Analytical Report: December 2013.

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This note is the last one in the form in which we have prepared it during the last two and a half years. Starting from this year the form of the document as well as the list of the spheres to be covered shall change. It is related to the adjustment of the project’s mission, which becomes more focused.

Project’s mission has been and is about unbiased analysis of the current situation in the sphere of national security and forecasting of its development to the extent possible. National security at the moment is a complicated phenomenon, which is determined abroad as total or complex security. And as a rule it covers five matters:

— military defense, including development of military-industrial complex;

— public security and civil defense;

— humanitarian (or psychological) security;

— macroecomics;

— social-political stability of society.

This is not a final list: lately the topics of cyber-security, climate changes, food availability, water and energy carriers have been gaining top priority.

Our limited options do not allow capturing the whole problem of security. That is why we are planning to concentrate on the analysis and study of only three first elements.

Analysis and description of other events (foreign and domestic politics, stuff issues, integrational unions within post-Soviet area), which are influencing or may influence on the issues of national security of Belarus, shall be performed in the format of comments.

Domestic situation: state power stability

The most important events of the month. The main event of December was the conference of the top officials under the chairmanship of A. Lukashenko, held on December 10th, 2013. The event was devoted to the issues of development and stuffing of the state management bodies. Probably, it was the first time when A. Lukashenko acknowledged acuteness of the HR problem. We can conclude that it is impossible to hide it any further and it has no sense.

In particular they recognized crisis manifestations, which we have repeatedly focused on during the last three years. Firstly, we are talking about the refusal of successful managers of state companies to transfer to the state service. But, yet the practice of forced appointment on the managing positions in the state management system is still kept silent. Secondly, lumpenization of the state service is intensifying when the officials morally and professionally incompatible within labor market are promoted to the managing positions. Thirdly, evident becomes the unwillingness of all-levels officials to undertake the responsibility for the decisions made, which often results in passivity of the power bodies. Or the imitation of activity. As a result also the emotionality of personnel resignations in November also becomes clear. During the conference A. Lukashenko blamed the managing personnel in sabotage of his orders.

Of special interest is the wish of A. Lukashenko to learn about the acuteness of the stuffing issue from the local officials. And the reason is not really clear: is it distrust to his own people, who gave the unpleasant information or is it psychological need to be sure that everything is not that bad. It is doubtful for the regional officials dared to talk about negative things directly. An impression arises that A. Lukashenko is searching for something positive: he stated that the existing system of work with personnel has justified itself. Despite the fact that the number of these people reduces as well as the quality of their performance.

The dynamics of the situation development during the month. December 2nd, 2013, accepting the visit of the Head of the Central Committee for Elections and Republican Referendums Lidiya Yermoshina, A. Lukashenko stated that the oncoming electoral campaigns (in Local Councils of Deputies in 2014, Presidential in 2015 and in National Congress in 2016) should be the “…demonstration of true democracy”.

On December 24th, 2013 the Congress of the Supreme Eurasian Economic Council of Belarus, Russia and Kazakhstan, dedicated to the formation of the Eurasian Economic Union (hereinafter EAEU). N. Nazarbayev and V. Putin underlined, that the main task of the new association is economic development of its members. By this N. Nazarbayev declared the need to exclude from the foundation documents of the EAEU any political provisions, which can limit sovereignty or subjectivity of the member-states within the international arena.

During the meeting they sounded the main claims of Belarus, which emerged in the course of preparation to the EAEU foundation:

— yet they do not manage to agree on some sensible items of the institutional part of the EAEU treaty draft;

— there is no concrete data about future international status of the association, the boundaries of its competencies;

— dissatisfactory regulation of personnel issues during formation of the Eurasian Economic Commission;

— the work on assurance of the freedom of goods movements is not completed, withdrawals issue still remains, so in reality the Customs Union of the three countries has not been formed.

To continue, on December 25th, 2013 Moscow welcomed the conference of the Supreme Council of the Union of Belarus and Russia. Under the results of the event A. Lukashenko declared that all acute matters of bilateral relations have been solved. Despite his optimism the existing order of the treaty on oil duties between Belarus and Russia shall maintain its power for the whole 2014. Although Belarusian authorities expressed their hope for changes.

