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    March 18, 2017

    Russia-Belarus Union in Crisis: Part 1 - A Trip Down Memory Lane

    March 18, 2017 - Fort Russ - 
    By Eduard Popov - translated by J. Arnoldski - 

    Russian President Vladimir Putin and Belorussian President Alexander Lukashenko

    Foreword by J. Arnoldski: In this two-part essay, Fort Russ' esteemed guest analyst from Russia, Dr. Eduard Popov, tackles the latest controversies in Russian-Belorussian relations. This first, introductory installment focuses mainly on the history of the Union State of Russia and Belarus and the economic paradoxes of their integration. Dr. Popov's analysis is quite critical, and therefore might surprise the average Western reader whose sympathy for Belarus is most often derived from Stewart Parker's famous book The Last Soviet Republic: Alexander Lukashenko's Belarus. However, no matter how admirable or positive a role the Belorussian project might have fulfilled in the 1990's, it must be acknowledged that the new geopolitical and economic circumstances of the second decade of the 2000's have made themselves direly felt. In this regard, Dr. Popov's critical analysis of Belorussia's economy and Russian-Belorussian relations today is indispensable to updating our understandings and, as Dr. Popov and his colleagues have warned in articles for Fort Russ before, prepare for the unfortunate possibility that Yanukovych's mistakes might be being repeated by Russia's closest partner in the post-Soviet space. This, of course, is not a determined outcome, but an increasingly relevant prospect. In this spirit, analyses such as those of Dr. Popov's are necessary to preventing ourselves from falling victim to our own information war simulacra and blinding our own forecasts. In the geopolitical great game for multipolarity in the 21st century, we must be ready for anything. 

    ****

    How the Union State came to be

    Belarus, or Belorussia (“White Russia”) is an average-sized country in Eastern Europe in terms of size and population (9.5 million people). This is a country whose name is far from known to every Western European and especially American reader. Perhaps we can jog the reader’s memory by mentioning who has been leading Belorussia for over 22 years. This man is President Alexander Lukashenko, the “last dictator in Europe” as he has been denounced by The New York Times. This slight of hand of American journalists has all but become Lukashenko’s official title used by US and EU diplomats.

    The US and EU’s dislike for Alexander Lukashenko is well known. For many years, he has been a persona non grata and barred from entering the countries of the “free world.” Meanwhile, Lukashenko has welcomed other leaders outcasted by American policy, such as the late charismatic Venezuelan president, Hugo Chavez. And, of course, The Belorussian leader has been consistently supported by Russia. 

    Russians and Belorussians are in fact a single people with only small ethnographic and linguistic differences. It is even difficult to catch Belorussian being spoken on the streets of Belorussian cities, as the entire population speaks Russian. In villages and small towns in the country’s western regions, one can hear local dialects entirely different from one another and official Belorussian. While spending several days in Minsk, Belorussia’s capital, the author of these lines did not hear Belorussian spoken once. As is the case with the Ukrainian language, the Belorussian language is an artificial construct, a linguistic tool for resolving political goals such as dividing the single Russian people.

    Yet Russia and Belorussia are tied not only by blood, spirit (the majority of Belorussians are Orthodox Christians), kinship, and common history dating back to the medieval Rurik dynasty of Kievan Rus. Russia and Belorussia share a common present. In 1996, on Alexander Lukashenko’s initiative, the Union State of Russia and Belorussia was established only four years after the violent collapse of the USSR, when relatives and even families ended up in different states. It is not surprising that the creation of the Union State was perceived in Russia and Belorussia with great hope for the reunification of two parts of this single nation (the third part being Ukrainians). Russians even perceived all attacks on Lukashenko as attacks on Russia itself. The public’s perception of the sanctions against Lukashenko was through the lens of Western Russophobia. Lukashenko and his entourage were and are accused of persecuting the pro-Western opposition and violating democratic rights and freedoms. But these charges, Russians have believed, are in the very least hypocritical.

    The main reason behind Western sanctions against "Europe’s last dictator" is Lukashenko’s ambition to restore if not a common state, then at least maintain a close alliance with Russia. Millions of families in both countries have craved this. Lukashenko gave voice to this common wish and became its icon. If in 1996 he could have participated in Russia’s presidential elections, it is quite possible that he would have become president. But in July 1996, Boris Yeltsin became Russia’s president, who with his victory was obliged to be indebted to the aid of American politicians and political strategists, IMF loans, and unprecedented violations of electoral processes. The widespread hate for this American puppet was contrasted by widespread support for the Belorussian leader. The people and country upon which the West and traitorous “elites” wiped their feet simply psychologically needed a real leader. And Lukashenko seemed to many to be that person.

