annual review 2016 annual review 2016 1 review of 2016 and a forecast for 2017 2016: relaxed...

www.belarusinfocus.info Annual Review 2016 1

REVIEW OF 2016 AND A FORECAST FOR 20172016: RELAXED POLITICAL MONOPOLY AMID RETAINED

MICROMANAGEMENT2017: SYSTEM UPDATES WILL CONTINUE

Most important trends in 2016:

� Political liberalisation continued af-ter the elections, breaking political conventions

� Opposition’s attitudes evolved from non-compromising to constructive

� Conflicts built up in the nomen-clature; the law enforcement enhanced involvement in the fight among nomenclature groups

� The Russo-Belarusian dispute evolved into a chronic crisis, with fewer economic benefits from co-operation with Russia

� Belarus’ relations with the West normalised

� The authorities revised ideology and media mechanisms

� Status quo in the economic policy retained with half-hearted and in-consistent decisions on economic reforms

� The national currency stabilised; loans became cheaper; amid corporate debt build-up, corporate lending and lending for housing construction reduced, and the quality of banks’ assets deteriorat-ed

� Job cuts in the economy continued, tariffs for public services went up while the state preserved its share in the GDP

Main threats in 2017:

� The conflict between Minsk and Moscow is likely to build up; Russia may increase the price of support for the Belarusian economy, includ-ing the squeeze on the Belarusian leadership over visa, economic (privatisation) and currency issues

� The power block may strengthen positions in the Belarusian govern-ment, and different nomenclature groups are likely to step up the struggle for administrative rent

� The Belarusian authorities may be tempted to resume populist policies before important political events and inject liquidity to boost household incomes

� Amid falling household incomes and cutbacks in social protection programmes, latent tension in the Belarusian society is likely to grow; spontaneous protests are possible

Forecast for 2017:

� The state is likely to preserve the monopoly in the economy, while somewhat updating approaches to the state property management

� Due to cutbacks in social protec-tion, wage and job cuts, social tension is likely to grow

� The state is likely to extend co-op-tation policy to minimise influence of different political groups

� The opposition is unlikely to unite, but is likely to retain constructive tactics aimed at participation

� The law enforcement is likely to continue to intervene in conflicts between nomenclature groups

� The Russo-Belarusian confronta-tion over cooperation terms is likely to carry on, but may become less intense

� Belarus is likely to pursue normali-sation with the West

� The main threat is that the conflict between Minsk and Moscow is like-ly to build up; Russia may increase the price of support for the Belaru-sian economy.

THE MAIN THREAT IS THAT THE CONFLICT BETWEEN MINSK AND MOSCOW IS LIKELY TO BUILD UP; RUSSIA MAY INCREASE THE PRICE OF SUPPORT FOR THE BELARUSIAN ECONOMY

ANNUAL REVIEW

2016


POLITICAL SITUATION:SYSTEM UPDATED WITH SLIGHT LIBERALISATION OF THE AUTHORITIES’ MONOPOLY ON COMMUNICATION WITH THE POPULATION

In 2016, amid oscillating popular rat-ings of the state and public institutions, the Belarusian society demonstrated high adaptability and reduced its re-quirements on the state. Social tension caused by the decline in the people’s wellbeing and cutbacks in the state social guarantees, neither transformed into open protests and enhanced support for the opposition, nor boost-ed electoral activity. Spontaneous and localised protests by regional entrepre-neurs were the only exception, but the authorities had successfully neutralised them by the spring, i.e. by the time the opposition normally woke up.

Some business organisations at-tempted to unite SMEs and channel the protests into a constructive stream without the street protests, which was the main negotiation requirement by the authorities. Entrepreneurs attempt-ed to distance themselves from the opposition and did not politicise their demands, which, however, became stronger as the authorities refused to address them. Nevertheless, the Be-larusian authorities managed to mute protests by making small concessions, relaxing power pressure, involving local administration in the negotiations with the protesters and delaying the conflict resolution.

In relations with the opposition and civil society, the authorities abandoned harsh repressions and focused on the financial pressure, legal restrictions and economic discrimination. Despite some political liberalisation, the Be-larusian authorities pre-emptively ex-panded the legal framework for repres-sions in the case of social unrest and «hybrid» threats. In addition, new faces emerged in the protest movement from

high-profile cases and prosecution of active citizens not connected with the titular opposition.

The government became more open to contacts with opposition represent-atives in order to improve its reputa-tion internationally and divert protest sentiments. The Belarusian authorities somewhat increased the opportunities for the opposition to communicate with the population by allowing some limited access to the state TV and the print media.

During the parliamentary elections, the authorities increased the opportu-nities for the opposition to hold cam-paign events, but retained full control over the election process and the election results. The authorities made minor concessions to the opposition during the election race, (yet not at the legislative level) in order to cre-ate a favourable environment for the normalisation of relations with Western capitals.

Apparently, thanks to the joint pres-sure from Western capitals and the opposition with a constructive agenda, the Belarusian leadership granted two seats in the Parliament to the opposi-tion.

Amid plans to reduce the state ap-paratus, anti-corruption pressure and unattainable economic growth plans, the nomenclature stepped up the com-petition for seats in the new parliament to «wait out» a crisis in a more com-fortable «parliamentary» environment. The fact that the competition within the state apparatus became visible meant there was a certain imbalance in the public administration system.

THE GOVERNMENT BECAME M-ORE OPEN TO CONTACTS WITH OPPOSITION REPRESENTATIVES IN ORDER TO IMPROVE ITS REPUTATION INTERNATIONALLY AND DIVERT PROTEST SENTIMENTS


In addition, the authorities milked some businessmen proxies, who built their wealth by being close to the au-thorities and public resources (eg Case of Yuri Chizh). Security officers were often used as a final argument in the struggle for the resource redistribution; they firmly anchored in Lukashen-ka’s environment, while large private businesses somewhat lost their influ-ence and political representation in the Parliament.

The government attempted to limit pro-Russian activity in Belarus and allowed ‘soft belarusisation’. That said, the authorities adopted some opposition’s popular slogans, sym-bols and ideas promoting independ-ent Belarus.

Amid lingering socio-economic crisis, expectations of a steady decline in public institutions’ popular ratings prompted the authorities to take a final decision on ‘killing off’ independent sociology: the only independent soci-ological agency in Belarus, conducting regular polls on social, economic and political issues, IISEPS, ceased its activity entirely.

The All-Belarusian People’s Assem-bly demonstrated that the authorities lacked new ideas and strategies for driving Belarus out of economic reces-sion; that the Belarusian leadership was committed to the state monopoly in the economy and immutability of the political system, while gradually waving social responsibility.

SOCIO-ECONOMIC MODEL:GRADUAL DISMANTLING OF THE ‘BELARUSIAN SOCIAL STATE’

The Belarusian authorities contin-ued reducing social obligations vis-a-vis the population while preserving the economic model based on state ownership. The state policy aimed to strip the population of excess income, including currency savings, in order to replenish the budget and service the public debt. For instance, the gov-ernment introduced customs duty on international mail worth more than EUR 22, increased housing and communal services tariffs, froze average wage growth, reduced household incomes and introduced a tax on ‘social parasit-ism’. In addition, in order to replenish

the international reserves, the state encouraged the population to preserve a steady consumption level by spend-ing their currency savings.

The Belarusian authorities decid-ed against an advocacy campaign to promote positive image of the pension reform aiming to reduce pension bene-fits. The retirement age was increased by a presidential decree without a public debate due to the extreme un-popularity of this measure and fears of the authorities that publicity could have the opposite effect and drop the state institutions’ ratings.

