Postcard from Minsk

Fifth-term blues: Belarus needs reform but its leader isn’t keen

Alexander Lukashenka, who was known as the last dictator of Europe until the title drifted to Vladimir Putin, has won a fifth term as president of Belarus. After two decades of ruling his country, he now faces an existential choice.

Until recently his quasi-socialist economy had more or less satisfied the undemanding Belarusian people. Unlike Ukraine or Russia, Belarus has not gone through large-scale privatization. State-run enterprises produce 70 per cent of country’s GDP. Living costs are low, there is no big gap between the rich and the poor, and annual economic growth was about 6-9 per cent in the first decade of this century. Its prosperity was all due to lavish Russian support. Moscow has bought Lukashenka’s loyalty with cheap gas, oil and almost unlimited access to the Russian market.

The socialist oasis could not last. In 2007, Russia increased oil prices, then the world financial crisis hit. In a clumsy effort to retain growth without reforming the economy, the Belarusian government started borrowing abroad and easing monetary policy. As a result the national currency, the ruble, has depreciated 750 per cent against the US dollar over the past seven years. According to Bloomberg, the Belarusian ruble in 2015 was third-worst performer globally after the currencies of Zambia and Kazakhstan.

Declining oil prices combined with western sanctions hurt the Russian economy badly and the Kremlin has become unwilling to support the Belarusian economic miracle. Exports from Belarus to Russia have declined and the country has fallen into recession, for the first time in 20 years.

Almost everyone – from the IMF and the World Bank to Lukashenka’s own ministers and aides – reiterate that there is only one solution: structural market reform. The alternative is further recession.

Some autocrats, such as Lee Kuan Yew of Singapore, proved to be successful economic reformers, but this is not the case with Belarusian ruler, for at last three reasons.

First, Lukashenka is a Soviet-minded man who headed a collective farm before he came to politics. He sees the market economy as chaotic, unjust and favourable to the rich and entrepreneurs, whom he once labelled as ‘lousy fleas’. The Belarusian president simply cannot concede that his lifelong economic views were false.

The second obstacle is pure politics. Big state-owned companies, though unprofitable, still serve crucial functions of social mobilization and control. For people working in them, expressing political disloyalty may result in the sack. Such pressures also make it easier to force workers into signing up for Lukashenka’s presidential nomination or turning out to vote.

Thirdly, economic liberalization could erode the basis of the Belarusian regime. More people will be self-employed or move from state-run companies to private ones. This will imply less dependence on governmental paternalism, and a more free-minded approach to life.

Privatization would deprive the state of its economic monopoly. Big businesses produce big businessmen, the oligarchs of Ukraine and Russia. As the recent history of both nations shows, it’s only a matter of time before these powerful economic agents demand a political voice. Lukashenka, nicknamed Bat’ka, or father, will not tolerate new players in the game.

This economic deadlock is precisely the reason why Lukashenka has started flirting with the West again. Since 2014 he has been distancing himself from the Russian stance on Ukraine. In August 2015, he released the remaining political prisoners. In October, he held peaceful, though unfair, elections, held back from any political repressions and rejected a Russian plan to site a military airbase in the country.

To put it bluntly, he wants western money because Russia is not a reliable donor any more. The problem here is that in Brussels mistrust of Belarus is rife while funds are in short supply. The IMF for its part is not eager to give a new credit without structural market reforms. That’s a vicious circle for Lukashenka.

If I had to bet, I would pick a hybrid scenario. Lukashenka will postpone reforms for as long as possible, bargaining with the West and the East simultaneously. When this resource is exhausted he might unwillingly let the reformers in his government start the job. But this will end as soon as he feels he is losing his grip on the country. The sad reality is that the nation is now stuck with a leader who is immovable and whose room for manoeuvre is shrinking.