Moreover, oil balance for 2014 has been not signed. Russia connects the oil treaty “with other directions of bilateral cooperation”. And speaking openly – with privatization of Belarusian state property in favor of Russia. And Belarusian Government demonstrates its readiness to meet Russian wishes having declared on December 18th about the readiness to start the sale of state assets in practice. But the final decision shall be made by A. Lukashenko. And he, judging by all, yet is not ready to exchange Russian financial support for Belarusian industrial assets, preferring to “sell” Moscow defense cooperation. Which by the way develops not really smoothly.

The achievements of the event include granting by Russia to Belarus of a loan of 2 billion USD. But, yet only 450 million USD were raised. According to the declarations of Russian officials, the sources of financial aid to Belarus have not yet been defined.

Conclusions. The main mechanism of personnel crisis solution is observed by the leaders of the country in the growth of the remuneration of labor for officials. Without denying of the significance of the factor of social security system it’s worth to warn from the illusions of the option to “cover” the problem with money. A real professional except for money expects to be respected as a specialist and a human. And the prospects for realization of his potential. Personalistic mode, by which all processes are developed only around wishes, moods and images of one person, shall not be able to give it. The situation has come to the dead-end. Degradation of the state management system in Belarus most likely shall go on, rather than will be stopped.

The matter of the state power efficiency reduction is worsening with degradation of the opposition, which cannot be observed as human resources reserve. Actually, only business environment and to smaller extent law enforcement agencies remain only. There the human resources problem is also acute, but there, at least, a trouble of promotion mainly of the best ones remains, and not only those under protection or forced.

In course of the meeting with L. Yermoshina regarding the current electoral cycle A. Lukashenko declared: “It shall be a disaster to lose three years for the development of the country during this period”. We should have no doubts that the practice of electoral law implementation shall remain the same. It is already not difficult to predict the official results of all oncoming elections.

Despite existing contradictions in course of preparation of the EAEU establishment, the probability of formation in earlier agreed terms (from January 1st, 2015) is high. Russia is extremely interested to observe the plans. It is rather more interesting which way it shall be achieved: with pressure or purchasing. The second option is most probable. That is why we can have no doubts: Russian authorities shall raise money for the loan for Belarus. Considering the prospects of the EAEU establishment Moscow is not interested in collapse or in another scandal with Minsk.

The statement about regulation of all acute issues between Belarus and Russia should not be perceived literally. This is conventional rhetoric which is accompanied with statements about unprecedented breakthroughs and successful future of bilateral relations almost after any Belarusian-Russian Summit. It is interesting to note, that before the conference the leaders of the two states held a bilateral meeting to relief all acute issues and discuss promising directions of cooperation. Lately acuteness in bilateral relations with enviable persistence has been given by the Government of Russia headed by D. Medvedev. That is why A. Lukashenko decided to agree with V. Putin directly right before the meeting where the decision were made. However, these solutions in any case shall be executed by the Governments of the both countries. So we can’t talk about the end of the conflict potential within Belarusian-Russian relations.

Domestic situation: opposition and protest movement.

The most important events of the month. December was marked with low activity of the opposition. Even the fact of allocation of Russian fighters did not incite active reaction. Everything was limited with the adoption of a declaration with judgment of the policy of authorities and applying for picketing which was refused.

The same dull were thy protest actions against implementation of the tax for car-holders. Passivity is rather explained by pre-holidays season and relatively small tax rate than by intimidation on behalf of the authorities. Which, as it worth mentioning, nervously and pretty provokingly replied on a pretty harmless action. Which has become an additional irritation factor on behalf of population in relation to the regime.

Much more active reaction of the opposition was called by the events in Kyiv. Thus, instead of picketing against Russian air base, OGP party on order to support Maidan applied for the marches in Brest, Mogilev, Bobruisk which were not held due to preliminarily expected ban of authorities.

During the whole December there was no information about continuation of “Anti-Corruption March” of OGP party, which on a large scale started in November in several towns. It is not really clear what is the reason. Maybe, it was the Christmas – New Year season.

Dynamics of the situation development during the month. The main subject of December was the electoral campaign to the local Councils of Deputies. The coalition Talaka announced about its readiness to nominate about 500 candidates-speakers and to forward to the electoral precincts 4,000 observers within the frames of the campaign “For Fair Elections”. It is planned to cover with observation up to 700 electoral precincts around the whole country (i.e. up to 11% from their total number). The accomplishment of sounded indexes shall be a real demonstration of people’s potential of the coalition. By this the opposition does not have illusions regarding the results of its participation in the Elections in the local Councils of Deputies: they are null. This is proven by the practice of formation of electoral commissions. Talaka plans to use the elections as an agitation-information foundation.