SECURITY OFFICERS WERE OFTEN USED AS A FINAL ARGUMENT IN THE STRUGGLE FOR THE RESOURCE REDISTRIBUTION; THEY FIRMLY ANCHORED IN LUKASHENKA’S ENVIRONMENT


FOREIGN AND SECURITY POLICY:WEARING SEVERAL HATS

Throughout the year, relations between Minsk and the Kremlin were tense over energy supplies with pe-riodic exacerbations, albeit without information wars typical for the Bela-rusian-Russian relations. In H2 2016, Moscow reduced the supply of oil to the Belarusian refineries in retaliation for incomplete payment for gas sup-plies by Belarus. For the first time, Russia linked oil and gas supplies. The Kremlin ignored all Minsk’s attempts to reach an agreement about resuming the oil supply and reducing the gas price, albeit repeated assurances of the prompt dispute resolution.

The lingering dispute between Minsk and Moscow over oil and gas supplies has put an end to the previous mod-el of the Russo-Belarusian relations. Throughout the year, the Kremlin remained deaf to the economic, legal, ideological and brotherly appeals by Minsk and did not lower the price of gas; moreover, it reduced the oil supply in H2 2016.

In 2016, Minsk made efforts to create a positive image of the Belarusian NPP construction for the international community and attempted to neutralise criticism from Vilnius by engaging in a dialogue with the Lithuanian author-ities. Inside the country, the authori-ties managed to reverse the people’s attitude towards the nuclear energy, which, however, was undermined by an attempt to becloud an incident at the construction site. Incidents at the NPP construction site mobilised Belarusian society to put pressure on the govern-ment to enforce safety rules, but not to abandon the project.

In 2016, Belarus’ relations with Ukraine somewhat cooled. Kyiv

was displeased with Minsk’s stance (pro-Kremlin) on some sensitive is-sues for Ukraine. The lack of political trust between the two states affected their cooperation in the security field. Ukraine failed to transfer some impor-tant technologies to Belarus.

Appealing to geopolitical arguments, Minsk managed to prompt Poland to pragmatic cooperation, relaxed pres-sure on representatives of the Polish minority organisations and promised to facilitate the access of Polish business (including products from the sanc-tions list) to the Eurasian market. Many representatives of the Belarusian civil society regard this as the main reason why the Polish authorities reduced support for the Belarusian independent media.

After a long break (since Novem-ber 2014) and after Western capitals lifted sanctions against the Belarusian authorities, the latter resumed exe-cutions. Meanwhile, the Belarusian authorities demonstrated readiness to engage in a dialogue on the abolition or a moratorium on the death penalty with the European institutions, albeit, apparently, without the intent to change the practice. Simultaneously, Minsk at-tempted to put human rights issues at the bottom of the Belarusian-European agenda by prioritising regional security and geopolitical confrontation issues.

Minsk aimed to improve communi-cation with the White House and right the ship of Belarusian-US relations with full diplomatic missions in both capi-tals. Simultaneously, Belarus sought to maintain a visible distance from the Kremlin’s military preparations in a confrontation with NATO, while retain-ing close defence cooperation with

IN ORDER TO REPLENISH THE INTERNATIONAL RESERVES, THE STATE ENCOURAGED THE POPULATION TO PRESERVE A STEADY CONSUMPTION LEVEL BY SPENDING THEIR CURRENCY SAVINGS


Russia within the Union State. This precluded any positive achievements in Belarus’ relations with the US and NATO. Washington continued moni-toring the situation in Belarus and the United States’ stand on the Belarusian authorities remained tough.

Meanwhile, the role of China as Belarus’ military and political partner, increased. China is becoming a source of technology and finance in imple-menting programmes having strategic importance for national security.

ECONOMY:THE LINGERING RECESSION

Amid fewer benefits from econom-ic cooperation with Russia, the main trend in 2016 was a large-scale revision of the financial support to different economic sectors due to insufficient budget revenues.

