Publication: Monitor Volume: 7 Issue: 68

Belarusan President Alyaksandr Lukashenka does not seem likely to bow too readily to Moscow’s terms for a unified state. He has spent the past five years setting preconditions to unification which are difficult for Moscow to meet. Some of these came to light again both during and in the aftermath of the anniversary meetings in Moscow. Lukashenka and his top officials are publicly asking for: (1) Russian loans to stabilize the Belarusan ruble, (2) soft-term restructuring of Belarusan arrears for Russian gas, (3) removal of Russian customs checkpoints on the common border, (4) Russian financing of selected joint industrial programs, and (5) creating a Belarus-Russia Union jurisdiction in Russia’s Baltic port of Kaliningrad in order to accommodate Belarusan foreign trade operations on a par with the Russian operations. Moscow must find this last outlandish.

The Kremlin is conceding some points while stonewalling on others and taking half-measures on yet others. Last November it promised a US$100 million currency stabilization loan plus a 300 billion Russian ruble credit to Belarus, but has thus far withheld the first US$30 million tranche. Disbursement would almost certainly have angered Russia’s foreign creditors.

On the other hand, Minsk announced on April 5 that Russia’s Gazprom has agreed to a concessionary restructuring deal. As reported, it would recalculate the 1997-99 arrears downward to US$77 million and accept payment within three years mostly through Belarusan goods on barter. Meanwhile, Belarus has been buying the Russian gas at half the prices charged to Ukraine and Moldova.

Moscow is also being forthcoming with funds for two civilian industrial programs that Minsk deems touchstones of the relationship. One program involves joint production of a modernized television set–dubbed the Soyuz [Union] TV set–at the Minsk catodic tube plant. The other program involves marrying Diesel engines from Russia’s Yaroslavl plant to Belarusan MAZ trucks. Those Belarusan plants are Soviet-era flagships Lukashenka is desperate to keep afloat. He can manage this thanks only to Russian state funds and the low-standard Russian market.

In the military industrial sector, the Moscow anniversary meetings yielded an agreement on joint production of cockpit and navigation instruments for aircraft and satellites. The Belarusan special envoy to Union bodies, Leanid Kozik, signed that agreement with Russia’s Deputy Prime Minister Ilya Klebanov. The relevant Belarusan plants, or sections thereof, are to be included in a joint holding named Aerokosmicheskoye Oborudovanie [Aerospace Equipment]. It is the second Russian-Belarusan undertaking of this type. Last year they created the Oboronitelnyie Systemy [Defense Systems] consortium which, on the Belarusan side, focuses on modernizing surface-to-air missiles, both for use at home and for export. Legally, the arrangement stops short of pooling or transferring ownership rights. In practice, however, such arrangements imply a transfer of authority from the small to the much larger partner.

Lukashenka is careful to confine such mergers to his military-industrial sector, mainly because it is a state-owned sector in Russia. But he fiercely resists the penetration of private Russian capital in the massive civilian industries of Belarus. He fears such penetration for the dual treat it entails: to state economics and to his political system. He argues also that, under present conditions, it would be mostly the Russian “criminal capital” which would come to Belarus, mainly as a means to launder illegally obtained funds through acquisition of Belarusan industrial assets.

Thus far, Lukashenka has managed to keep his Soviet-era industries barely afloat by printing money to finance it and through Russian subsidies–direct ones such as the “union” programs and indirect ones such as cheaper energy–as well as access to Russia’s market. But he has also undermined the viability of his industries through his antimarket policies, prohibitive obstacles to the formation of internal commercial-financial capital, counterincentives to Western investments, and political confrontation with the West. All that has maximized his dependence on Russian economic favors and, now, leaves him in a weak position to resist demands to open the door to Russian capital.

In the Moscow meetings with Putin and with Prime Minister Mikhail Kasyanov, the Belarusan leaders came under significant pressure to make industrial and infrastructure assets in Belarus available for “privatization” by interested Russian companies. In the meetings’ aftermath, Belarusan Prime Minister Uladzimir Yarmoshin tried to finesse the issue by implying that Belarus might turn over minority shares, keeping the control share packets in Belarusan state hands. This development is unprecedented in the five-year history of the union state and must have a deeply unsettling impact on Lukashenka and his team. Any public controversy will be hushed up until after the presidential election in Belarus, which is due to be held later this year. Lukashenka counts on the Kremlin’s benevolent neutrality to ensure his reelection. After that, the Kremlin will be dealing with a much weaker partner in union, whose political and economic demands on Russia will rapidly deescalate or be brushed aside (Itar-Tass, RIA, ORT, Agentstvo Voyennykh Novostey, Belarus Television, April 1-5; see also the Monitor, November 1, 8, 15, December 1, 2000, January 18; the Fortnight in Review, November 17, 2000).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions