Analytical Report: August 2011.


The key event in August was the suggestion of Alexander Lukashenka to hold a meeting with representatives of the political opposition and the West. At present, this proposal has not yet turned into some real opportunity for making some changes in the country. The fact of holding debates on focal problems does not mean that a mechanism of making decisions will be created, and those decisions will be followed. Moreover, on the contrary to the opinion of the opposition, the regime’s state is not so awful. It is clear that the main aim of restoring dialogue with the West is the opportunity for getting support in the next round of confrontation with Russia. However, the authorities have no need to rush: the Ukrainian — Russian relations have moved into a phase of aggravation, which can last quite long. This is good for Belarusian authorities, as Russia simply can not afford conflict with both close neighbours at the same time. On the other hand, outright blackmail of Ukraine by Russia on gas will bring back half-forgotten myths about the “Russian threat” and, theoretically, can make the EU more tractable in consultation with the Belarusian authorities.

Thus, in August Belarusian leaders got the opportunity to get additional space for political maneuvering, and what is more important – time for that. But it is questionable whether they can use it right.

The internal situation: the stability of government. August turned out to be eventful. The main events, of course, are the efforts of the Belarusian authorities to protect the existing state system and reduce the threat of external intervention. However, these actions were rather contradictory. On the one hand, the government seeks to normalize relations with the West. On the other hand, arrest of A. Belyatski can bury both past and future efforts in this direction. The position of Russia is also quite interesting: Moscow does not intend to act as a shield of Belarusian regime in whole, but it can support the specific representatives of the regime.

The most important events of August were:

— information about a possible change of Belarusian — Russian gas agreements;

— an initiative of Alexander Lukashenka to begin a dialogue with the opposition with the participation of foreign partners.

On August 2, 2011 at a Cabinet meeting Minister of Economy Nikolai Snopkov said that Belarus should create an effective national ownership, and by the end of the following year, the private sector share in GDP would be not less than 40%. According to our information, these plans go beyond the economic and property issues: “court business” is likely to play an active role in the election in the House of Representatives in 2012. Perhaps we will witness the formation of financial and political oligarchy like in Ukraine: early in the first term in office the President of Ukraine Leonid Kuchma has actually distributed the objects of state property among close businessmen, thereby neutralizing the threat to Russian Kremlin-capital involvement in the internal politics of Ukraine.

On August 4, 2011 the head of the Human Rights Centre «Spring» A. Belyatsky was detained and subsequently arrested. Certainly, his arrest was politically motivated. Authorities, regarding the threat of social protest as a real one, are trying to be proactive and neutralize potential organizers and leaders of the protest, as well as destroy the system of support of opposition activists. And the Human Rights Center «Spring» is an important part of this system. However, the arrest of A. Belyatsky shouldn’t be considered as a success of the authorities. Firstly, the prosecution of public people is threatening the beginning of possible dialogue between Belarus and West. Secondly, having directly attacked the human rights movement, the authorities face the risk of strong opposition from international human rights organizations that can effective influence Western politicians. Thirdly, the arrest of A. Belyatsky will definitely cause the growth of hardliners’ influence on decisions in the EU, concerning Belarus.

It is symbolic, that the same day U.S. President Barack Obama has established a permanent Inter-Ministerial Council for the Prevention of atrocities. Previously, the problem of violations of human rights and democracy were engaged in the State Department. It is about developing a strategy to prevent violations of human rights and democratic norms throughout the world. There is a list of 33 countries where human rights are at the greatest risk. It consists of two groups: red (8 countries) and orange (25 countries), which also includes Belarus. It is planned to take steps to prevent atrocities, as in the case of their futility the United States will cooperate on a multilateral basis, mobilizing diplomatic, humanitarian, financial and, in some cases armed capacity in order “to prevent or respond to genocide and mass atrocities”. And on August 11 the United States issued a regime of economic sanctions on four Belarusian state-owned companies. The reaction of Russia, or rather its actual absence, to the impose sanctions against Belarus, is at least an interesting fact. Earlier, Moscow has always acted as a “lawyer” of Minsk, regardless of the state of Belarusian — Russian relations.

On August 5, 2011the information about the possible provision of a loan of USD 2 billion to “Belaruskali” in Russian «Savings Bank» and the German «Deutsche Bank» was published. And while there is no certain information about the deal, the participation of German banks in the scheme is symbolic. In fact it means that the EU does not intend to destabilize the situation in Belarus and bears no plans to change the existing system, and all statements on the introduction of European sanctions against the country are just a formality. It should be noted that as soon as the EU decided to impose sanctions against Iran, European companies immediately stopped their cooperation with this country, despite the substantial financial losses.

Belarusian top bureaucracy continues to lobby the idea of ​​transforming the movement «White Russia» into a political party. In the case of a positive solution of this issue, we should expect a mass inflow into the party of members of “court business”. With high probability it can be argued that the new party will be the analogue of the Communist Party of late 80-s. However, it is possible that the newly formed political organization will facilitate the consolidation of the top bureaucracy and related commercial organizations, which, in turn, under certain circumstances may pose a threat to the reign of Lukashenka, i.e. the party in power could become a political successor, and possibly the grave-digger for acting head of the state. The tasks for the top bureaucracy remain the same: the preservation of political power and economic leverage in the hands of the bureaucracy after Alexander Lukashenka, just as we pointed out in February of this year. In this case, if the transition to managed democracy happens, the governing party will certainly need to have an opponent – another political party.

On August 15, 2011 during the meeting the Prime Ministers of Belarus and Russia in Moscow, a possible reduction in the price of gas for Belarus since 2012 was announced. Of course, it was good news for Belarusian Prime Minister Mikhail Myasnikovich, the position of whom is sufficiently weak. A gas contract in 2012 will show, whether it will be good news for the whole country. The motivation for Russia in the decision about gas discounts is an interesting question. The possible reasons for it are the following:

— As it was announced, the reduction of gas price would be the result of the establishment of “Gazprom’s” control over Belarusian gas transportation system, as well as the deepening economic integration, and would be connected with the necessity of balancing economic conditions;

— This is the actual advertising of the Customs Union to the other CIS countries, first of all for the Ukraine.

But the most interesting is the version of personal support of M. Myasnikovich, whose relationships with Alexander Lukashenko are fairly complicated. It should be noted, that on Friday, August 12, 2011 in Astana an informal summit of the Collective Security Treaty was held. And on Monday, August 15, 2011 Vladimir Putin and Dmitry Medvedev simultaneously reported about preferential gas supplies to Belarus next year. It is obvious that such a fundamental issue was settled by Russian leaders in advance, but Lukashenko wasn’t informed about the decision. The announcement of Russian position was timed precisely to the visit of M. Myasnikovich. The reaction of Alexander Lukashenko to the news was shown only the following day, August 16, 2011, and in a fairly neutral way. To our mind this fact suggests that the Prime Ministers’ agreement was a surprise for him.

Thus, even if the benefits to the supply of gas get a concrete shape, it won’t be a reason to talk about normalizing relations between the political leaders of the two countries. Now we can talk only about the strengthening of position of Belarusian Prime Minister. We pointed out the possible developments in this format (the actual removal of Lukashenka from the decision-making on issues of Belarusian — Russian Finance — Economic Cooperation) in January of this year.

However, it is not possible to say something definite before signing a contract on gas supplies in 2012. It’s necessary to note that previously very often preliminary agreement actually simmered down during the real negotiations. It is not excluded that this time it would happen again. And after that the sides can return to the normal format of relationships — the information war.

The regulations on the transfer of criminal cases to the prosecutor for directing it to the court in fact of the terrorist attack on April 11, 2011 became available to the public. Analysis of the document reveals the incompleteness of the investigation. At the same time it’s necessary to attention to the fact that throughout the period of preliminary investigation, non-government Internet-Media were disseminating the information that a terrorist act may be organized by Viktor Lukashenka  — the eldest son of Belarusian President. But no proofs of that were shown. The only explanation for such actions is an attempt to discredit Viktor Lukashenka and change the opinion about him among the part of the top bureaucracy, that is united in the Republic NGO «White Russia», and that can lay claim to the inheritance of power after Alexander Lukashenka. There is no reliable information about the health of the head of Belarus. In case of Lukashenka’s failure to perform duties of Head of the State, position of law security agencies currently overseen by V. Lukashenka will play key role.

