Publication: Russia and Eurasia Review Volume: 1 Issue: 9

By Elena Chinyaeva

Long a staunch proponent of the unification with Russia, Belarusan President Alyaksandr Lukashenka appears now to be its foremost opponent, thus entering into an awkward alliance with his own political opposition at home. Russia, on the other hand, has taken an initiative in the process of unification, making itself free of any obligations to the current Belarusan president. This is all the result of a politically elegant move undertaken by Russian President Vladimir Putin.

On August 14, in the Kremlin, Putin met with Lukashenka to discuss the prospects of the unification of the two countries. The meeting ended unexpectedly for Lukashenka. At the concluding press conference Putin proposed a detailed plan of the integration: to hold a referendum on the creation of the common state in both countries in May 2003, to elect a common parliament in December and to elect the head of the common state in May 2004. His strategy seemed to exemplify one of the core principles of his favorite sport, judo: Use the strength of your opponent to throw him off balance.

Ever since becoming the president of Belarus in June 1994, Alyaksandr Lukashenka has purposefully presented himself as the one who, despite all the political and economic difficulties and inconsistencies on the Russian side, worked hard to achieve a close union between the two countries, appearing as Russia’s most reliable friend and ally. On April 2, 1996, an agreement was signed on the establishing of the Russian-Belarusan Commonwealth, a year later renamed a Union. On December 8, 1999, an agreement was signed to integrate the two countries into a common state. Now, Putin gave the firm response that Lukashenka had long demanded, and the tables suddenly were turned.

Meanwhile, the prospect of a real union with Belarus indeed raises a lot of doubt inside Russia–political, as well as economic. With Belarus, as in its relations with the other CIS countries, Russia finds itself in an awkward position. On the one hand, its growing economy needs space to expand. Russian entrepreneurs seek new markets for their products, and its oligarchs seek investment opportunities for their amassed capital. On the other hand, Russia has progressed much more on the way to the open market and a stable democratic society than just about any of the CIS countries, and many inside Russia are apprehensive that Russians would have to foot the bill again with its “new old” allies in the CIS.

These apprehensions are exacerbated by the fact that the local political forces preaching for a renewed closeness with Russia are often leftists, whose views on economic and democratic transformation are hardly compatible with the aims Russia itself is struggling to achieve. In contrast, any local reformist-minded politicians tend to look to the West. Alyaksandr Lukashenka has earned himself an odious international reputation as Europe’s “last dictator.” Thus Russia finds itself saddled with a particularly inconvenient partner, especially now when it strives for a new place in the U.S.-led Western antiterrorist coalition.

Economically, the integration with Belarus raises more questions than it answers. According to official statistics, for what they are worth, the Belarusan economy is moving forward, growing by 4.7 percent in the first half of this year (compared to 4 percent growth in Russia), while investment increased by 6.5 percent and real income by 18 percent. Inflation dropped from 6.1 percent in January to 1.4 percent in June. However, with reforms hardly launched, the quantitative growth does not bring about any substantive qualitative changes. The Belarusan economy represents a strange symbiosis of socialist traits with the strains of an economy in transition. Thus, much output remains in warehouses, unsold, many transactions continue to take place through barter rather than cash payments, and 41 percent of firms are running at a loss. Wage arrears in agriculture alone amount to US$16 million. In a population of 10 million, some 7 million rely on state support, entitled to special privileges such as free fares, reduced housing utility fees and the like.

Despite the fact that Belarus’s economy amounts to only 3 percent of Russian GDP, Lukashenka insists on equality in rights and privileges for Belarus in the union. On the macroeconomic level, Russia has pushed hard to get Belarus to agree that the Russian Central Bank will be the sole emission center of the single currency, the Russian ruble, in the common state. From July 1, a new system of custom duties was introduced in Belarus, making the systems of the two countries almost identical. But the question of creating a unified system of taxation and pricing for energy resources has remained open.

From May 1 this year, Russia agreed to export natural gas to Belarus at internal Russian prices, about US$20 per thousand cubic meters (in comparison, Germany pays US$80 for the gas it imports from Russia). In 2002, Belarus is to receive 16.5 billion cubic meters of gas from Russian gas monopoly Gazprom, meaning that the subsidy is worth US$1 billion this year alone. Meanwhile, on May 1, 2002, the unpaid Belarusan debt for past gas deliveries amounted for US$300 million. Belarus argues that the lower price is justified by the low prices it charges Russia for gas transit through to Poland, which are one-quarter of the fees charged by Ukraine.

Russia also supplies Belarus with electric power and oil at special prices. It is estimated that one-half of the oil which Belarus imports from Russia is then re-exported at world prices, amounting to a profit of about US$650 million per year. Belarus also benefits from being allowed to ship freight on Russia’s domestic railroads at Russia’s discounted internal prices.

The Belarusan government is still dragging its feet on privatization. Enterprises are just entering the first phase of turning themselves into corporations, and even then only small packages of shares–no more than 10 percent–will be put up for sale.

Worse still, the Belarusan leadership has not always observed property rights and honored agreements, thus scaring investors away. In January this year, a scandal broke around the country’s leading beer producer, the state enterprise Krynitsa, in which the Russian company Baltika planned to invest up to US$50 million in return for ownership of 50-percent-plus-1-share. Having invested about US$10 million, Baltika still did not receive any of its promised shares, and started a court procedure at the international commercial court of arbitration housed at the Russian Chamber of Commerce and Industry.

For one month, beginning August 1, during the peak harvest season, Belarusan authorities ordered all suppliers of oil products to give 27 kilograms of diesel fuel free per each ton of processed oil, on top of their existing tax obligations. The main suppliers of oil products to Belarus are the Russian companies Slavneft, Lukoil-Belorussia, TNK, Yukos and Sibneft. They estimated that they were being asked to supply about 7-10 percent of all diesel free. For Slavneft alone, a joint Russian-Belarusan company, it meant about US$9 million in losses.

By publicizing a detailed plan for Russian-Belarusan integration, the Russian president took the initiative firmly into his own hands, marginalizing two of the political forces in Belarus that are most inconvenient for Russia: the radical nationalist parties and the Belarusan president himself. Now Russia is free to enter into a dialogue with any moderate political forces in this neighboring country with a view to facilitating the reforms of Belarus’s economy and political system, and then, maybe, to unite.

However, earlier this month Lukashenka declared his intention to organize a referendum to change the constitution, allowing him to run for a third presidential term. This would entrench Lukashenka for the foreseeable future, and make it even more tricky for Moscow to find political forces within Belarus to balance his influence. So the game of political judo is far from over.

Elena Chinyaeva, who holds a doctorate in modern history from Oxford University, is a writer with the leading Russian political weekly Kommersant-Vlast.