Analytical Report: September 2012.

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According to the results of the election campaign (ended On September 23, 2012) it can be stated, that the authorities have suffered a loss on the inner political arena. The regime was unable to mobilize the population to ensure the necessary turnout. There is no reason to doubt the data on the number of voters, provided by independent observers (according to them, the turnout was around 47%). In this case, the low turnout confirms the idea of ​​a low level of trust of the population to the authorities. It’s necessary to note, that the number of voters who came to the polls, excluding people forced to participate in snap poll is personal rating of President Lukashenko.

In the situation of international isolation and weak macroeconomic stability the regime is more and more getting in the internal insulation. Certainly, it would be wrong to interpret this as a victory of the opposition. Internal insulation is determined by a number of reasons, including folks’ psychological tiredness of permanent leader of the state. At the same time, the internal insulation of the authorities provides additional opportunities for the opposition. But it is questionable, if it is able to use these opportunities. The point is, that in recent years the activity of political opponents of the regime has been mainly aimed at winning sympathy from external donors and redistribution of activists between various opposition groups. The work with the society was carried out from time to time. There were objective reasons for this as well: the small size of the opposition groups doesn’t allow to hold massive long-term campaign to “conquer” the society. In the absence of access to mainstream media, growth in quantity is a necessary condition for the development of opposition. However, the interest of the opposition leaders in this growth is questionable: new people can have not only new ideas but also their own leadership ambitions. It is possible that some opposition leaders may prefer the existing situation (which would mean a slow death of organizations) to the perspective of getting competitors in the fight for the lead within their organizations.

On the other hand, despite it sounds quite paradoxically, the isolation of the regime is an incentive for authoritarian modernization, aimed at improving the efficiency of the state and national economy. The authorities no longer need to implement populist policies, as rising living standards is not accompanied by an increase in loyalty of the folk. This allows them to make painful reforms without taking into consideration the home-policy situation. But there is no much time for the necessary steps — 2013 and 2014 years. And most unpopular steps have to be taken this and next year and can’t be postponed, because President Lukashenko is likely to have no enough time for them. First of all, it’s about the reform of the pension system.

The internal situation: the stability of state power.

Major events of the month. We tend not to consider the elections to the House of Representatives as the main event of the month. Intention of the authorities gave no doubt that the election campaign would be quite tough and official results, including the personalities of new members of the House of Representatives, had been decided on before. In our opinion, the position of the foreign countries was more important: West hadn’t recognized the election results; the reaction from Russia had been quite sluggish. And it is necessary to admit surprisingly unbiased coverage of the election campaign in the House of Representatives by leading Chinese news agency “Xinhua”, which gave much attention to the activities of the opposition.

In general, as we have pointed out earlier, there is no reason to believe that the official Minsk can count on a significant Chinese aid on the basis of only one false notion of ideological affinity. The Chinese leaders’ policy is a long-term maintenance of their own national interests: and events related to the split of Sudan into two states show that China is ready to cooperate with any government, regardless of their ideological orientation, in countries where they have some opportunities.

During this year the policy, aimed at consolidating the ruling class and its struggle against the decay and corruption, can be seen. At the beginning of September the former deputy chairman of the Vitebsk Oblast Executive Committee Mr. Kovalev was sentenced and the criminal case against the former head of the secretariat of the Council of the Republic Mr. Bedritsky was considered. The two senior officials are accused of corruption. Contrary to some analysts, we are not inclined to consider these events as an attempt to intimidate officials or business. The point is that the level of corruption in the state apparatus increases. As far as possible, the regime is trying to maintain control over the situation. However, it is doubtful that it is able to reverse the situation: it is necessary to conduct a fundamental reform of the public administration.

The entry into force of the Act “On amendments and additions to certain codes of the Republic of Belarus on the jurisdiction of cases to military courts” on September 22, 2012 was given almost no attention. In accordance with this act, the criminal cases on crimes committed by military personnel, officials and officers of the Interior, the Investigative Committee, the Financial Investigations agency of the Committee of State Control, agencies and departments for emergency situations, prosecutors and customs officials are derived from the jurisdiction of general courts and get under the jurisdiction of military courts. We believe such measures were caused by two factors: the need to strengthen the fight against corruption in the Belarusian law enforcement agencies against the background of corruption of judges of general courts, often acting together with unscrupulous law enforcement officials and prosecutors. Military courts due to the specifics of their activities are less corruption-prone. It should be noted that the current legislation and practice effectively tie the hands of law enforcement agencies in the operational activities for judges, suspected of abuse of office.