    However, contrary to hopes and expectations, the degree of integration between Russia and Belorussia has been minimal, and far from all opportunities for cooperation have been exhausted. But to reflect on the positives for a moment, business ties between Russia and Belorussia were not destroyed in the 1990's as was the case with economic relations between Russia and Ukraine, and citizens of Russia and Belorussia have the opportunity to freel cross the Union State's borders in both directions. Finally, until very recently (more on this later) there was no persecution of the Russian language in Belorussia. Last but definitely not least, idolizing Nazi collaborators never came to Belorussians' minds, unlike in neighboring Ukraine.

    The integration of the Union State, of course, is not confined to the economy, although the latter does play a decisive role. Belorussia is one of the key members of the Collective Security Treaty Organization, a kind of anti-NATO established following the collapse of the USSR. Back in 1995, Russia and Belorussia signed the Agreement on Joint Efforts in Guarding the Western Border of Belorussia (the border with Latvia, Lithuania, and Poland). Belorussia’s eastern border (with Russia) is not guarded, and citizens of Russia and Belorussia have the opportunity to freely cross the border in both directions with internal passports. Part of CSTO cooperation is comprised of joint Russian-Belorussian military exercises held on both countries' territory and beyond.

    The presence of such an important ally as Belorussia is extremely important for Russia. This allows NATO ground and air units to be kept at a distance of at least 500 km. Russia perfectly understands that before reaching Moscow in October 1941, Hitler’s troops had to spend several months overcoming the resistance of Soviet troops in Belorussia. It is these months and kilometers that probably saved the capital of Soviet Russia from falling to the Nazi blitzkrieg. 

    On another note, until 2010, Belorussia clung to a pro-Soviet ideological model on the state level, which emphasized Belorussia’s achievements in the Soviet decades and held a purely positive view of neighboring Russia.

    Nevertheless, as the situation in Russia itself has improved since President Vladimir Putin came to power, the limitations and even corrupt sides of the integration model on which the Union State was based in 1996 have become all the more obvious. The Union State resembles more of a common market, but with one important clarification: it’s Russia’s markets that are common, while Belorussian markets, on the contrary, have had protectionist measures in place against competitors from Russia.

    The economy of the Union State

    Back in Soviet times, the Belorussian economy was export-oriented, and Belorussia was jokingly called the “assembly line of the Soviet Union.” Devoid of rich resources and with a relatively small population, the country was a priori compelled to seek external markets for its products. The opening of markets in Russia with a population of around 150 million people was salvational for Belorussia’s economy.

    A characteristic detail is that Belorussia’s GDP growth directly correlates with Russia’s GDP growth. Amounting to $13.9 billion in the “pre-union” year of 1995, after several crashes it reached $30.2 billion in 2005, $60.8 billion in 2008, and $49.2 billion in the crisis year of 2009. It is in none other than this first decade of the 21st century that Russia also witnessed significantly GDP growth. In fact, this growth can be explained not only by favorable energy situation, as Russian liberals and Putin’s critics like to say, but because the Russian president forced the oligarchs to pay taxes. Before, on the contrary, they had only extracted aid from the state budget. 

    This mutually-tied growth is easily explainable. Russia is the main market for Belorussian products (40% of Belorussian exports), and the success of Belorussian exporters, and the Belorussian economy as a whole, directly depends on the purchasing power of Russian consumers and the infrastructure, mining, and industrial projects of Russia in which Belorussia participates. 

    The above-noted GDP growth of Belorussia looks particularly attractive in contrast to neighboring Ukraine. Before the first Maidan in Kiev in November-December 2004, the Ukrainian regime maneuvered between Russia and the West. In fact, it proclaimed unbreakable brotherhood with Russia while moving closer to the US and EU. Kiev acquired cheap energy resources from Russia while never hurrying to actually pay Russia even for super cheap oil and gas. The theft of Russian gas from pipelines running to Europe was commonplace. According to some Ukrainian analysts, all the largest capital holdings in Ukraine in the early 2000’s was created precisely on the basis of profits from stealing Russian gas.

    Russia’s Belorussian ally’s behavior looked particularly appealing in this context. After all, there was no theft of Russian gas in Belorussia, where Alexander Lukashenko built a super-centralized power vertical. Russia achieved in Belorussia what it didn’t in Ukraine: control over gas pipelines which in particular became the property of Russia’s Gazprom monopoly. About 20% of Russian gas transported to the European Union has passed through the territory of Belorussia.

    In turn Russia has periodically issued loans to Minsk on interest rates far more generous than the IMF, and has not furnish the receipt of loans with such political and social stipulations as allowing the pro-Western opposition access to government and raising the retirement age and utility bills (the latter in particular were the IMF’s ultimatums attached to its loans to Ukraine). In early March 2017, the Russian government reminded everyone that it had issued a $6 billion loan to Belorussia. For Ukraine, even with a population three and a half times larger (officially 42 million but in reality around 36 million people) than Belorussia, such a loan under such conditions remains an unattainable dream. 

