A rift has grown between Belarus and the European Union over the past year, culminating in Minsk's withdrawing its delegation from a March 5 summit in Prague. Belarus' unwillingness to make political and economic reforms is causing it to become increasingly isolated from the West. As Belarus becomes more detached from Europe and other Western powers, it is more likely to become integrated with Moscow and Russian-influenced economic and security structures.
Belarus will not send a delegation to the March 5 foreign ministers' meeting in Prague for countries in the European Union's Eastern Partnership program, according to a statement from the Czech Foreign Ministry. The decision follows the Feb. 29 recall of several EU member states' ambassadors to Belarus, a move that came after Minsk expelled two EU diplomats and the European Union imposed sanctions on Belarusian officials.
Diplomatic tensions between Belarus and the West stem from Minsk's resistance to enacting reforms within its political and economic systems. These tensions are accelerating Belarus' isolation from the West and, in turn, increasing the likelihood that Belarus will have to shift further toward Russia and Russian-dominated security and economic institutions.
Belarus' Political and Economic Model
After its independence in 1991, Belarus -- along with many former Soviet Union states -- began a period of transition into a market economy and quasi-democratic system of government. The country's first post-independence leader, Stanislav Shushkevich, began making these reforms, but his rule was brought to an end by Aleksandr Lukashenko, who as chairman of the Belarusian parliamentary anti-corruption committee in 1993 accused Shushkevich of corruption and embezzlement and initiated a vote of confidence against him, and then defeated him by a wide margin in the country's first presidential election in 1994. Since then, Lukashenko -- a former Soviet bureaucrat and director of a state-owned agricultural farm -- has politically dominated Belarus.
Upon taking office, Lukashenko took a different approach to economic reform than his predecessor, retaining many Soviet-era economic policies in what he called "market socialism." This approach included making food and staple items subject to price controls, numerous subsidizations, a controlled exchange rate and enacting populist policies. Only superficial or strongly regulated aspects of a market economy remained in place. These policies created a relatively high living standard within the region: pensions and average wages are higher in Belarus than in nearby Ukraine or Moldova, and it has one of the smallest income disparities in the region.
Furthermore, many of Belarus' strategic enterprises are owned by the state; though official figures are disputed, roughly 60-80 percent of the economy is state-controlled. State-owned or state-controlled companies employ more than 50 percent of the population, and the labor market is highly regulated. There is also a large emphasis on the military-industrial complex and manufacturing, as Belarus was one of the most economically developed of the former Soviet republics, especially in terms of industry.
This market socialism model experienced some turbulence as Belarus faced economic difficulties during the 1990s -- first price liberalization and the collapse of the Soviet supply chain, followed by the financial crisis of the late 1990s that swept through Russia, creating currency devaluation, massive inflation and a decline in trade with Russia and other Commonwealth of Independent States members. However, the 2000s saw a return to stability and steady growth. From 2001-2005, Belarus' gross domestic product grew at an average of more than 7 percent per year, with the crucial component of manufacturing and industry rising at an average of nearly 10 percent per year. These levels of growth continued in the second half of the decade, with the exception of 2009 when, as a result of the global financial crisis, growth fell to just above zero before returning to 7 percent in 2010.
This growth -- particularly its stability in comparison with the more volatile swings of the capitalist systems employed in neighboring Russia and Ukraine -- legitimized Lukashenko's economic model and made it broadly popular with the Belarusian public. It also enabled Lukashenko to centralize the political system under his authority and establish a top-down regime with a pervasive security apparatus. Over the past two decades, Lukashenko has strengthened the presidency, weakened the parliament and opposition parties and concentrated power among himself and a tightly-knit power circle, many members of which have ties to or experience in security.
Belarus' Relations with Russia and the West
A close relationship between Belarus and Russia has been key to maintaining Lukashenko's market socialism model. Despite the occasional diplomatic spat with Moscow, Minsk has remained strongly integrated with Russia economically via the Union State and Customs Union. Militarily it remains integrated via its membership in the Collective Security Treaty Organization and Rapid Reaction Force, its air defense ties with Russia and regular bilateral military exercises with Russian troops.