The development of the situation over the last month. In September, the authorities once again became the center of scandal: the disposal of Deputy Chairman of the Minsk Oblast Executive Committee on the providing of the land in Logoisk and Smolevichy regions to Qatar for the construction of residences and the organization of the hunting grounds of its ruling family was announced. Until now, the officials have refused to comment on the accuracy of the document, which is an indirect evidence of its being true. Of course, such a decision is frankly provocative in respect of Belarusian society. However, we would note the obvious inconsistency of the Belarusian authorities that are willing to cooperate with Qatar on different issues, while ignoring the obvious fact that it is one of the key U.S. allies in the Gulf region and the principal enemy of Iran, which the Belarusian regime is trying to build long-term strategic relationship with.

It is also unclear how this cooperation of Minsk and Doha meets with Belarusian statements in support of the Assad regime in Syria, and earlier – Gaddafi regime in Libya, taking into consideration the fact that Qatar is one of the main sponsors of the Syrian rebels, and even have sent military forces to Libya. At the same time we are even not taking into account the Russian-Qatari relations, which are openly hostile. And given the fact that, according to Iranian analysts, about 70% of aid to Islamist underground in Russia comes from Qatar, we can talk about the ruling circles of the emirate conducting subversive policy against formally main Belarusian ally. In general, it seems Belarusian authorities act in the foreign arena chaotically, trying to establish a strategic partnership with anyone who would be willing to do it (Libya, Sudan, Syria, Venezuela, China, Vietnam, Russia, Qatar). Such behaviour would be understandable in a situation of real external threat, but there is no at the moment.

Due to the development of the relations with the West in the last few months (especially the diplomatic conflict with Sweden) the opinion of Russia on this is quite interesting. On September 6, 2012 Senior Counsellor of the Russian Embassy in Minsk Mr. Bondarenko, in his interview to “Interfax-West”, claimed Russia to be interested in establishing productive relationship between Belarus and the West. Moreover, generally he spoke neutrally about Poland allocating EUR 5 million to support Belarusian civil society organizations and independent media, saying that this fact “can probably be welcomed”. It should be noted that, although in the interview the West’s using double standards (which is true) was admitted, there were no traditional cliches about non-interference in internal affairs and the full support for Belarus’ position, usual for Russian diplomacy recently.

Belarus continues to show involvement in the area of Chinese influence. It should be noted that China is extremely wary of attempts to be called a geopolitical leader. This is mainly due not to the lack of ambition, but to the traditional tactic of hiding power. On September 13, 2012 in Beijing the consultations between the heads of the analytical units of Belarusian and Chinese Foreign Ministries were held. The parties intended to share their views on “trends in the international and regional situation”. In this case, it is not clear what region is discussed: Belarus and China are at opposite ends of the continent. Special attention is given to planned “analysis of the structure of the new challenges and threats in the region of Eurasia”. The only region of Eurasia, where the interests of two countries meet, are the Central Asian CIS states and the prospect of destabilizing there after the withdrawal of ISAF troops and the final collapse of the Afghan state. For Belarus, it is a threat of uncontrolled migration from the region, for China it means the creation of the source of jihadism near East Turkestan: destabilization of the region means, among other things, the creation of a rear base for Uighur insurgents.

It should be noted, that earlier, such consultations on geopolitical stability on a bilateral basis, were held by Belarusian authorities only with Moscow.

On September 15, 2012, in Sochi, the meeting of Mr. Lukashenka and Mr. Putin took place. There is no much Information on the topic and the result of the negotiations. The level of satisfaction of Belarusian party can be seen in the subsequent steps after the meeting and the statements of the West. And they are clearly conciliatory: on September 26-27 the Belarusian regime released political prisoners Mr. Kovalenko and Mr. Syromolotov, continued pressure on political opponents of the regime remaining in detention in order to make them to sign the clemency petition as a formal reason for the release. It was followed by statements about willingness to re-engage with the international financial institutions, and the calls for normalization of relations with the European Union. And the meetings with representatives of the European institutions, which were previously considered hostile, were held in Minsk. Russia’s decision to reduce the volume of oil supplies to Belarus in the fourth quarter of this year, against the background of acute needs of Belarus in the currency, also can’t be a sign of success of Mr. Lukashenko’s visit to Sochi. 

On September 17, 2012 Minister of Foreign Affairs of Belarus Mr. Mackey met the USA Chargé d’Affaires Mr. Goldrich at his request. During the meeting the parties discussed the key issues of Belarusian-American relations. And there are not many issues: the country’s political prisoners, the repressive measures against the opposition, the prospect of blocking by the USA the decisions on the allocation of financial aid to official Minsk by the international financial institutions and the expansion of sanctions against Belarusian economic entities. The fact that the initiator of the meeting was the American side showed a willingness of the U.S. and the West to start a general dialogue. However, the fundamental issue is the fate of political prisoners, and particularly the requirement of unconditional rehabilitation for them, the implementation of which would destabilize the entire system of government (and Mr. Lukashenko just can’t do this). The activities of the ruling group, which tends to isolate the country in order to maintain their privileges, can also interrupt the dialog.