Due to the decline in social transfers (the share of state subsidies for hous-ing and utility services reduced from 51.5% to 40% by late 2016), reduced soft loans for housing construction and slow wage growth, the population in 2016 started spending their currency savings. The population became a ma-jor currency donor by selling USD 1.8 billion on a net basis. Thanks to this, two tranches from the EEU and sales of currency bonds, the National Bank and the Finance Ministry made due internal and public debt payments in full.

By reducing administrative lending, Belarus stabilised the national curren-cy, however, in the absence of cheap corporate loans, the volume of overdue debs on corporate loans increased dramatically - the share of problem assets in banks’ balance sheets in-creased from 6.8% to 14.9%, creating the preconditions for a crisis in the banking system. In order to address the problem with debts in agriculture, the government established the Asset Management Agency, aimed to clear the banks’ balance sheets from bad

loans of agricultural organisations. Consistently insolvent enterprises will be closed through the court.

Amid deteriorating price situation on foreign markets for Belarusian goods, the oil and gas dispute between Bela-rus and Russia had an additional neg-ative impact on the economy. Russia unilaterally cut the monthly supply of oil from 2 million tons to 1.03 million tons, which resulted in reduced oil process-ing, industrial slowdown and decreased wholesale trade by 10%.

The economic result of the year was the abandonment of quantitative performance indicators, the deci-sion on the financial restructuring of agriculture, and the shift of financial consequences of the economic crisis onto the population by reducing social payments and benefits.

In 2017, the government’s main task would be to hold a financial audit at public enterprises with subsequent lay-offs, to adopt measures preventing the banking crisis and to search for new and additional sources of financing to service the public debt. Amid further cuts in financial aid from Russia, some social and economic reforms could be held in Belarus.

THE LINGERING DISPUTE BETWEEN MINSK AND MOSCOW OVER OIL AND GAS SUPPLIES HAS PUT AN END TO THE PREVIOUS MODEL OF THE RUSSO-BELARUSIAN RELATIONS


Forecast for 2017:

� System updates will continue with-out drastic changes in the econom-ic, domestic and foreign policy

� In 2017, the Belarusian authorities are likely to attempt to preserve the existing economic model, which is based on state ownership, by reducing social protection for the population. Quite possible, under the pressure of external credi-tors, the authorities may update approaches to the state property management.

� The government is likely to pursue the policy of gradual waver of social protection to the population and to search for additional sources to replenish the state budget in people’s pockets by increasing housing and utility tariffs, business taxes, fines and other fees. In the case of a referendum to extend the term of office for the President and the Parliamentarians, the authori-ties may decide to make a financial injection to the state budget and key electoral groups.

� As local elections draw closer, a de-bate among the society and power elite stirs up about enhancing the role of political parties and cos-metic amendments to the electoral law. The ongoing debate is likely to encourage all political forces with regional structures to participate in the local elections. The previously established cooperation between different opposition groups is likely to continue, but the oppo-sition is unlikely to unite before the local elections. The boycott and street protest strategies are likely to remain unpopular among the opposition and are likely to be promoted by the political structures in the emigration and those lacking human resources for campaigning in Belarus.

� The authorities are likely to hold back on harsh persecution of the opposition and to focus on financial pressure targeting the most active opposition representatives in order to weaken the protest movement. The population is likely to demon-strate political apathy and is un-likely to come up with spontaneous protests due to the deterioration of well-being. The Belarusian author-ities are likely to leave the public space ajar for the opposition to communicate with the population.

� The struggle between nomencla-ture groups for dwindling state re-sources is likely to boost corruption prosecution by the security forces, which may strengthen the role of the latter and make the presi-dent more cautious of the staffing issues.

� Belarus is likely to become more vulnerable vis-a-vis external pres-sure. Moscow is likely to become more aggressive in pursuing its agenda. Again, Russia may raise the issue of her military presence in Belarus and taking control over some Belarusian defence enter-prises; she may demand greater loyalty demonstration to the Krem-lin (including large-scale bilater-al military exercises, other than ‘West-2017’).