These ties have strained relations between Belarus and the West, which has sought to bring Minsk closer to its own alliance structures, including the European Union and NATO -- particularly on the initiatives of countries such as Poland, Lithuania and Sweden. While the West has tried to bring Belarus into its fold, it has stipulated that Lukashenko must open Belarus' political and economic systems in order to achieve closer integration. Lukashenko has refused to do this, given the impact such actions would have on his hold on power. However, Lukashenko has sought to maintain a certain degree of cooperation with the West, especially in the economic sphere; trade with the European Union accounted for roughly one third of Belarus' total trade in 2010. Preserving ties with the West not only yields financial benefits but also gives Lukashenko some leverage over Russia in order to protect Belarus' sovereignty and maintain a balance between the two larger powers. China has helped Lukashenko delay economic reforms and restructuring by giving Minsk financial assistance without political strings attached -- though ultimately any significant deals with China are subject to Russian coordination and approval.
During the past year or so, Belarus experienced a shift both domestically and in its foreign policy orientation. This shift was triggered primarily by the country's presidential election in December 2010 and several processes that were already under way. Before the election, Lukashenko significantly increased social spending in terms of wages and pensions to ensure that he retained the loyalty of his support base and voters. This spending surge, combined with high global energy prices, put a great deal of strain on the Belarusian financial system and created a major shortage of foreign exchange reserves.
These problems were exacerbated after the elections when the European Union and United States enacted sanctions against the Lukashenko regime in response to a crackdown by Belarusian security during a protest spurred by claims of election rigging that resulted in the jailing of opposition leaders and protesters. Adding to Lukashenko's economic woes was Belarus' failure to access external financing from the International Monetary Fund because of the security crackdown and Minsk's unwillingness to make economic reforms. The government resorted to printing more money, causing inflation to exceed 100 percent by the end of the 2011, while the Belarusian ruble rose from 4,930 to the dollar at the beginning of the year to 8,680 to the dollar at the end of the year.
Minsk's Likely Turn Eastward
The European Union and the West have continued pressuring Lukashenko to open up Belarus' political system by enacting a new round of sanctions Feb. 27 that made 21 senior Belarusian officials subject to asset freezes and visa bans. Lukashenko is aware that the West is not interested in cooperating with his government in its current form -- as evidenced by many EU leaders' calls for the longtime leader to step down -- and has been obstinate in the face of these sanctions, expelling two EU diplomats from the country Feb. 28 and feeding the ongoing diplomatic tensions.
These developments have only pushed Belarus further from the West and closer to Russia. Moscow has not criticized Lukashenko for his political or economic policies -- Putin called the latest sanctions "unacceptable and senseless" -- and has instead offered Belarus financial assistance during its current financial strain. Russia has benefited from the controversy by taking full control of Belarusian energy firm Beltransgaz and other firms in 2011 and by having a privileged position in Belarus' upcoming round of privatizations that will take place throughout 2012.
Lukashenko does not want to cede complete economic sovereignty to Russia and has so far resisted selling certain key assets like potash firm Belaruskali and two strategic oil refineries, but time -- and money -- are not on Lukashenko's side. He can use certain measures to buy time -- for instance, transferring state-owned assets via domestic privatization to create a new oligarchic class in Belarus -- but these measures could undermine the political and economic model Lukashenko has tried to maintain and would increase his dependence on sources of support outside of his traditional power base. He would therefore need to calculate any such moves carefully, taking into account the risks and benefits.
Meanwhile, the European Union will continue increasing pressure on Belarus, and Russia will be happy to step in and offer its help as long as it serves Moscow's interests. This will create difficulties for Lukashenko and the political and economic system he has put in place for the foreseeable future.
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Challenges for Belarus' Political and Economic Model is republished with permission of STRATFOR.