On September 21, 2012 in Gorki, Mogilev region, during a meeting with reporters, President Lukashenko said some details of his talks with Russian President Vladimir Putin in Sochi. The claims of Belarusian leader suggest a definite change of tactics of Belarusian authorities to obtain Russian financial preferences. Thus, according to Alexander Lukashenko, considerable attention was paid to the problem of illegal migration via Belarus to the European Union. At the border there was supposedly an extremely tense situation and financial capacity of the Belarusian authorities to monitor the situation is not so big. It is not clear why this topic should be important for the Russian leaders. The Belarusian authorities have a sufficient source of additional funding in the form of state budget surplus, which is currently about EUR 600 million. It’s necessary to note, that recently among Belarusian analysts it is widely believed that in bargaining with the Kremlin the “Western threat” is replaced by the threat of domestic social and economic crisis, which Russia isn’t interested in, and, therefore, the latter should provide additional financial support.

On September 26, 2012 The Minister of Finance Mr. Kharkovets said that the import price for natural gas for Belarus in 2013 would be USD 185 compared with USD 165 in the current year. The minimum amount of margin on natural gas sold by “Beltransgaz” to Belarusian consumers almost doubled: it increased from USD 15,95 to USD 31. As it could be expected, “Gazprom”, like any business structure, seeks benefits from the acquisition of “Beltransgaz”. Given the fact that Belarus consumes more than 22 billion cubic meters of natural gas per year, the amount of the minimum benefit of “Beltransgaz” is not less than USD 682 million.

Conclusions. There is increasing evidence to suggest that Moscow does not intend to support the Minsk in its confrontation with the EU and the U.S. in the case of the introduction of full economic sanctions. And there is no reason to expect that Russia will compensate the costs for Belarus: Belarusian regime has been proposed to solve its problems at its own expense. The same can be said of the economic policy of Belarusian authorities: the hope to ensure the economic growth at the expense of Russia’s oil is almost gone. Over the past year, Russia gave Belarus a massive support, though its size is less, than declared by the Russian leadership.

Obviously, the next peak of Belarusian-Russian relationship is over and a decline should be expected. The conflict potential of bilateral relations is fundamental: to put it bluntly, Moscow wants to buy part of the sovereignty and property of the CIS and is ready to pay for it, Minsk is only interested in getting money without offering anything in return. However, it is not necessary to talk about the break: ​​both countries need each other. Certainly, the level of severity of this need is different, but a tough confrontation shouldn’t be expected. Rather, it would be a partial freeze of the actual relationship on that level. It should be noted, that as the presidential elections in Belarus in 2015 get closer, the possibility of a conflict will increase. It is very likely that President Lukashenko will not get the support of Russia in the next election. A factor of destabilization in Central Asia after the withdrawal of NATO troops from Afghanistan can play a big role here, because Moscow can be dealing with rather more serious issues, that elections in Belarus.

Thus, it seems unlikely that the threat of another financial crisis in Belarus can become an effective factor in the pressure of the official Minsk on the Kremlin to obtain additional financial support. Firstly, in the case of a real social and economic crisis, the safety factor of the Belarusian authorities would be critically low, which would facilitate Russia’s promoting its interests in the privatization of Belarusian state property in favour of the capital, friendly to Kremlin. Thus, Russia may be interested to repeat the events, which took place in Belarus in 2011. Secondly, the real threat to Russian can come only from a collapse of Belarusian economy, which is unlikely. Thirdly, it is not clear why the Russian leaders, having a lot of problems at home, will pay for populism of Belarusian authorities.

Through the acquisition of “Beltransgaz”, Russia has acquired not only guarantee of uninterrupted transit of gas to Europe, but also influence on Belarusian currency market. The strategy of the Russian investor on the order of the profits received in Belarus (whether it will be taken out of the country or invested in the further development of Belarusian assets of “Gazprom”) is really important. In the first case, given the fact that the profit may be hundreds of millions of dollars, there is a threat of destabilization of Belarusian currency market. Thus, the financial policy of “Gazprom” is another factor affecting the internal stability of Belarus. It’s essential to note that at present the company positions itself as a responsible investor. So, according to our information sources, in November this year, a charity program “Gazprom to Children” is going to start. On the average, the wages of employees of “Beltransgaz” increased by a half. A support in housing for employees is done as well. All this is aimed to overcome the negative attitude of Belarusian society to the sale of “Beltransgaz”. Given the monopoly on the market, the actions of “Gazprom” must be paid attention to by the authorities and the opposition, in order to prevent abuses and prevent actions that could adversely affect the national currency market. It’s necessary to create a system that would make “Gazprom” to reinvest all profits obtained in Belarus in the local economy.

