Analytical Report: May 2011

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The internal situation: the authorities. In May it became apparent that for the first time since 1994 the Belarusian authorities are losing the “informational war”. At the same time all illusions about the intentions of the EU to introduce any tangible economic sanctions against the regime have disappeared: any further threat of sanctions should be viewed critically.
Partial paralysis of governmental system in the situation of political and economic crisis, shows the inadequacy of the existing system of decision-making. It should be also considered, that the Belarusian governmental system has experienced staff shortages throughout the 2000’s. The process of rejuvenation of governmental system goes very slowly. Low salaries of middle and lower-rank officials do not allow bringing high-level specialists to the civil service in sufficient quantity. On the other hand, the broad power and weak institutional control combined with the complete absence of social control has led to widespread corruption and mismanagement at all levels of the power vertical, which negatively affects the moral and psychological state of the state apparatus, and the level of popularity of the authorities in the society. The situation with staff in the state apparatus is so critical, that there have been cases of compulsory appointments to positions in the executive bodies, often under the threat of reprisals against the person appointed.
In recent months, the already questionable credibility of the authorities has been affected by the tragedy of 11 April 2011. Despite their efforts, the authorities and official media have failed to eradicate the version of the regime involvement in the terrorist act, though this version is apparently invalid. Moreover, the demonstrative intimidation of the rumormongers has led to directly opposite result: the state authorities’ participation in the organization of a terrorist act, which has been previously discussed mainly in the capital, has spread to the regions. In fact, the Belarusian regime has got into double isolation: both foreign and domestic (from its own people).
For the first time since the 90-ies of the XX century, there were cases of active mass demonstration of people’s discontent. The demonstrations took place in the company of «Heineken» in Rechitsa, on Minsk Tractor Factory and in one of the companies in Baranovichi. The authorities managed to conceal the information about the latest incident. The fact, that the Belarusian authorities seriously perceive the possibility of active social protest, is demonstrated by the fact, in order to resolve the conflict situation to the Minsk Tractor Factory was sent KGB Chairman Vladimir Zaitsev.
It should be noted that ill-conceived information policy of the authorities provokes social protests. Thus, the official media regularly report on economic growth and the temporary nature of the difficulties faced by the country. Meanwhile, the declared GDP growth is not accompanied by increase even of nominal wages. Moreover, because of the financial crisis at the end of May at least one million people employed in the national economy lost earnings completely or partially.
At the same time this May is also notable for the fact, that the first new epicenter of “consumer hysteria” was not the capital, but a regional center — Brest. Panic buying of salt by people has covered the whole country in a few days. And although the buying craze has quickly lowered, it is an alarm for the Belarusian authorities. While modeling of the situation of social and political crisis earlier, the authorities considered that “every revolution begins in the capital”. Salt boom has demonstrated that the epicenter of social outburst can be any relatively large settlement. In case of protests in the provinces, the authorities will simply be not able to have enough forces to control the situation in several places.
Aggravation of the relations between Belarus and Russia has occurred before the expected date. In our opinion, the next round of crisis in bilateral relations should have been expected after the decision about participation in presidential elections of 2012 in Russia of Dmitry Medvedev and Vladimir Putin. However, the events have shown the tendency to accelerated development, which may indicate that Russian authorities have one position on the Belarusian issue. That is how the statements of the Russian side, considering democracy and human rights in Belarus, and the next information war of the Russian media should be regarded. Belarusian side responded with toughening of the claims against Moscow.
In fact, the current crisis in bilateral relations was triggered by the Russian side. Motives and objectives pursued are unknown. Statement about Moscow’s desire to take advantage of difficulties in Belarus and to make lucrative privatization deals is quite questionable. As we have previously noted, Belarus has no assets, critical to any investor. At the same time it is recognized that in case of privatization of several state objects (e.g. refineries), Russian companies can objectively be the only serious partners.
Simultaneously, the topic of expansionist ambitions of Moscow has again become exaggerated in Belarusian media. In our opinion the «Russian threat» has purely speculative nature and is possibly discussed at the instigation of the Belarusian authorities with a goal of consolidating the society in the face of an imaginary enemy.
In a crisis, with partial paralysis of the authorities, their apparent inability to stabilize the situation and extremely low level of public confidence of Belarusian state media, the possibilities for authorities to maneuver are rapidly shrinking. In fact, the regime is clearly losing the information war for the first time since 1994. And is losing it stupidly and hopelessly.
On 15 May 2011 (Sunday) the bilateral talks on the allocation of financial assistance to Belarus were held in Minsk. The Russian delegation was headed by Finance Minister Alexei Kudrin, the Belarusian one – by Prime-Minister Mikhail Myasnikovich. Negotiations were held in the nature of emergency and were not advertised. Some agreement have been signed, which was announced by M. Myasnikovich on 17 May 2011. On the contrary to general expectations, the visit of Russian Prime Minister Vladimir Putin on 19 May 2011 brought no sensations. The main part of the negotiations took place behind closed doors and the information on them is minimal. However, judging by the subsequent reaction, the Belarusian authorities are not satisfied with the results.
At the same time it should be noted that the aid, which may be provided to Belarus by Russia, is insignificant because of its spread over time, and is unable to stabilize the economic situation in the country without deep structural reforms of the economy. Belarusian authorities may defiantly refuse from assistance from the EEC, or even, having received the first tranche, ignore the conditions for granting aid and abandon the rest of its volume. The decision to refuse, if accepted, is a testament of irreconcilable contradictions in the relations between Belarus and Russia. It would be a serious blow to already shaky positions of M. Myasnikovich. On the background of growing discontent and anger in society, imposing personal responsibility for the economic failures on the Prime Minister Mikhail Myasnikovich and, consequently, his removal from the vertical of power is quite possible.
It became obvious that despite the loud statements of the West, economic sanctions are unlikely because of the following reasons:
— Economic situation in Belarus tends to worsen even without any sanctions, and the sanctions might be used by the regime to explain the reasons for the economic crisis;
— In the situation, when there is nothing to lose, the government can go to an extreme measure — the closure of diplomatic missions of Western countries, which would deprive them of source of information about the internal situation in the country and of the ability to influence it;
— The West fears that sanctions would make Russia’s influence in Belarus is overwhelming.
The latter reason should be considered specially: there is no evidence of West intent to dismiss Lukashenko from power. Rather, we can talk about trying to impose on him certain rules of conduct that preclude repression and lead to the weakening of Russia’s positions in Belarus. In situations where the opposition is not able to create an alternative to the regime, the power vacuum after Lukashenko soon be filled with officials who are more oriented towards Russia than towards the West. Thus, before the formation of truly viable pro-Western opposition, the EU and the U.S. won’t take any steps that represent a real threat to the government of Alexander Lukashenko.
We should also pay attention to the fact, that the rejection of the European Bank for Reconstruction and Development of financial assistance to the Belarusian authorities is a «blank shot». Bank refused to cooperate with “Belarusian central authorities”. Thus, cooperation with local authorities and business entities may well be continued. Statement made by the Bank is much more propagandistic, and to some extent, psychological. However, no serious consequences will follow it.

