Amid Growing Tensions Russia Postpones $500 Million Loan to Belarus

On Thursday, May 28, the Russian government delegation led by the Prime Minister Vladimir Putin traveled to Belarus to participate in another session of the Council of Ministers of the Belarusian-Russian Union State, a chimera of bilateral state integration that has been dragging on with mixed results for close to a decade. The visit laid bare the growing differences between Russia and Belarus on a number of important issues. At the press conference before the meeting of the Council of Ministers of the Belarusian-Russian Union State, the Russian Finance Minister Alexei Kudrin harshly criticized the Belarusian government’s inept economic policies.

In particular, Kudrin stated that because Belarus refused to accept the $500 million loan in Russian rubles, Moscow decided to postpone it. It should be noted that the aforementioned loan was supposed to be the final installment of the $2 billion loan, which Moscow and Minsk agreed upon last year as part of the bilateral anti-crisis economic recovery program. Russia gave Belarus $1 billion last year and another $500 million earlier this year. Kudrin ridiculed the Belarus’ planned economy and described the Belarusian government’s control of its currency as a “meaningless policy.” He went on to accuse Belarus of having a “parasitic” attitude toward Russia. Kudrin warned that the deepening hard currency deficit in Belarus may lead to the country’s insolvency. In this regard Kudrin noted, “We may see insolvency of the Belarusian government and the Belarusian economy as a whole due to the hard currency shortage at the end of this year or next year.”

Emerging after a frosty meeting with President Lukashenko, Putin tried to alleviate tensions caused by Kudrin’s remarks by calling them “extreme assessments” which were “inappropriate.” He provided the assurance that “whatever happens in the world economy, Russia will always give its shoulder to Belarus when necessary.” On Friday, May 29, in another attempt at belated damage control, the visiting First Deputy Prime Minister Igor Shuvalov interpreted the recurrent Russian-Belarusian “complications” as the byproduct of “intensive work,” which in his view “must be settled calmly.”

However, the damage appears to have been done. On Friday, at a meeting of the Belarusian government devoted to the discussions of socio-economic developments, President Lukashenko bluntly rebuffed Kudrin’s criticism and strongly urged cabinet members to diversify sources of external economic assistance to Belarus. In an impassioned soliloquy he implored Belarusian Prime Minister Sergei Sidorsky and the Chairman of the Board of the National Bank of Belarus Piotr Prokopovich to stop relying on Russian assistance. President Lukashenko pointedly remarked:

“If things don’t work out in Russia, bowing, nagging and weeping is useless. We should seek our happiness in another part of the planet…We are an independent sovereign country and we will do everything in our interest…Therefore, you must remember: no praying or begging. If they don’t have the $500 million that they promised a long time ago and that we included in our budget, don’t go and beg…Let’s build our economy and policy as a sovereign independent state. We have many levers to influence the situation, those challenges that we face, including in Russia. Let’s use them. When will we start thinking as civil servants of an independent sovereign state?”

Referring specifically to Kudrin’s remarks, Lukashenko stated:

“Yesterday we witnessed an interesting situation. The President of Belarus and Vladimir Putin were discussing things from private to state ones in an absolutely friendly manner. The discussion went well. Meanwhile Aleksei Kudrin held a press conference before the session of the Union Council of Ministers in order to sow panic in Belarus…If their economy is that good, where did the 10% GDP decline come from? Our economy is different, but our GDP growth stands at 1.5%.”

At times noticeably irritated President Lukashenko continued to press his cabinet members and even implied that Kudrin’s remarks were approved by Prime Minister Putin:

“What is your problem? Why do you go to Russia where you are kicked? Don’t you understand that it is not the first time when they want to get us for free? Yesterday Vladimir Putin said that he had discussed the situation with Kudrin while flying to Minsk. And after that Kudrin broke out his rant. Wasn’t it arranged? It was, totally.”

The global economic downturn caused severe hard currency shortage in Belarus and forced President Lukashenko to pass the law simplifying procedures for foreign companies to deposit funds in Belarusian banks. As the independent Belarusian political analyst Leonid Zaiko suggests, Belarus’ impending default may provide Moscow with an opportunity to pull Minsk back into its orbit. In this regard two matters are of particular importance to the Kremlin. First, Belarus’ recent overtures to the West have been an irritant for the Kremlin in part because improved relations will increase Minsk’s bargaining leverage with Moscow. Minsk’s goodwill gesture of release of political prisoners, Brussels’ decision to lift the travel ban on top Belarusian officials, followed by President Lukashenko’s unprecedented visit to Vatican and Minsk’s accession to the Eastern Partnership greatly concern the Kremlin. Moscow is fully aware of the hard currency shortage in Minsk and the sudden change of the monetary format of the last installment (from U.S. dollars to Russian rubles) of the loan may have been intended to remind Belarus of its obligations. Second, Moscow expects Minsk to recognize the independence of Georgia’s breakaway regions of Abkhazia and South Ossetia. During his visit to Minsk, Kudrin was quick to deny the existence of any linkage between Minsk’s continued refusal to recognize the independence of Georgia’s secessionist provinces and the postponement of the loan. He told the press: “I have never raised this issue with any Belarusian official.” Nonetheless, judging by the fact that President Lukashenko raised this issue in his speech at the government meeting on Friday, there is little doubt that it was indeed discussed during his meeting with Prime Minister Putin. On this matter Lukashenko stated:

“The bottom line is the recognition of South Ossetia and Abkhazia is the question between us and these countries, with which we have excellent contacts and they know our tactics…nobody will pressure us about it from the East and the West”.

Proverbially resilient President Lukashenko proved many a times in the past that he is capable of resisting Russia’s pressure effectively. It will remain to be seen whether he will succeed this time under the impact of the global economic crisis. In conclusion of his Friday speech at the government meeting President Lukashenko made a veiled reference to the peculiar geopolitical setting in which Belarus is caught due to the struggle for influence between the E.U. and Russia:

“This is a big game. Keep it in mind. If we make it, the state will survive. If we don’t, we will be crushed and pocketed. Our sorrow is nothing. But we lead 10 million talented and hard-working people, who we mustn’t expose or deceive.”