There is no reason to compare the level of Belarusian-Qatari relations with the Belarusian-Russian ones. However, there is no doubt that the attempt to create a zone of activity of Qatar (including Islamic) financial institutions in Belarus won’t be ignored by Russia. At this rate, the project “Qatari island” has little chance of being implemented.

Given the efforts of Belarusian authorities to fight corruption and bring order to the security agencies it’s necessary to note that any struggle against crime starts with the integrity of the judiciary. Thus, the maintenance of law in the judicial system should be really important. And in order to do this there is a need of the abolition of immunity of judges, which inhibit the activities of law enforcement agencies against the judiciary. It is unlikely that the Belarusian authorities take such steps. The point is, that the courts have traditionally not have influence in the power hierarchy, and are, in fact, the technical body. Corruption in the judicial system is not considered a threat to the existing regime. So, they are not in the same area of ​​the attention of the state leaders like security forces, bureaucracy and state-owned companies.

The internal situation: the opposition and the protest movement.

Major events of the month. Certainly, a key event in September was the campaign for elections to the National Assembly. Despite a rather critical view of the majority of observers on the actions of the opposition, it should be recognized that, in general, despite the lack of a coherent strategy and traditional internal conflicts, opponents of the regime have fulfilled their main tasks. Firstly, the National Assembly has not got legitimacy not only in the West but also in the country, as evidenced by the turnout and the efforts of the authorities to ensure the necessary turnout. Secondly, the opposition took advantage of access to the electronic media to inform the voters about their position. Thirdly, despite the pressure by the authorities, it was possible to organize the monitoring from a large number of polling stations. At the same time, the Presidential election campaign has shown the main weakness of opposition political organizations: the insufficient number of activists and often lack of discipline.

It’s necessary to draw the attention to the extremely painful reaction of the authorities to boycott campaign, which, has been neither mass nor visible.

The development of the situation over the last month. The campaign “For Fair Elections – 2012” is an example of successful actions. On September 17, 2012 it announced its intention to mobilize more than 2000 observers. Actually, more than 1,600 observers in 36 electoral districts (out of 110) across the country took part in the observation. It’s also necessary to note, that the competing election observation project “People’s control — for Fair Elections”, as we predicted in the Note in February this year, was not really effective.

Also, human rights organizations, which, despite their small size and constant pressure by the authorities, managed to mobilize about 400 observers, took part in the observation. It should be noted that it is the human rights organizations as well as the independent media, who mainly suffered from the actions of the authorities after the events of December 19, 2010. In fact, they were able to consolidate the civil society and the opposition in the most critical period: December 2010 — March 2011. Currently, however, we believe the existing human rights organizations are close to the limit of their potential due to being politicized.

During the elections the formation of two working groups of opposition organizations could be stated. The first of them is based on the UCP and BCD. “Young Front”, formally existing “Belarusian movement”, Independent trade union of radio industry as well as small-numbered “Rada of Belarusian intellectuals” and the “European Belarus” are acting in coordination with them. They have already announced a campaign to inform citizens of Belarus on the actual election results, that is, on their actual failure. The strategy of this opposition wing seems to base on continuation of alienation of society from the authorities, and avoiding of internal legitimating of the regime.

The second group is formed by Movement “For Freedom” (hereinafter MFF), the campaign “Tell the Truth!”, and a block of public organizations united around Mr. Matskevich. With high probability we can assume, that Belarusian Green Party will also join them. It’s necessary to note that the process of politicization of non-political organizations in Belarusian conditions is quite natural and is constantly stimulated by the authorities. They try to gain control of all social activity. Thus, changes in the political situation become a condition for the survival of non-governmental organizations. And, frankly speaking, such a change is possible only with the regime change.

BPF and “Fair World” are a little bit detached from these coalitions. However, the BPF has a close working relationship with the MFF and the leaders of “Fair World” have hostile relations with the leader of the BCD Mr. Rymashevsky. So, their coalition with the second group looks the most possible.

It should be noted that the chances of unification of all opposition to the beginning of the election campaign in 2015 are negligible: the opposition leaders, who take into consideration the negative experience of previous coalitions, don’t look forward to the union. It’s essential to understand, that traditionally for the Belarusian opposition the basis of unification is the personal relations of leaders and the prospect of external support. Belarusian political organizations are just making general statements about the need for consolidation in the light of the 2015 elections and avoid discussing the coalition agreement. Currently, only the formation of the working coalitions can be seen.