In late August, Lukashenka publicly initiated a meeting the opposition and foreign partners to discuss the most pressing problems facing Belarus. This initiative is part of the process of restoring the relationships between the EU and our country, and was agreed upon with the Europeans in advance. In our opinion, the dialogue can result in be including in the House of Representatives about 20 people from opposition, agreed in advance by the authorities, in the 2012 elections. It is possible that the elections next year will still be conducted on a mixed, majority-proportional system.

The root cause of the efforts of Belarusian authorities to restore relations with the West is a threat of resumption of Belarusian — Russian confrontation in a more rigid form, including the establishment of partnerships between the various opposition political structures and Russia. Realizing that it would be extremely difficult to resist pressure from the Kremlin without external support, Belarusian authorities are making efforts to restore relations at least with the EU.

The claim, that the financial crisis is the root cause that forced Belarusian authorities to agree to start a public dialogue, seems doubtful: talking about the financial viability of the Belarusian authorities, it is necessary to take into account not only the National Bank’s reserves, but also reserve funds, managed by the Head of State and finances of state-owned companies as well as formally private but state-controlled Belarusian economic entities. We believe that Belarusian authorities, using some uncertainty in Russia due to internal election cycle, are seeking to gain time and postpone the next phase of confrontation with the Kremlin. On one hand Belarusian leaders are supporting the integration initiatives of Russia and on the other hand are trying to start active dialogue with the West. In fact, the political leaders of our country still have half a year to resolve the basic contradictions with the Western states.

The internal situation: the opposition and the protest movement. Against the background of low activity of opposition political movements in August, we can talk about almost complete absence of any significant events in the sphere of the regime’s opponents.

The most interesting are the prospects of participation of Belarusian opposition activists in the presidential elections campaign in Russia and party-foundation scenario in the light of a possible transformation of the NGO «White Russia» into a political party.

Since the beginning of the month the information about a possible invitation of Belarusian opposition activists in the campaign Dmitry Medvedev have been circulating in the opposition media. It should be noted that Belarusian opposition has experience of participation in Russian regional election campaigns. For example, UCP has previously performed recruiting function. Currently, the information on possible participation in the election campaign of President Medvedev of activists of the “Tell the truth!” movement is distributed. But, however, it has not received confirmation yet.

Meanwhile, according to our information, the agreement on participation of Belarusian opposition in the election campaign of another candidate for the post of President of Russia – Prokhorov was reached.

The interest is not only the fact of participation of political activists in the campaign of the neighboring state, but the fact that they may be invited to the team of the current leader of Russia.

Part of the Belarusian opposition has initiated a “National Belarusian gathering” in October this year. It should be noted that we can already say about the failure of this event because of questionable managerial qualities of the initiators and the almost complete absence of agitation among the population for participation in the event.

Because of low activity of the major opposition groups (Belarusian National Front, “The Just World”, United Civil Party, Belarusian Christian Democracy and “Movement for Freedom”) movement «Tell the truth!» seriously claims to dominance on the “opposition territory” of the political field. The campaign «Save Belarus», targeted for one and a half years, was launched in early August. The first major initiative of the campaign was the adoption of anti-corruption laws and a draft law on national privatization. Issue of corruption is highly relevant to Belarusian society and has almost never been used by the opposition. Another interesting fact is that the campaign «Save Belarus» is a long-term, though, to our knowledge, at present it is not financed in corpore.

It should be noted that despite the increase of material support for democratic reforms in Belarus, the announced in the West, there is no significant improvement in the financial position of opposition political organizations.

In the light of the transformation of the NGO «White Russia» into a political party, the plans of the movements “Tell the truth!” And «Movement for freedom.» are especially interesting. Both organizations do not hide their party ambitions, moreover, the logic of development naturally encourages them to switch to a new party level. However, it is necessary to consider the following: a significant number of activists (especially not in the capital) in both unions are members of opposition political parties. And we can’t be sure, that many of them be willing to leave their parties to join the newly formed one. Moreover, according to our information, the initiative to turn “Tell the truth!” into a political party was rejected by the party activists, who are the members of the movement. And it isn’t possible to obtain at least required number of members to register a new party without them.