The internal situation: the opposition. In May, after the trials of the presidential candidates, new political landscape in the oppositional structures began to form.
So, after the trial of Vladimir Neklyaev and other leaders of the campaign «Tell the truth!», its leaders declared their readiness to transform the movement into a political party. This information is not new. Last autumn it was known that «Tell the truth!» according to the results of presidential elections expected to form organizations in 50 major cities across the country, with their subsequent transformation into the party structures in order to participate in the elections to the National Assembly of 2012.
The initiative of Neklyaev to begin a dialogue with the authorities should be taken into consideration in the frame of process of party building and the prospects for participation in the 2012 elections.
Although at the moment the situation tends to develop in an unpredictable scenario and prospects for participation of the opposition in the election look uncertain, the transformation of «Tell the truth!» into a political party, of course, will indicate the qualitative growth of the political structure. «Tell the truth!» has sufficient and fully competent team of managers, unites several well-known figures, has a bright and charismatic leader who can work with the masses. The niche to be taken by the new party is still not clear: the fact that the campaign actively involved representatives from a wide spectrum of political parties (the Belarusian National Front, United Civil Party, «A Just World»). However, judging by the rhetoric and initiatives during the presidential elections, most likely it will be a populist moderate-nationalist party, oriented on socially lower classes (which in Belarusian reality include big part of the intellectuals and the bureaucracy, the junior officers of the defence and law enforcement agencies) and small entrepreneurs .
Special attention should be paid to the unexpected attention of foreign media to Andrei Sannikov. In their comments on the information about the verdict against him, usually the definition “opposition leader” is used with respect to A. Sannikov, while the rest of the presidential candidates of 2010 are called simply “candidates”. It should be noted that very small organization “European Belarus”, headed by A. Sannikov, was actually almost completely destroyed. Currently, there are only some individual activists and some number of supporters, who do not have a coordinated management. In this regard, the definition of A. Sannikov as the leader of the opposition is not correct.
Some prospects for the political opposition are provided by strengthening of Russia’s position about Belarusian authorities. Stating, even by the words of the secondary-role officials, about the desirability of removing Lukashenka from power, the Russian side is de facto to make an offer to all enemies of the existing regime, both evident and hidden, to start a big political project of changing the regime. At the same time, the statements of sympathy for the people of Belarus mean Russia’s desire to keep Belarus in the sphere of its influence. The problem, however, is that the opposition may simply not have the forces that will be able to build a productive interaction with the Russian side.
The probability of creating a pro-Russian puppet political project is minimal: there is no social and human resource base for it, and even if it appeared, then this structure would have got under serious pressure of both the authorities and the current opposition. In this case, the most promising partners of Russia maybe are high-rank officials and “the court” business structures. The latter may be attracted by the prospect of earning on the intermediary services in the privatization of state assets when the business entities will be sold at a low price at first to a certain group of local businessmen and then by the new owners to foreign investors at a higher price.

