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May 16, 2011

Belarus Goes Bankrupt Without Any Savior in Sight

by James Brooke

Belarus is emerging as the Greece of the Slavic world. Flirting with bankruptcy, Belarus has seen the value of its ruble plummet - from 3,000 to the dollar a few weeks ago to 6,500 today.

But in a big difference with Greece, no one - not the West, not Russia, not the International Monetary Fund - is running to help. Neighboring leaders cite the eccentric and often harsh leadership of the country's president of 17 years, Alexander Lukashenko.

In a typical move, Lukashenko told his Cabinet on Tuesday that Russia is preparing to loan Belarus $6 billion.

Within one hour, Russia’s Interfax news agency ran a story citing Kremlin sources saying that Russia is not going to loan any money to Belarus. In reality, these sources say, Russian Prime Minister Vladimir Putin will visit Minsk on Thursday and offer to pay $1 billion to win total control of Belarus’ gas pipeline system.

Jana Kobzova is Belarus analyst for the European Council on Foreign Relations. On a visit to Moscow this week, she finds Russians highly wary of Belarus.

“Everybody is fed up with Belarus," said Kobzova. "They just think they have been sucking up resources far too long.”

Putin estimates that Russia has been subsidizing Belarus to the tune of $5 billion a year. Last year, that was 10 percent of the gross domestic product [GDP] of this Central European nation of 9 million people.

By turning off subsidies this year, Moscow is pushing Minsk into the kind of traumatic shift from a state economy that Russia went through after the collapse of communism.  

Anton Struchenevsky, economist for Russian investment house Troika Dialog, sees clear similarities.

"What is happening currently in Belarus is very close to the process which was observed in Russia before the collapse of the Soviet Union in 1991," said Struchenevsky. "The economy is at the beginning of very dramatic changes.”

Imported goods are disappearing from store shelves. Shortages of imported parts are stopping assembly lines, forcing factories to lay off hundreds of thousands of workers. And thousands of Belarussians stand in lines outside exchange kiosks trying to unload their local rubles before they become even more worthless.

Struchenevsky calculates that, in nominal terms, Belarus incomes are going to drop by half this year, hitting $3,000 a year - the level of Ukraine.

“GDP in nominal terms should shrink by two times,” he said.

With the economy collapsing, the rating agency Standard and Poors last week placed Belarus on the same level of creditworthiness as Greece.

In a big difference, though, European Union finance ministers recently agreed to a $147-billion bailout for Greece, a democracy with a population only slightly larger than Belarus.

But Lukashenko can expect little from the West. He is one of the few leaders in the world today to openly mock democracy.

In recent days, Belarus prosecutors have put on trial five former presidential candidates. On Saturday, a Minsk judge imposed a five-year sentence on Andrei Sannikov, the leading opposition candidate in last December’s presidential elections. A sixth candidate escaped to the Czech Republic, where he charged that he was tortured in jail in Minsk.

So far 30 dissidents have been tried and convicted this year, with 22 receiving jail terms. Last week, the United States blasted the trials, calling for the release of all political prisoners.

EU foreign ministers also have condemned the trials.

Symptomatic of the hardening of attitudes is the reaction of Guido Westerwelle, foreign minister of Germany. Last fall, Westerwelle met with Lukashenko in Minsk and offered billions of dollars in financial aid, if Belarus held free and fair elections.

On Monday, the German foreign minister condemned the trial and conviction of Sannikov, saying, "In this trial, justice has not been served.  It is the political will of Lukashenko that was executed."

He demanded the freedom of all of Belarus’ political prisoners.

Next week, EU foreign ministers are to meet to debate tightening sanctions against leaders of the repression in Belarus.

Even without sanctions, the markets already are isolating Belarus.

On Monday, Jan Kulczyk, a Polish billionaire, suspended a plan to build a $2-billion coal-fired power plant in Belarus. He said he could not do the project without bank financing, but no bank would offer money for a major project in Belarus today.