The elections were the basis for some analysts’ claiming the Belarusian opposition’s losing because of its inability to unite. In our view, such statements are groundless: the campaign conducted by the authorities, in principle, excluded the possibility of letting the opposition candidates to the House of Representatives. In this situation, the presence or absence of a common strategy of opposition organizations couldn’t influence anything. Certainly, in the current election campaign, opponents of the regime have made mistakes, the most important of which is the nomination of candidates through the parties, not by collecting signatures. A low interest of the public to the election isn’t connected with the disunity of the opposition in Belarus. The point is, that when the official election result doesn’t depend on the strategy of political actors, the voters may not consider the electoral process as a mechanism to express their interest. Perhaps the debate of opposition leaders on the strategy in the campaign was the only factor that generally maintained some interest in the process on the part of usual voters.

The statement about lack of unity being a negative factor also seems to be doubtful. The situation in oppositional politics means that any coalition building significantly increases the number of political “generals” and only insignificantly increases the number of ordinary activists. Currently, even with all the contradictions, the competition tactics and strategies of oppositional organizations is an important incentive for qualitative growth of opposition. At the very least, it can be observed in the processes inside them. It’s the competition factor that helped to make “People’s program” alive and create an adequate concept of transformations on its base. BCD also started to work out its strategy. Certainly, it can’t get much attention from the society, but it is essential for the organizations, for their internal development and consolidation.

The absence of some action of political emigrants of 2010-2011 should be noted as well. It seems that the most radical opponents of the government took a break, or completely lost their capacity to act.

Conclusions. The main outcome of the campaign is the understanding that the ability to engage more people in the activities of political organizations is their weakest point. Political promouting is presented only by the campaign “Tell the Truth!”. The other subjects of the political opposition no longer count on recognition of their brand or leaders: they have no recruiting activities at all. The results of this are confirmed by the activities in the 101st constituency, where the BPF, MFF and “Tell the truth!” organized a boycott. Three organizations were able to promote only about 50 observers to polling stations.

Thus, the main task of the opposition in the next two years is increasing its numbers by involving new people into the work, but not the current moving of activists from one organization to another.

It should be noted that at present the opposition can start using social populism: not being able to come to power in the near future, the opposition organization don’t need to be responsible for such kind of promises.

Because of the political nature of the existing human rights frameworks, many Belarusians, especially in the regions, avoid the help of human rights activists. Meanwhile, the regional availability of qualified legal protection for housing, social, labor issues and problems arising out of the government activities, is extremely low. Thus, there is an objective demand for a new “human rights brand”, oriented to the issues, mentioned above, and developing its work mainly in Belarusian province.

Economic situation.

Major events of the month. In September the position of the Government on the size of the public debt, and the sources of its service in 2013, was publicly announced. Thus, the draft budget for the coming year included the limit external debt increased by USD 2 billion (14%) up to USD 14.3 billion, while domestic debt limit is reduced by Br 9 trillion or by 26.5%, compared with this year’s limit. The need to raise the debt limit at a time when even its current limit is reached, can only be connected with the hopes of the authorities to agree on a new loan program with the IMF in 2013.

In turn, the Minister of Finance Mr. Kharkovets presented the opinion of the authorities on the widely debated issue of servicing foreign debt, which will require finding USD 3.1 billion in 2013. According to the plan of the Government half of this amount is expected to be refinanced at the expense of the next tranche of the EurAsEC AF (USD 900 million) and the placement of Eurobonds (USD 500-600 million). Given the current prices for Belarusian Eurobonds (in September they even traded at a price slightly above par), the Government’s plans look quite realistic, although getting the next tranche of the EurAsEC loan can be accompanied by several problems, which can be solved only using political tools.

At the end of August a decline in international reserves both at the national (by more than USD 1 billion) and international standards (by USD 89 million) was registered. Such a significant difference is related with the maturing of the swap transaction with China (about USD 1 billion), designate in yuan, which is not a reserve currency by IMF standards. Agreement on a new swap transaction with China has not been reached yet.

The development of the situation over the last month. At the beginning of September, a slight increase in domestic and external public debt was recorded. Current debt service was quite normal: in September next redemption of the bonds on the Russian market, as well as the credit “stand-by” of the IMF, was implemented.

During September there was an increase in the negative factors for future developments in gold and foreign exchange reserves: the period of a surplus on the currency exchange, during which the National Bank was actively entering the market with ruble interventions, which allowed it to add about USD 1.6 billion to the reserves from the beginning of the year, finished. Sharp deterioration in the trade balance (in August foreign trade deficit in goods was USD 385.7 million, compared to surplus of USD 156.2 million in July and USD 322.5 million in June) due to the cessation of exports of Russian oil products has led to a reduce in the supply of foreign currency at the exchange and, as a consequence, a significant weakening of the ruble (3.7% for multi-currency basket in September). In this case, the National Bank was forced to smooth the process of devaluation through periodic exchange interventions (estimated in the amount of USD 150-200m for September). A rise in gold prices, the stocks of which were actively increasing during the fall of its quotes, should a little bit smooth the fall in the reserves, due to which the market was supported.