Economic situation. The main factor in the development of economic processes in the Republic of Belarus in May 2011 is acute foreign currency crisis: it was the trigger that caused the economic crisis in Belarus.
Throughout most of the month (until May 24) the foreign exchange market in the country had been operating with multiple exchange rates. In this case, exchange rate fluctuations between the various segments of the market reached 200% (from 3100 BYR per 1 USD at the official exchange up to 9000 BYR in the interbank market).
On May 23 The National Bank of Belarus announced the official devaluation of the Belarusian ruble of almost 56%. At the same time the regulator had imposed severe restrictions for all market segments to limit the deviation from the official rate to no more than 2%. In terms of abstinence of National Bank from intervention, the foreign exchange market got actually paralyzed. Transactions on the stock exchange at the official rate were held out only within the mandatory sale of foreign currency by exporters in accordance with priorities (cost of medicines, energy, etc.). Under such conditions, a significant part of importers (primarily non-state ownership) lost access to foreign currency resources.
Functioning of the foreign exchange market in the normal mode is possible only after the intervention of the National Bank, which can bring down the devaluation expectations of agents. However, National Bank currently lacks sufficient resources for effective implementation of these measures. Moreover the ability of the National Bank to repay foreign currency obligations to banks-residents, arising from the implementation of the swap-transactions of exchange rubles to foreign currency coming to the banks from the founders, is also questionable. Obligations of the National Bank on the transactions (for most of them maturity date is in late summer and early autumn of 2011) currently exceed its reserve assets.
The development of the crisis exerts considerable pressure on the banking sector. In general, devaluation greatly reduced the attractiveness of Belarus for foreign banking capital. Actual losses of foreign banks, recorded as a result of devaluation (especially those working in the field of consumer credit ruble), can cause an outflow of bank capital from the country.

Security. On May 24-27, 6th Exhibition «MILEX-2011″ was held. Based on the products, shown by the enterprises of the State Military-Industrial Committee, it can stated, that the main directions of military development in Belarus, besides upgrading existing items, is the development of unmanned aircraft and remotely controlled fire systems, command and control of the troops and electronic warfare.
It is interesting that manned aircraft small class is produced in the country. These devices are based on tested and reliable foreign systems. They are neither modern nor applicable in situations of conflict in the European theater of operations. But the following facts are interesting:
— The material resources have been allocated for these developments;
— Development and production are carried out by private companies.
In May, the doubts in the sustainability of the national energetic system have arisen again: Belarus is experiencing difficulties in the timely payment for imported electricity. In addition to lack of domestic sources of energy, the weakness of Belarusian energy system is hidden in the fact, that having nominally sufficient capacity of power-generating plants, the country is forced to import electric energy due to the high cost of its production on Belarusian power plants.
The situation could be stabilized by the construction of one or more power plants working on coal – the fuel that isn’t widely used in Belarus. Currently the construction of power stations in Zelva in Grodno region is in development stage. Special attention should be paid to the difference in the cost estimates of projected power plant: from 1.3 billion to 2.1 billion U.S. dollars.
Initial plans to bring Polish investor look doubtful in connection with the difficult political situation around the country.
Currently, in terms of electricity production Belarus is totally dependent on gas supplies from Russia. Construction of nuclear power plant isn’t likely to solve the problem of sustainability of the national energetic system, because the dependence on one country in energy supply will continue.
Meanwhile, taking into consideration the cost of building nuclear power plants of 6 billion U.S. dollars and its planned capacity of 2,000 MW, it is worth noting that with the same amount of investment used, the capacity of about 3000 — 4000 MW can be reached. This would reduce gas imports by 25% — 31%, and most importantly, ensure the competition among energy suppliers because of de-monopolization of the coal industry and the availability of importing coal from neighboring Poland and Ukraine, as well as from Kazakhstan – the Customs Union member.
Certain clarity in the story of the arrest of the commander of the Air Force and Air Defense, Major-General. I. Azarenka is appearing. In 2009, his candidacy was considered for appointment to the post of Minister of Defense. However, the choice was made for the benefit of Yuri Zhadobin , who was the Secretary of the Security Council and, earlier, in 2007-2008 the Chairman of the KGB. By virtue of earlier positions, Y. Zhadobin has the fullness of compromising data on senior government officials, including generals. It is possible that the immediate reason for the arrest of Azarenka were the hostile relations between him and Zhadobin. The fact that the operative crime detection activities on I. Azarenka were carried out by the Interior Ministry, but not by the KGB Military Counter-intelligence, can be regarded as an attempt to remove the suspicion in involvement in the prosecution of opponents from Y. Zhadobin, who is the former head of KGB.

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