The second opposition camp also has no hopes regarding the results of the electoral campaign. Thus, BNF party stated, that the elections as the mechanism of power renovation in Belarus does not work. The only reason of participation in the electoral campaign is to inform people that the existing regime has an alternative. However, despite the negative, BNF plans to nominate about 150 candidates mainly in regional Councils of Deputies in order to cover with agitation in course of the election as biggest audience as possible.

The same as Talaka the partners on People’s Referendum are planning to arrange the campaign for observation on the elections. Thus, yet we are talking about two observational campaigns (For Fair Elections and the Right of Choice), not considering the one arranged by the human rights defenders.

It’s worth noting that together with general provisions, developed within the frameworks of the campaign People’s Referendum BNF party plans to focus on the issues of national security of Belarus. Yet it is early to talk about the forms, but at the moment it is the only political force which promotes these issues as the matter of the electoral campaign. The pre-electoral campaign of the BNF candidates shall include the requirement of foreign military presence withdrawal. Also against Russian military units in Belarus it is planned to arrange pickets using the options granted by the Electoral code.

December 20th, 2013 the participants of the People’s Referendum campaign presented the list of issues, which are planned to be introduced for the national-wide consideration. Each of these issues is topical. But an impression occurs about definite adventurism regarding the claimed target to collect 450 thousand signatures to support the Republican Referendum. It is doubtful for the authorities even to register the initiative group. Once again loud statements can end with that the blame for their non-accomplishment shall be laid on the regime. Considering that from the very beginning the line of the authorities is clear as well as the real possibilities of their opponents.

Conclusions. It is already evident that the oncoming elections in local Councils shall not be more liberal than the previous ones. In these conditions even the total number of candidates supposed for nomination from the opposition (at the moment 1 130), can be considered as active participation. Another case is how many of them shall be really nominated, and then registered by the authorities. The second issue is the issue of the ability to assure the corresponding financing of its candidates. Yet there are no grounds to suggest that the campaign of the opposition shall be powerful. Most likely, everything shall be modest almost invisible.

Economic situation.

The most important events of the month. The month shall also be memorable with the actions of Russia to support the economy of its ally, which yet in the middle of 2013 would be perceived as unexpected. The most significant of them was the decision of Russian leadership to grant Belarus in 2014 a credit in the amount of up to 2 billion USD, which was publicly announced on December 25th, 2013, and already on December 21st 2013 the first part of the loan was credited on the accounts of the Ministry of Finances of Belarus. Also in December Russian Vneshekonombank agreed to grant for Belarusian Government of the credit for the amount of 500 million USD to make the advance payments for the construction of the Ostrovets NPP. Favorable for Belarus decisions were adopted in oil and potassium spheres. Thus Russia agreed on oil supply in Belarus in the first six months of 2014 in the amount of 11.5 million tons (under the maximum request of our country) and agreed to consider the option of supply of the same scope also in the second half of the year. Oil supplies increased significantly also in December 2013, which shall positively influence the trade balance of the country. The change of owner in Uralkali company was finalized, and the unwanted by Minsk V. Baumgertner left the position of the General Director. This opens a possibility to rehabilitate Belarusian-Russian potassium cartel, which was proved also by the Ambassador of Russia A. Surikov.

In general these agreements seriously reduce the risks of system crisis in Belarusian economy in 2014. Now the expected deficit of the current account of the payment balance in the amount of 5-6 billion USD and the expenses on the state debt maintenance at the level of 3.2 billion USD already doesn’t seem so hopeless. Judging by the forecasted incomes of foreign currency in the country at the Government disposal (direct foreign investments in the amount of 2-2.5 billion USD, above mentioned Russian credit in the amount of 2 billion USD, floating of Eurobonds in the amount of 800 million USD and obligations in the domestic market in the amount of 900 million USD, Chinese credits in the amount about 1 billion USD, the last tranche of the credit of the Anti-crisis fund of EurAsEc in the amount of 440 million USD), the task on financing of foreign currency needs of the country is pretty realistic.

Dynamics of the situation development during the month. On December 31st, 2013 new forecast parameters of the economy development for 2014 were approved. Adopted numbers are moderate, providing GDP growth by 3.3%, the growth of people incomes by 3% and inflation forecast was worsened from 11% till 14.5%.