Taking into account the pathetic state of the majority of Belarusian political parties, we can not exclude the possibility of some kind of “raider attack” on an existing party and its subsequent re-branding and re-formatting. Everything is determined by availability of appropriate material resources.

With high probability it can be claimed that the newly established political parties will be based on leftist populism («Tell the truth!») and conservative ideas, by analogy with the European People’s Party («Movement for Freedom»). Both organizations will be moderate nationalist.

As we mentioned in the previous section, the party that will be based on the NGO «White Russia» will need a “sparring-partner”, i.e. constructive opposition. In this regard, the fact of registration of “Tell the truth!” and «Movement for freedom» party structures will be really important, because during a few years the government has been refusing to register the “Belarusian Christian Democracy” party.

It should also be noted that the «Union for modernization», led by A. Mikhalevich, that previously also showed the party ambitions, had actually collapsed. It was believed that after non-participation of Milinkevich in presidential election in 2010 the organization of A. Mikhalevich would involve a part of activists of “Movement for freedom”.

Economic situation. August was marked by the further destabilization in the currency market. While the official quotations of USD to Belarusian ruble was 1 to 5,000, on black market it sometimes reached 10,000 rubles for 1 dollar. In fact, the main reason for the rapid dynamics was negative background information: the appointment of a new (and to the public opinion not competent) head of the National Bank, repeated official denials of the problems of multiple courses, providing some banks the possibility not to sell people the available foreign currency in cash (later this measure was cancelled), increase of panic among the population due to higher inflation and a significant deficit for a number of commodity groups, etc. The increase in devaluation expectations and government’s not controlling the currency market have created conditions, where a sharp growth of quotations on a fairly small black market (not rid of speculative interest) pushed up the «grey» market, that is significantly larger.

Only at the end of the month long-awaited government plan of solving problems with the foreign exchange market was announced. The plan includes both economic and administrative measures, and aims at gradual liberalization of the foreign exchange market.

The essence of the plan is to carry out (presumably from September 15) trades on the foreign exchange market in two sessions: during the substantive session only orders for purchase of energy resources for the funds of the National Bank and the amount of compulsory sale at the official rate will be executed, and the additional session will be run in free mode with exchange rate based on supply and demand (currently in all segments of the foreign exchange market there is a limit of the fluctuations, which is 2% of the official rates). Cash market would also work on the basis of rates prevailing in the additional session. Due to the convergence of quotations on the two sessions, it is expected to reach one single rate and join the sessions (actually eliminating the main session) in up to two months.

Following this plan and providing for it massive information support, the economic authorities have every opportunity to stabilize the foreign exchange market and reach the rate of 6,500-7,500 rubles/USD.

The positive news was the data on foreign trade balance for July. If the statistical agency does not make a mistake again (which was observed in May), the balance reached the positive level of nearly USD 150 million. Taking into consideration the anticipated results of the balance in the services (that is traditionally positive), we can expect a positive balance of trade at about USD 250-300 million.

A significant achievement of Belarusian authorities can be considered an agreement with Russia to form the price of gas, taking into account the so-called “integration” coefficient, from next year. The size of this coefficient has not been established, but if its most probable value is 0,7-0,8, Belarus will be able to save about USD 1-1,5 billion a year. The value of the coefficient will be agreed by December with the signing of a contract for the supply of gas and selling Belarusian shares in OAO «Beltransgaz».

The story around obtaining external financing for Joint stock company “Belaruskali” continued in August. Earlier this month, representatives of the Russian government have reported that “Savings Bank” and «Deutsche Bank» would give the company a loan of USD 2 billion on security in the form of export contracts and guarantee of 35% of shares of Belarusian enterprise. Almost immediately it was reported that India was interested in 20-25% part of shares of the Belarusian potash producer, the estimated cost of which is USD 6-7 billion. Later Belarussian side expressed an interest in Russian-German credit, but only on the security of deliveries. And the story with Indian buyers have not yet received the continuation.

The situation with getting loans from international financial institutions is also undefined. On August 29, 2011 Directorate IMF considered the provisional application of Belarus for a loan, but hadn’t made it public. At the official level doubt in the possibility of the receiving the next tranche of AF EurAsEC by Belarus was also expressed because of Belarus’ failure to meet the agreed crisis management program.