The prospects of negotiations with the IMF on attracting new loan, which the Belarusian authorities hope to get, are quite slight at the moment. Minsk declares a desire to re-engage with the Fund and hopes to use for this a visit of next post-program monitoring mission in October. However, the probability of achieving real results in this direction at the moment is very low for both political and economic reasons. The authorities’ plans for 2013 (GDP growth by 8.5%, housing construction — almost by 60%, the real incomes of the population – by 6.5%) aren’t likely to be understood by IMF experts, who traditionally don’t support abrupt stimulation of domestic demand. Rather, the negotiations themselves are needed to determine the requirements of the Fund and to establish contacts that can help in the discussion of a new credit line in case of emergency.

Inaccessibility of relatively cheap resources forced the government to roll over the credit obtained by “Belaruskali” from Sberbank of Russia in autumn 2011 and actually included in the gold reserves. At the same time throughout the summer officials stated disadvantages of the loan because of the high stakes and harsh environment as well as intention to repay it early.

At the end of August a significant growth in the money supply, which can be primarily caused by the growth of deposits and policy administrative building income, continued. Thus, in January-August, the real incomes of the population grew by 10.5% instead of the planned 3-3.5%, exceeding the performance gain (5.1% in January-July), almost 2 times.

In this case, since the end of August the situation in the money market began to change dramatically, which, in the light of the tightening of monetary policy of the National Bank, may lead to some reduction in the ruble supply. A long period of excess liquidity turned into a lack of liquidity of banks, which is more typical for Belarus. As a result, turnover and the rate on the interbank market rose sharply (from an average rate of 19.9% ​​at the end of business on 31 August to 30.9% on 30 September), the rate in the deposit market continued to rise, and the operations to withdraw liquidity actually stopped. In this regard, the National Bank has changed its forecast to reduce the refinancing rate as the main marker of the market from 20-23% to 25-26%.

At the end of August Belarus still shows a budget surplus, although its value has somehow decreased. Increase of the salaries of public sector employees and other social benefits (pensions), as well as increased funding of the economy in some areas (for example, in September, funding for housing increased by Br 1.5 trillion to Br 19.09 trillion) should balance budget by the end of the year in the situation of the economic slowdown. Tight fiscal policy is declared to continue by authorities in 2013. The authorities are also planning to reach the deficit-free budget.

Conclusions. In September, the growth of risk in the Belarusian economy, related primarily to the uncertainty and inconsistency of the economic plans of the authorities, can be stated.

The authorities’ plans for 2013 to increase the international reserves to USD 8.5-8.9 billion can be implemented only in case of large privatization deals and getting a new IMF loan.

Current development of interest rates in the money market still helps to preserve the attractiveness of Belarusian ruble against the background of its weakening, but contradicts the plans to stimulate economic growth, which is far behind the target values ​​(2.5% in January-August, while the annual plan is 5 — 5.5%).

The inconsistency of plans of tight fiscal and monetary policies and the objectives of achieving economic growth of 5-5.5% this year and 8.5% the following year, is the reason for concern. Given the probability of a recession in major world markets, such a result can be achieved only due to the growth of domestic demand (in 2013 special attention is given to a significant increase in housing construction), to contain which was one of the main tasks of the stabilization policy of the government this year.

National Security and Defence.

Major events of the month. In September the main events were the allegations of deepening cooperation in the framework of the Collective Security Treaty (hereinafter CSTO).

From 15th to 19th of September 2012 in Armenia the training of Collective Rapid Reaction forces of Collective Security Treaty Organization (hereinafter CSTO CRRF) “Interaction -2012”, in which Belarus was represented by three platoons of Special Operation Forces, took place. According to an introduction to the event, some irregular armed groups, using the aggravation of the situation in one of the countries that border the CSTO member-state, after civil disobedience started to take action, including the use of weapons: attempts to carry out terrorist acts, acts aimed at destabilization in the CSTO member-state, the overthrow of the power of local government to proclaim a sovereign state. In fact, it is quite clear allusion to the Fergana Valley and the Pamirs. 

Also in September, it was reported about the intention of CSTO to monitor social networks in order to prevent a recurrence of the riots like in Tunisia and Egypt. According to Russian sources, Russia is the initiator of this. It’s necessary to note that the Belarusian experience of the initiative “Revolution through social networks” shows overestimating of threats coming from the Internet: the cause of the protests are objective factors related to the quality of public administration, the level of social development and the abuse of power, but not someone’s calls and statements. It seems that the CSTO having no real methods to eliminate the root cause of instability in the member states of the Organization, decided to fight the consequence of it. It is doubtful that this measure is a success. We can’t exclude that talks about cyber security are not more than an attempt to create more high-paying jobs from the budget of the CSTO, just in the situation of uncertainty (and often outright ignorance) of the ruling elites.