A complicated situation preserves in a real sector of economy: economic growth under the results of January-November 2013 slowed down to 0.9% and stock reserves after six-month period of reduction demonstrates its growth again. The only industry with positive dynamics remains to be trade, and industrial production and agriculture demonstrates serious recession (-4.8% and –3.9% respectively). Once again reduction of average salary in the country was observed, which in USD equivalent reduced to the level of May 2013.

A bit has improved the situation in the foreign economy sector. The reduction of gold and foreign currency reserves (hereinafter GFCR) in November unexpectedly ceased, and under the results of December they demonstrated growth (+USD 192.2million), assured by the incoming of the first part of the Russian credit. Also net demand of economic agents within foreign currency market reduced. The Government continued the policy of gradual devaluation of BYR, by this the rate of its weakening in December increased in relation to USD, as well as to the foreign currency basket (1.9% and 2.7% respectively).

In December the Government kept on enhancing the regulation of the bank sector, targeted at the reduction of system risks in it, about seriousness of which the MIF as well as the international ratings agencies declare. Thus, according to the decision of the National Bank from December 12th, 2013 expensive consumer credits (at the moment with the rate greater than 47% annual interest) were economically unviable for the banks for the reason of legal reference of them to the high risk group. According to some information, National bank also in the near future plans acutely to limit the possibility of obtaining of foreign currency credits by legal entities (it is expected, that only the organizations with sufficient foreign currency earnings will be able to obtain foreign currency credits). These measures are targeted at accomplishment of the AF of EurAsEc requirements on reduction of crediting of economy and conform to the IMF recommendations on limitation of bank crediting in foreign currency.

Under the results of November, as it was expected, budget implementation worsened a bit: the republican budget was implemented with deficit (0.1% of GDP versus proficit 0.2% of GDP a month ago), and consolidated budget although preserved proficit, but at a significantly lower level (0.6% GDP versus 1.3% GDP a month ago). For prevention of significant growth of deficit under the results of 2013 in the last days of December the expenses of the budget were reduced for more than 13 billion BYR. By this also most social items of budget were reduced (except pension provision and dwelling aid provision).

Conclusions. Despite the fact that there were no fundamental changes in the economy of Belarus for the last month, under the results of agreements in December with Russia we can state the reduction of risks of system crisis in the economy of the country in 2014. Except for directly financial effect of the agreements reached the very fact of the readiness of Russia to provide support in case of the need is important. By this, such support increases dependence of Belarus from the eastern neighbor and leaves Belarusian authorities even fewer chances to preserve control over the key enterprises of the country.

Naturally, we can’t exclude that the observed compliance of Minsk in the painful matter of privatization of the “family silver” once again is only a trap to get a portion of financial aid, after receipt of which Belarusian authorities shall once again get to the practice of holding time. However, it shall be much harder to repeat such maneuver. Postponing of the term of the last tranche of the AF EurAsEc credit for the 3rd quarter of 2014 allows judging that aid from Russia shall be granted in doses and only in the amount which does not allow assuring macroeconomic stability without incomes from privatization. By this the issues of oil supply are directly referred to the accomplishment of integration projects.

The situation in the sphere of national security and defense.

The most important events of the month. December 5th, 2013 A. Lukashenko appointed the General-Mayor Aleksander Mezhuyev as the State Secretary of the Security Council. Here we should focus on several moments.

Firstly, the position of the Head of the Security Council was available for more than a month. This is a proof of unplanned transfer of the former State Secretary Leonid Maltsev at the position of the main border guard and limited human resources reserve of A. Lukashenko.

Secondly, during the last year A. Mezhuyev was a member of the House of Representatives, heading the profile commission for defense. This is already the second case for almost a month, when the House of Representatives “shares” personnel with the executive power. On November 14th, 2013 A. Lukashenko appointed at the position of the Chairman of Grodno Regional Executive Committee and the Chairman of the Commission for Economy Vladimir Kravtsov. Yet it is early to talk about the trend, maybe it is just a coincidence.

Dynamics of the situation development for the month. December 8th, 2013 four standby fighters Su-27 of Military air forces of Russia were relocated to the air base in Baranovichi. And on December 10th, 2013 they started combat alert duty. It’s worth mentioning that Belarusian officials confirmed the fact already after non-governmental Mass Media reported it. By this initially the Ministry of Defense refused to confirm or refute this message.