    Russian assistance to the Belorussian economy is thus predicated on cheap energy supplies (mainly oil and gas), cheap loans, and free access to Russia’s markets. For the export-oriented Belorussian economy, the latter is no less important than low prices for gas and oil. In the early 2000’s, the author of this article worked in a large corporation, Rostselmash, which engaged in manufacturing combine harvesters. There the author regularly encountered manifestations of Belorussia’s lobbying policy. Belorussian authorities in Minsk and their representatives in Russia’s regions were an enormous help in promoting agricultural machinery in Russian regions. I was witness to the fact that Belorussian agricultural machinery even enjoyed support programs from the governors of Russia’s regions, which is generally a violation of Russian legislation. Nevertheless, attitudes towards Belorussia as towards “our own” left the state to close its eyes to such violations.

    Contradictions were a priori laid in the foundations of the Union State of Russia and Belorussia. The two fraternal states’ integration was replaced by Russian economic preferences for Belorussia in exchange for Belorussian loyalty to Russia. The longer this model has gone on, the stronger this contradiction has made itself felt. 

    Belorussian authorities hurry to blame Russia for the increasing obsolescence of Belorussian industry and any problems encountered in the economy and social sphere. In Russia, voices critical of Belorussia have also been heard all the more often. Belorussian enterprises (in Belorussia, virtually all industry belongs to the state with the exception of some non-core industries) have been working at full capacity not least of all thanks to the fact that they have demand on markets in neighboring Russia. Although the Union State assumes equal opportunities for business, this basic rule has been violated insofar as all economic preferences are enjoyed by Belorussia. This is one of the paradoxes of the Union State.

    Filters in the way of Russian capital penetrating Belorussia are ideologically justified by the fear that “Russia’s oligarchs want to buy up all of Belorussia.” The fact that Belorussia’s manufacturing has not been technically and technologically updated is the result of President Lukashenko’s not allowing Russian capital to participate in the privatization of Belorussian industry. Meanwhile, it is only from Russia that investments in modernizing Belorussian industry could come. 

    Consequently, Russian capital has lost interest in investing in the Belorussian economy with the exception of a rather small circle of enterprises. Belorussia’s industry has thus faced growing problems of illiquidity. Factories continue to produce but can’t sell their products, which subsequently end up sitting in warehouses. Huge financial investments are needed to technically and technologically re-equip Belorussian enterprises, yet there is nowhere from which such money is allowed to be taken. 

    The most serious blow to the Belorussian economy (and not only the economy) was dealt by the trade war that broke out with Russia in late 2016 and early 2017. Faced with constant reductions in production and foreign currency earnings, the Belorussian leadership took the risky path of coordinating energy (gas) prices, themselves independently revising them. Simultaneously, Minsk refused to pay its debt to Moscow for consumed gas, which is currently around $600 million. Parallel to this, Minsk has been arbitrarily increasing tariffs for Russian gas pumping to Europe. The crude oil supplied from Russia, according to effective agreements, is supposed to be processed at Belorussian refineries and then shipped back to Russia. Yet Belorussia is selling the remainder to EU countries and keeping the margins from processing for itself. All the while, Minsk refuses to supply Russia with gasoline, and is selling finished petroleum products to EU countries at higher prices.

    Belorussia’s active participation in smuggling sanctioned goods into Russia from the EU and Ukraine, which causes considerable damage to the Russian economy, can also be mentioned. Overall, the list of accusations is not limited to these items, but we have named only the main areas of conflict.

    It bears noting that President Lukashenko chose a very opportune moment to start this trade war with Russia. Over the past two to three years, the US and EU have visibly softened their policies towards Minsk. President Lukashenko is already no longer called the “last dictator in Europe,” whereas criticism against President Putin has skyrocketed. It cannot be ruled out that Lukashenko decided to use these attacks on Russia as the moment to join the “camp of the strong.” Has he not hastened with his choice of sides?

    Despite all the difficulties in relations with the West, Russia has sufficient strength and resources to put its increasingly less loyal ally in its place. Russia has selectively and strictly introduced several responsive measures, in particular by reducing crude oil supplies to Belorussian refineries,  imposing restrictions on food supplies, and upping the fight against smuggling. As a result, in 2016 Belorussia’s GDP fell a significant 2.6%. The prolongation of trade war could finally crash the Belorussian economy, whose relatively stable existence is thanks only to Russia.


    The Union State of Russia and Belorussia is thus experiencing perhaps its most profound crisis in all of its existence. Nevertheless, despite what claims Moscow might have against Lukashenko, Russia perfectly understands that Belorussia and Belorussians are Russia’s closest ally and fraternal people. It is in such a spirit that President Putin said in Bishkek at the end of February 2017 that Russia does not regret its constantly supporting the Belorussian economy. 


    To be continued in part 2 




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    Item Reviewed: Russia-Belarus Union in Crisis: Part 1 - A Trip Down Memory Lane Rating: 5 Reviewed By: Jafe Arnoldski
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