� Most likely, the Belarusian author-ities will continue to pursue an in-dependent security policy. They are unlikely to allow a Russian military base in Belarus, or to give away control over domestic defence industry enterprises to Russia in 2017. The National Missile Pro-gramme is likely to become a priori-ty and the authorities will ensure full funding for it. In H2 2017, Belarus is likely to demonstrate new mis-sile systems, elaborated with the Chinese support. The ‘Belintersat’ satellite communications system is

WASHINGTON CONTINUED MONITORING THE SITUATION IN BELARUS AND THE UNITED STATES’ STAND ON THE BELARUSIAN AUTHORITIES REMAINED TOUGH


likely to develop further and some projects aiming at deep moderni-sation of the combat air force are likely to be launched. Staff number of servicemen and border officers may increase up to 10%.

� Major regional actors are likely to preserve current level of interest in Belarus in 2017.

� The situation in Eastern Europe is unlikely to deteriorate. Russia nourishes hopes to conclude an analogue of Yalta with the new US administration. So, she is unlikely to take any steps which could ag-gravate the situation in the region and cause a negative reaction of the EU and the United States until the possibility of a Russo-Ameri-can agreement on the division of spheres of influence is clarified. In fact, it may take the whole of 2017.

� Amid anticipated higher oil prices in 2017, the resolution of the oil and gas dispute between Belarus and Russia could create favourable en-vironment for the Belarusian food and textile industries, increase the demand for agricultural engineer-ing and wood processing products. The chemical industry is likely to preserve neutral dynamics, while the situation in oil processing will largely depend on the final decision on the oil supplies to Belarusian refineries.

� Construction, as a non-priority sec-tor, is likely to continue to shrink. Fold reduction in soft loans for housing construction as compared with the previous years, and the lack of own funds by those eligi-ble for better housing conditions would create poor conditions for the construction development in 2017. The industrial sector lacks or has insufficient funds for the fixed assets modernisations to increase investment significantly.

� The retail trade will directly depend on the household incomes dynam-ics, that is, it is unlikely to grow sig-nificantly in 2017. The authorities

are unlikely to switch on the print-ing press to ensure wage growth, therefore a slight wage growth will be offset by growth in consumer spending on utility services.

� Oil prices will play a crucial role in Belarusian exports dynamics in for-eign trade. In the case of oil price above USD 50 per barrel, trade conflicts between Belarus and Rus-sia are likely to fade, and demand for Belarusian export goods on the Russian market may increase in quantitative and monetary terms (food, machinery and equipment, household appliances). If oil price slumps below USD 40 per barrel, a new wave of trade conflicts and mutual restrictions on the supply of goods is very likely.

� One of the key events in 2017 will be the talks with the IMF over a new loan programme. Reaching an agreement could have a positive impact on the overall situation with the servicing of the external debt, lead to reforms in the state proper-ty management and could prevent further recession in the economy. The lack of agreement would be perceived by international lenders as Belarus’ unwillingness to reform the economy and as an attempt to rely on the aid from Russia and fur-ther cutbacks in social protection for the population.

� Overall, in 2017, the Belarusian economy may grow within the forecast of socio-economic devel-opment for 2017, i.e. GDP growth at 1.7%, and the Belarusian rouble would be stable if the oil price was above USD 50 per barrel and a loan agreement with the IMF was con-cluded. Otherwise, the Belarusian economy downturn could continue and reach 2% of GDP. Wages in 2017 in dollar terms are likely to compare with those in 2016, but recipients of salaries are likely to reduce in number by 75 000 - 100 000 people.

THE BOYCOTT AND STREET PROTEST STRATEGIES ARE LIKELY TO REMAIN UNPOPULAR AMONG THE OPPOSITION AND ARE LIKELY TO BE PROMOTED BY THE POLITICAL STRUCTURES IN THE EMIGRATION AND THOSE LACKING HUMAN RESOURCES FOR CAMPAIGNING IN BELARUS

annual review 2016 annual review 2016 1 review of 2016 and a forecast for 2017 2016: relaxed...

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