The crew of military air forces of Russia shall rotationally be assigned for 1 month to our country to have joint combat alert duty with military air forces of Belarus. How long shall this practice exist – is an open issue. Russian fighters are under Belarusian command, and, most likely, this will last till signing of intergovernmental treaty on the establishment of Russian air base in Belarus.

Instead of primarily announced combat modification Su-27SMZ the fighters of P modification shall be forwarded to Belarus. Su-27P – the fighters of air defense and according to open sources they are not able to implement the weapon air-surface. However, the situation can change already in March 2014, when an echelon from the air base in Krymsk, where combat Su-27SMZ is located, shall come on duty.

The moment of allocation of Russian fighters in Belarus was chosen badly. At the background of another Maidan in Kyiv reinforcement of Russian military presence in our country can be observed as a nervous reaction on the events in Ukraine. And limited ability in the issues of security of official Minsk.

In December the third and the last echelon of surface-to-air missile systems (hereinafter SAMS) Tor-M2E manufactured by Russia were delivered in Belarus. Thus, they finalized formation of the division of such SAMS, which shall be the most modern in our army. By this there is an open issue about completing of the supplied armament, particularly, about inclusion into the system of the most recent Russian algorithms of radio-electronic combating: the letter E stands for “export” and suggests a lower level of the complex’s possibilities. The supply of SAMS Tor-M2U is planned directly for the needs of Russia.

NATO keeps on ignoring the Collective Security Treaty Organization (CSTO) despite all the efforts of the later to establish a dialogue. It can be related to political reasons (negative attitude towards integrational initiatives of Moscow within post-Soviet area) as well as with the assessment of the real possibilities of the CSTO. Only for re-armament of the Collective Rapid Reaction Forces (hereinafter CRRF) of the CSTO with new equipment and armament about 1 billion USD may be required. A corresponding interstate target program has been approved. Now they regulate the issue with determination of the sources of financing.

On December 25th, 2013 in Moscow Belarusian-Russian intergovernmental treaty was signed on the accomplishment of the military and technical cooperation program between the Republic of Belarus and the Russian Federation up to 2020. The program provides supplies, repair, modernization, research and testing-construction works for the interests of the Ministries of Defense of the parties, as well as production cooperation of the military-industrial of the both countries. The treaty shall assure availability of the enterprises of domestic military-industrial complex to the state defense order of the Russian Federation. It’s worth noting that equal access to military orders of the both countries was provided yet by the agreement of A. Lukashenko and V. Putin under the results of the meeting in Sochi in September 2012. However, in practice it was implemented only by Russia only in regard to the goods of Belarusian consumer goods industry.

Conclusions. The delay with the appointment of the Head of the Security Council was incited by the need to find a person, who earlier had not been a part of the top nomenclature. In order to disavow the statements about personnel crisis, as well as with the aim to fill the top officials list with new stuff. Interesting also that A. Mezhuyev is originally from military environment. Meanwhile on the eve of the presidential elections and at the background of economic difficulties it would be more logical to nominate the one originating from special forces.

Evidently, the bargain around the establishment of the Russian air base in Belarus goes on and the situation in general remains to be indefinite. Having allocated the first echelon Moscow shall be interested in image preservation to accomplish in practice the issue of the air base. This gives Minsk a potential possibility to request the maximum high price. Moreover that except for the establishment by 2015 of the air base there is also a matter of the Eurasian Economic Community. The proof of good prospects of bargain for Minsk is also the words of the Ambassador of Russia in Belarus A. Surikov that Russia shall pay the use of the air base in Belarus. Russia needs this base more than A. Lukashenko. There is a chance to make it gold.

We should draw our attention to that supply of SAMS Tor-M2E began in 2011 in the period of financial crisis in Belarus. There is no information, which gives the ground to suggest that our country pays for this armament. Even officials are talking about supply or transfer of armament, but not about its purchase-sale. Therefore the case is about military-technical aid from Russia. Which assists preservation of Belarus in the sphere of Russian military influence and reinforcement of Moscow’s positions in the environment of Belarusian generalship. By this the scopes of Russian aid are not able to improve cardinally the situation with rearmament: the SAMS division in principle should be supplied/purchased annually.

The ability of the CSTO countries to raise funds in complete scope for CRRF rearmament yet seems doubtful. Except Kazakhstan, all other participants of the block (including also Russia) are forced to undertake the steps for budget economy. Except for that the announced amount 1 billion USD may be not final. Evidently, the main supplier of the new armament for SAMS shall be Russian MIC which yet persistently demonstrated only the growth of prices on its own goods.

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