At the same time, the intention to re-equip the CSTO CRRF special troops with modern and compatible weaponry (mostly Russian) before 2015, was announced. It is based on the lists of weapons of the special units of the Russian Ministry of Internal Affairs. The financial factor can be an obstacle to the implementation of the initiative: CSTO countries interested in getting Russian weapons for free in the framework of military-technical assistance, but Russia is interested in the implementation of the program using the budgets of each participating country.

In the framework of CSTO the deepening cooperation between enterprises of national military-industrial complexes of the member states is planned. Among other things, it comes to the deployment of new facilities for the production of weapons. In this regard it should be noted that the mechanism of settlement of issues of technology transfer and intellectual property protection, the protection of technological information from third countries can be a serious obstacle to the implementation of these intentions. For Belarus this may mean including certain limitations on military-technical cooperation with China, the intensity of which is steadily increasing. The second point of concern is the availability of sufficient human resource base for the development of production of even not the most technologically advanced weapons systems and equipment. It is widely known that in the CIS countries a steady degradation of the professional skills of the labor force in technically complex sectors has been taking place in the last two decades. It is not yet possible to stop this trend even in Russia, where the execution of military programs is under a threat because of shortage of skilled workers, engineers and technicians.

The development of the situation over the last month. Belarusian Army continues its policy of getting rid of the rest of transport aircraft, left from the Soviet times. Thus, in September, one An-24 (passenger aircraft for medium airlines) and three Mi-26 helicopters, which are the largest transport helicopters in the world, were put up for auction through the state company “Belspetskontrakt”. Certainly, all the equipment is old and requires a serious commitment to continue the service. However, the tendency to get rid of air transport is quite interesting: just recall that in the summer 2011 Belarus sold to China five transport aircraft IL-76, which were in satisfactory condition. Such a policy suggests that Belarusian authorities don’t plan to send large military contingents abroad. And accordingly, don’t need the heavy transport aircraft. However, even on the basis of publicly available information about the agreements in the framework of the CSTO, it can be concluded that official Minsk adopted the commitment to send troops abroad in accordance with the Treaty on Collective Security. It’s necessary to remember, that Belarus must submit to CSTO CRRF about 2 000 troops. Currently, the most explosive situation is in the Central Asian zone of CSTO responsibility. In this connection there are doubts not only about the ability to transfer operational group in remote areas, but also about the intention to fulfill the commitments, in terms of getting rid of the active means of a transport. Of course, you can still send a contingent by ground transport, but in this case, a response to the threat won’t be really fast.

On September 17, 2012 the 13th session of Belarusian-Russian intergovernmental commission on military-technical cooperation, in the framework of which the draft program of military-technical cooperation between the Republic of Belarus and the Russian Federation until 2020 was approved, was held. The two parties also discussed ways of cooperation, including joint ventures, new industries, equity participation and use of Belarusian defence industry in order to fulfill orders of the Russian Federation and other customers. However, in the light of the ongoing deepening technological cooperation between Belarus and China, the most significant event was an agreement on the establishment of mechanisms for the implementation of the intergovernmental agreement of April 21, 2005 on mutual protection of intellectual property used and received in the course of bilateral military-technical cooperation. Until the end of the year Belarus and Russia are planning to prepare draft recommendations for inclusion in the agreements (contracts) of provisions relating to the legal protection and the conditions of use of intellectual property used and obtained in the course of bilateral military-technical cooperation. The most important thing here is a mechanism to prevent the unauthorized transfer of technology, the process of finding out the fact of the transfer of technology and determining the sanctions. If the parties can not create a working mechanism of legal protection of intellectual property, it would be a limiting factor in the development of bilateral military-technical cooperation, and cooperation within the CSTO.

On September 22, 2012 in Tehran during a military parade to celebrate the day of Sacred Defence (the events of the Iran-Iraq War) the new mid-range air defence systems (hereafter SAM) “Raad”, were presented. They are based on wheeled chassis produced in Iran, which is almost complete copy of Belarusian MWTP-6922. But there is no information on the organization of joint production of such equipment with Iran. It’s essential to note, that the supply of chassis to Iran, as well as components for their production, do not violate international law. In general, it should be noted that Iran, because of the geopolitical situation in the region, has made considerable efforts to develop its own military and technological capabilities. The country has a relatively well-developed engineering school, the individual development of Iranian defence industry in the field of artillery and rocket can be demanded in the international markets. Iranian experts could easily repeat the way of China: to copy individual samples of weapons, optimizing them to local conditions.

Despite the announced reforms of the MIA, the review of plans for reform of the agency haven’t been announced. According to our information, the number of available vacancies as well as the quantity of administrative personnel of the department will decrease. And the part of functions will be given to district police departments. At the same time, the possibility to change the current Retirement age for MIA officers was discussed. The increase of the retirement age and length of service required for retirement, as well as restrictions on pensions for Interior Ministry officials, who continued working, could be used as the general direction of pension reform. But because of the extreme unpopularity of such steps, it is unlikely that the leaders of the country implement them.