In addition, in August Belarus suffered significant image losses: the introduction of new U.S. sanctions against several companies, Iran’s refusal to further cooperation on oil exploration, the termination of cooperation with Belarus of Royal Bank of Scotland, that previously participated in Belarus Eurobond production.

In August, inflationary processes (monthly inflation is estimated at around 8%) due primarily the size of the formal and real devaluation, the partial liberalization of pricing and growth of money supply, continued to gain strength. In September a high inflation will continue because of the need for government to raise regulated prices and tariffs. But in case of reaching the single rate for foreign currencies, the prices can become appropriate.

Issues in monetary policy had not reflected in the budgetary discipline, and government could provide a significant surplus of the consolidated budget (3.5% of GDP). This significant figure was achieved through cuts in funding of state programs (for the statements of the Ministry of Economy the reduction was about 10 trillion Br. By the end of the year the state programs will be further reduced for Br 4,5 trillion), and refuse from a sharp increase in social spending (the freeze of social payments and salaries to state employees with little income with only small indexing for inflation was actually implemented). However, by the end of the year the budget is likely to be brought closer to the balance sheet in connection with the plans of the authorities to increase pensions, scholarships and tariff rate of the first rank in October-November.

Against the background of problems in the financial sector results in the real economy still look fairly convincing. GDP is still growing and at the end of the year should be around 5-6%. A considerable decrease was observed only in the construction field (new housing in January-July 2011 decreased by 16.3% in comparison with the same period in 2010) and agriculture (3.6% decrease) due to a reduction in government programs. Return on sales in the industry of Belarus in the first half of 2011 was 10.9% with an annual forecast of 8-9%.

In August, the government continued its efforts to improve the effectiveness of the real sector with the help of administrative procedures aimed at restructuring the real sector and used instead of actual mechanisms of merging and acquisition. Thus, at the moment there is carried out a number of programs to establish holding companies led by a management company, which is relatively successful in the industry due to the strong management. For example, “The first dairy company” is under the control of “Savushkin product”, and “Automotive components” holding bases on the JSC “Borisov Plant of Automobile and Tractor Electrical Equipment”.  This practice indicates the aim of the authorities to solve the problem of improving the economy efficiency without making liberal structural reforms.

Thus, September promises to be a very important period in terms of further dynamics of economic processes. The implementation of liberalization plan of foreign exchange market is to provide a unification of exchange rates with the gradual stabilization of economic processes in the country and facilitate obtaining external financing from the IMF and the AF of the EurAsEC. If the authorities decide to abandon a number of tough measures, make the program too long, increase the financing of social spending and continue to thwart the privatization transactions, the further aggravation of the economic situation will be inevitable.

The situation in the field of national security and defense. In August, the military and political leaders of Belarus took several steps aimed at strengthening the internal security of the state system. In fact, the creation of the Investigative Committee marks the beginning of the next reform of the national judicial system. At the same time, Belarusian authorities are trying to continue use the contradictions between the West and Russia, hoping, if necessary, to get support from one side (Russia or the West) against the other in order to protect and preserve the existing political regime. And preventive measures, aimed at depriving foreign players the ability to involve internal NGO to achieve their geopolitical goals, are taken.

On August 2, 2011, during a meeting on improving the system of the preliminary investigation, it was decided to establish an investigative committee, directly subordinate to the head of state. It should be noted that the creation of the Investigative Committee was provided by the concept of judicial and legal reform in 1992, which united all investigative units of all departments into a single organization.

So far, there is no detailed scheme of creating the new law enforcement agency. In particular, the KGB hopes to keep investigative units under its control, claiming that the secret service works in specific conditions.

In our opinion, the main purpose of creating the new law enforcement agency is to start the struggle against corruption. The requirements of Lukashenka to strengthen fighting corruption, which had been repeated for 2 years, were successfully sabotaged. The law enforcement agencies were just bringing to justice petty officials or government officials (sometimes – officials of state-owned enterprises). Meanwhile, corruption struck the whole governmental system, including courts, prosecutors and law enforcement agencies. You can say that the struggle with corruption is now just a formality, and facts of corruption are becoming more impertinent, actually — open.

