Lukashenko has managed (not without considerable skill) to prop up his repressive political machine on a semi-functional “social contract” that provided basic employment and security to many citizens. But are those days coming to an end? The country’s economy has crashed into the rocks, with the world’s largest current account deficit (16% of GDP in 2010) and a plummeting currency which has been sharply devalued. As locals begin hoarding basic food staples and buying up dollars and euros, the mood is foreboding: one economist tells Bloomberg that “a ’91-style meltdown is almost inevitable.”

And with this economic pain come the protests. After a painful 36% devaluation of the Belarussian Ruble, Lukashenko imposed export restrictions on a variety of food items, sparking the “mac-and-cheese rebellion,” with thousands of people blocking the roads at the border with Poland. Last week the capital of Minsk was crippled by protesting drivers who were furious with the 50% spike in gasoline prices, forcing the state to relent on this attempt to ease public coffers. “People may ask themselves ‘If it worked with gasoline, why don’t we try the same with sugar and other foodstuffs and products’,” said one opposition leader.These protests might be small and specific compared to the exhilaration and personal sacrifice of Arab Spring, but considering what happened last time mass protesters took to the streets following a rigged election (bloodshed, thousands arrested), these events are remarkable. Further, the recent passing of the academic Vital Silitski, seen as the symbolic heartbeat of Belarus’s pro-democracy movement, has further galvanized the often disorganized activist community.Lacking the funds to provide many carrots, Lukashenko has started wielding the stick. With central bank reserves depleted, foreign currency nonexistent, a national debt that has almost doubled in four years, prices soaring, and companies firing workers, the president retreated into an extreme version of his former self, jailing opposition leaders and journalists who criticize the government. Most egregious, perhaps, was his detention of Gazeta Wyborcza journalist Andrzej Poczobut, who had the audacity to attend a conference about the country’s deteriorating economic situation. He was arrested en route, and faces a trial that could land him in prison for four years.Despite the country’s poor human rights record, this is new territory: “Never before in the history of Belarus have journalists faced jail terms of up to four years in prison,” writes Gleb Kanunnikau. “The last time a comparable trial was held, in 2002, two brave journalists, Mikola Markevich and Paval Mazhejka, were convicted for defamation against the president and spent two years under ‘restricted freedom’ conditions in a minimum-security work camp. Nine years and two bitterly contested presidential elections have passed since then; elections during which hundreds of activists were tortured and imprisoned, but journalists have been spared the worst of the repression, or so it seemed.“But as we have seen in the past, Lukashenko is a survivor, and has wormed his way out of many difficult situations by performing a complex balancing act between the West and Russia, between force and incentives, and preternatural political instincts.The relationship with Russia is key, as Lukashenko has repeatedly been able to convince Moscow that the taxpayers should subsidize his regime with sweetheart energy deals, lest he have to look to Europe for help. Russia ships 1.3 million barrels of oil daily along the Belarussian spur of the archaic Soviet-era Druzhba pipeline, supplying both the internal market in Belarus and the more lucrative markets in the European Union. But Russia has two new pipelines nearing completion, and clearly doesn’t see the benefit of continuing to cut Belarus a break on its standard crude oil export tariff.Much of the political instability faced by Belarus is the result of massive public spending in the wake of the last election, which has tipped the scales on the economy, and sent Belarus back to the International Monetary Fund with hat in hand. Lukashenko is asking for a $8 billion bailout from the IMF, following a $3 billion loan from 2008.The IMF in turn is requesting conditional austerity measures, such as a free float for the ruble and the privatization of a number of state assets – companies which the Russians have been hungrily eying literally for decades. For example last week it was reported that Russian minerals magnate Suleiman Kerimov was nearing a deal for 50% of state potash producer Belaruskali for $15 billion. It also looks like the Chinese want to chip in $1 billion to finance “cellulose plant production” and road infrastructure, yet they will demand repayment through the purchase of Chinese exports, so current accounts won’t be helped much.Though there has been some semblance of a debate over which option is best – and though in the past Lukashenko has vocally denounced privatization as an option – there really isn’t much of a choice, at least not a good choice. An IMF loan might help forestall Belarus’s evolution into a subsidiary of Russia Inc., but the problem is that it could not forestall this evolution for very long. Russian benevolence comes with a singular price tag that Lukashenko has been all too privy to indulge: cash for ownership.Clearly concerned over Russia’s change of heart and diversification of pipeline routes, Lukashenko recently mocked the Russia’s media’s depiction of his country’s economic woes as “hysterical” and threatened to kick out all Russian journalists. He can’t keep this kind of rhetoric up. Gazprom, which may soon control 100% of Beltransgaz and already supplies 25% of European gas, has shown that it can damage Lukashenko considerably with supply cuts and price hikes.Indeed, a thorough glimpse at all the offers on the table offers a picture of an entirely new version of “state capture,” a term usually used to describe the ownership and control of public institutions to support business operations of oligarchic groups. Among others, Russian oil giant Lukoil is in negotiations to purchase Belarus’s two biggest oil refineries. Also on the table for Russian bidders are MTS, Belarus’s largest cell phone company, the sale of which could generate $1 billion; and MAZ, the Minsk Automobile Plant, which may merge with Russia’s Kamaz for another $2.5 billion.How Belarus will respond to these promised privatizations is tough to gauge, as are the implications of the country’s more entrenched dependence on Moscow. What is certain is that we are witnessing a general weakening of Lukashenko’s control over the economy, which was so critical to his power base. This is in fact the problem faced by a number of countries and leaders who have become overly reliant on state ownership and interference in the economy as a substitute for democratic stability – the pie always has to get bigger to keep on feeding all the corrupt officials, fake opposition parties, compliant media and widespread collaborators to keep the state running.Unfortunately, if there were anybody who could survive such a challenge, it would be Europe’s last dictator.