At the same time, the media reported on the reorganization of the Main Directorate for Combating Organized Crime and Corruption of the Ministry of Interior, which must continue to focus only on the fight against corruption. The task to fight against organized crime is planned to be transferred to the police departments in the field. Currently, this information hasn’t got official confirmation or denial. The reasons for the restructuring of the agency are unclear, but it should be recalled that earlier Mr. Lukashenko explained the need for the Investigative Committee with the increasing abuse in law enforcement, including the corruption. But he has repeatedly drawn attention to the growing corruption in the Interior Ministry, demanding to restore law within the department. In this connection, it is possible that the Minister Shunevich had good reasons for the reorganization of the Main Directorate for Combating Organized Crime and Corruption of the Ministry of Interior, because during the period of his service in the KGB he headed the headquarters of security forces directly engaged in suppressing criminal activities in government and law enforcement agencies.

At this rate, it is unclear whether the Interior Ministry will continue activities to combat extremism, which were previously assigned to Main Directorate for Combating Organized Crime and Corruption. It’s necessary to remember, that in 2011 Main Directorate for Combating Organized Crime and Corruption conducted set of measures aimed to curb the extremist and anti-government activities. Then, only in one of the operations about 6000 persons of neo-Nazi views, were inspected. 

State Military-Industrial Committee of Belarus (hereinafter SMIC) summarized the interim results of scientific and technical program “Multifunctional unmanned aircraft systems and technologies for their production” for 2011-2015 years. The program is divided into two sub-programs: a multi-use unmanned aircraft system (hereinafter UAS) and creating a family of multi-purpose UAS.

The results of the work were satisfactory. A glider “Grif-1”, which is in the process of testing was even better, the planned project, was created within the framework of the program. At present, a kind of payload is created for the UAS: the system of air radiation survey of area (the company “Atomteh”), system of visibility in reduced light and difficult weather conditions (Institute of Physics named after Stepanov of the National Academy of Sciences of Belarus), system of optical-electronic reconnaissance in the visible and infrared (Scientific and Technical Centre «LEMT») range, electronic warfare equipment, including the suppression of the GPS and GLONASS (the “KB Radar” company). Currently a UAS with a range of 100 km is being developed. It is also planned to construct a UAS with 300 km range. In addition, the results obtained during the implementation of the scientific and technical program, will be used in the framework of creating a UAS with vertical takeoff and landing as well as in robotic systems for different purposes (information, intelligence, military). It should be noted that the plans for UAS and robotic systems has received increased attention not only from SMIC, but from the country’s leaders as well.

On September 7, 2012, during meetings to assess the intermediate outcome of the development of information and technical complex “Soldier — Combat Systems”, SMIC Chairman Mr. Gurulev has expressed dissatisfaction with the overall organization of the project and asked to identify options for the composition of the complex, including clothing, personal body armor and equipment before November 2012. Currently, in the framework of the project shoulder, pocket and tablet PCs, personal communication, helmet-mounted display system, a means of targeting, reconnaissance and surveillance, were developed. It is planned that the complex “Soldier — combat system” will be a part of an automated system of tactical-level ground forces and special operations forces. While developing the complex, SMIC leaders hope to create a range of equipment, each sample of which will be a finished product interesting to potential buyers.

Conclusions. Based on the analysis of introductory data on “Cooperation – 2012” maneuvers, it can be stated that the CSTO is seriously considering the risk of destabilizing the situation in the Central Asian region of its responsibility after the withdrawal of ISAF forces from Afghanistan in 2014.

You should also pay attention to the fact that for planning the re-equipment of CSTO CRRF is based on the lists of weapons of special units of the Russian Interior Ministry, having extensive experience in counterinsurgency operations in the North Caucasus.

Taking into consideration the nature of the military exercise “Cooperation – 2012” we can say that the CSTO, from military alliance, aimed at the reflection of external aggression, gradually transformed into a union with the gendarmerie functions. In this case, the organization actually becomes a regional branch of NATO with narrow objectives. Note that this transformation broadly corresponds to the interests of the U.S., because it’s blocking the possibility of a regional military-political bloc, interests of which could theoretically be different from the interests of Washington. Taking into consideration the decisive position of Russia within the CSTO, it may be noted, that despite the rhetoric and the individual steps of the Kremlin, in general there is no reason to believe that Russia is seeking for confrontation with the West.

With regard to the development of Belarusian defence industry it is obvious, that in contrast to Azerbaijan, Kazakhstan and Georgia Belarusian authorities give priority to the development and production of high-tech military and dual-use units, while actually abandoning the perspective to establish domestic production of conventional weapons.

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