In a systemic crisis of Belarusian State and with disastrously low level of people’s confidence in the authorities, the regime needs to find a surely winning issue that can cause a wave of approval in the community and at the same does not require big money. And the fight against corruption can be this very issue.

On the other hand, the Investigation Committee, along with the Intelligence and Analysis Center and the State Security Committee, may be another agency that controls the loyalty of the state apparatus to Alexander Lukashenka.

On August 12-13, 2011 in Astana (the Kazakh capital) an informal summit of members of the Organization of Collective Security Treaty Organization (CSTO) was held. According to the results of the meeting, the readiness to strengthen the Collective Rapid Reaction Force (CRRF) and to develop a scheme of protection against illegitimate regime changes in the units of CSTO jointly, was declared. The important agreement on the possibility of using CRRF to stabilize the internal situation in the states of the CSTO was reached.

The transformation of the CRRF from amorphous organization into actually operating system of collective security can only be welcomed. In the light of the withdrawal of NATO troops from Afghanistan the Taliban return to Kabul is only a matter of time. Having reliable barrier against religious extremism is the general interest of all CIS countries, including Belarus.

However, the declaration of the possibility of using collective forces in domestic crises is ambiguous: stabilization with the help of foreign troops may be used not only to suppress protests against the authorities, but also to overthrow the regime that has lost the (fully or partially) support of its own population. Taking into consideration the fact that many leaders of the CSTO countries have a very complicated history of relations with Russia and that CRRF is based on Russian contingent, it can be said that not many leaders of countries would risk inviting CRRF even in case of emergency.

As concerns the claims of intent to struggle with «threats … in the Information and Cyberspace», then they are nothing more than allegations. By virtue of technological backwardness, questionable legitimacy and the weakness of national ideology of the majority of ruling regimes in the Collective Security Treaty Organization, the only effective way to struggle can be only self-isolation of the Organization units.

It should be noted, that Alexander Lukashenka actively raises the possibility of interference in the internal affairs of the CSTO member states (On August 22, 2011 during a meeting with Medvedev in Sochi and On August 30, 2011 during a meeting with CSTO Secretary General N. Bordyuzha — source). In our opinion, the Belarusian leaders are seeking to build a system, that neutralizes the threat of external interference in the internal affairs of Belarus: the mechanisms of CSTO will be used against the West, and the myth about the Russian threat will be used against Kremlin.

In the situation of deepening crisis of the state, Belarusian authorities fear possible attempts to destabilize the internal situation by the external forces with different social and political organizations operating in the territory of our country (like the «Union of Poles in Belarus»). Currently, the complex of preventive measures against a number of pro-Russian chauvinistic organizations is being taken.

It should be noted that the Belarusian state security agencies have begun to pressure on pro-Russian organizations immediately after the meeting of Alexander Lukashenka and Dmitry Medvedev in Sochi. So, we can conclude:

— the resumption of Belarusian — Russian confrontation is real;

— that the threat of Russian interference in the internal political processes in Belarus is considered as the real by Belarusian authorities.

This is indirectly confirmed by the fact that, despite the equal tolerance of Belarusian and Russian companies to participate in tenders for public procurement, declared by Russia, according to our information the Ministry of Defence of Russia have ordered to exclude supplies of Belarusian foodstuffs for the needs of the Ministry. Moreover, the question of supplying the troops of the Russian military facilities in Belarus with only Russian food is resolved at the moment.

Thus, the Belarusian authorities made the only correct decision in this situation: be proactive.

In general, the Russian minority is integrated in the Belarusian society. Chauvinistic neo-imperial ideas do not find any significant support among the Russian community in Belarus. Moreover, a number of ethnic Russian are prominent members of the national movement (O.A. Trusov, L. Barshcheuski, etc.).

From August 27 to September 2, 2011 specialists of the Ministry for Emergency Situations (MES) of Belarus were taking part in NATO exercise «Codri-2011» held in Moldova. The training objective was to develop mechanisms for cooperation in disaster management. It should be noted that the political crisis in relations between Belarus and the West had little effect on the intensity of contacts in the military and security fields.