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Friday, March 16, 2018

The rupture of relations with Russia would cost Belarus too expensive

The aggravation of relations with Russia, Belarus, started to lead to speculation about plans of release Minsk of all the associations established by Moscow in the former Soviet Union. Whether so it actually and what really wants Lukashenko, increasingly fierce bargaining with Russia?

Tense in the relations of Belarus with Russia resulted in the appearance in the media rumors about the alleged release of Minsk from the Union state and EurAsEC. They came from the Agency Regnum, which referred to an unnamed source. At the same time, more credible sources of the newspaper “Kommersant” from both sides in the EurAsEC soon denied such insinuations: Belarus is not going to leave any from the Eurasian economic Union, nor the organization of collective security Treaty (CSTO).

“Minsk need $ 2 billion just to pay its debts. Be found only in case of full normalization of relations with Russia”

The reason for such speculation became the order of FSB of Russia to establish a border zone in Russian regions bordering on Belarus. Previously this zone was absent in the framework of the Union state. But after Minsk announced a visa-free regime for citizens of 80 countries, the border was simply a precautionary measure. Otherwise through Belarus to Russia will flow uncontrolled flow of aliens with different intentions.

Meanwhile, reasons for speculation on the subject of the rupture of relations between Minsk and Moscow in recent times abound. The relationship of two partners keen for more than a year.

Belarus owes to Gazprom for last year, $ 400 million for gas already received. Minsk pays for gas, but for the price, which he himself appointed, and Gazprom believes the debt based on the contract price. Moreover, the fall Russia was ready to compromise by giving a discount on gas, and Belarus has already been agreed, but suddenly changed his mind. Lukashenka wanted to bind to the repayment of debt and issuance of two tranches of 500 million dollars plus the increase in supply of oil from Russia that Moscow, apparently, considered rude.

From the gas sector, the fight was transferred to the oil. Minsk started trying to drastically raise prices for the transit of Russian oil. In response Russia has reduced the volume of its oil deliveries to the country.

Meanwhile, the Minsk over oil and gas disputes is already losing real income. Last year Belarus has lost about 200-300 million dollars in oil duties due to the fact that Russia supplied during the year no 24-26, and 20 million tons of oil in the country, considered the experts of the Institute “development Center” HSE.

The economic causes of the deterioration of relations

The deterioration of relations with Russia Belarus has purely economic reasons. It all comes down to the fact that the neighbor really need external financial assistance. Despite the fact that Belarus has no oil and gas, the fall in world oil prices has crippled its economy. Belarusian budget is pretty thin: Russia allow Belarus to transfer duties from the export of petroleum products (made from Russian oil) to the Belarusian budget, but due to the falling prices have fallen and incomes.

Belarus GDP in 2016 fell 2.5–3%, incomes have experienced a severe decline. The industry is falling, retail trade in negative territory, inflation remains high at almost 12%.

“In 2017, the economy is unlikely to move a significant growth. Pressure on the balance of payments may again lead to devaluation. The banks are facing arrears, and a further deterioration in asset quality would require the intervention of the authorities. Without external assistance, the Belarusian economy may be in crisis,” expect the experts of the Institute “development Center” HSE.

This assistance from Russia, Lukashenka began to ask again in 2015. But got less than he wanted, because Russia itself has faced challenges. Moscow remains in relation to Belarus more than friendly partner, but can’t afford boundless generosity.

In March 2015 Minsk turned to the Eurasia Foundation stabilization and development office to request a loan of 3 billion dollars. However, the Fund decide to issue 2.1 billion dollars, and not at once but in several tranches over three years. The first two tranches on $ 800 million was in Minsk last year.

But the results of the remaining tranches was called into question due to the tension of the relationship. Plus loan is tied to targets, which Minsk may be unable to achieve. In particular, the Eurasia Foundation requires that debt to GDP of Belarus does not exceed 45%. But now the figure is 45.5%, and hold it at that level will be difficult. Devaluation, decline or execution of state guarantees (which last year rose to 11.7% of GDP) can lead to the fact that the national debt will exceed 60%, say experts of the Institute “development Center” HSE in a recent special report from January 2017.

According to their calculations, in 2017 Belarus have to repay $ 1.2 billion of foreign currency bonds. And to pay on Eurobonds $ 800 million in January 2018. Total Minsk need $ 2 billion just to pay its debts. Find them Minsk will be possible only in case of full normalization of relations with Russia, the experts of the Institute “development Center”.

According to their calculations, if the two countries agree on oil and gas, the budget of Belarus may come approximately $ 1 billion more than in 2016. Of these, about 700 million dollars will go due to the increase of Russian oil supplies from 20 to 26 million tons plus due to higher world oil prices. 300 million additional dollars for the Belarusian budget will get if Russia will provide a discount on gas. And 1 billion dollars can do on the loan from the Eurasian Fund (two tranches of $ 500 million).

An alternative normalization of relations with Russia and more money to pay debts is to spend half of their low reserves. Or take a loan from the IMF. But the latter is unlikely, because the IMF puts such impossible for the country conditions, such as housing reform and state-owned enterprises, not to mention political.

That is why economists are confident that very soon the relations between Minsk and Moscow will become warmer. However, Russia will have “to pay” at least $ 2 billion this year alone.

The potential consequences of the exit of Belarus from the Union

On withdrawal from the EEU, Belarus will hardly even think about because it means a loss not only to warm relations with Russia, but also all those economic preferences, which the Belarusian economy received due to the Union state.

Among the tangible advantages of Minsk’s membership in the Eurasian economic Union, open borders for labor and the alignment of social security, says Anna Bodrova of Alpari. Only in 2015, according to official data, Belarusians were transferred from Russia to their country of 230 million dollars. The real figure of support by the Belarusian workers of the economy of their country significantly higher. With the release of the EEU flows of currency into the country will be reduced.

Second, Minsk can no longer rely on any loans from the Eurasia Foundation. Third, if the output from the EEU will be accompanied by the integration of Belarus, it will be the end of free trade with Russia. Despite the drop in trade between the two countries in the last three years because of the crisis and declining purchasing power, Russia remains the main buyer of Belarusian products, including agricultural commodities such as milk, eggs and meat, as well as of Belarusian equipment and machinery. Europe, these goods and products just do not need.

And if Minsk is not delayed resolution oil and gas disputes, the trade could show a positive trend in 2016, said Russian Ambassador to Belarus Alexander Surkov. But, in his opinion, Minsk can expect to increase mutual trade turnover with Russia this year. If the Russian economy will take the path of growth and recovery in consumer demand, then this prediction will really come true.

Fourth, Alexander Lukashenko is unlikely to withdraw from the Union, as this will lead to a revision of the extremely profitable oil and gas relations with Russia. Formally, the membership in the EEU does not give oil and gas preferences, but in fact one without the other is not working.

Belarus pays for gas and the lowest price not only in Europe but also in the CIS (and want to do gas at Russian domestic prices). Plus, Minsk will receive Russian oil duty-free and can earn on the export of oil. Only buy Russian oil at $ 30 per barrel gives Belarus an increase of 2-3% of GDP. If Belarus is buying oil at world prices (45-50 dollars), the cost of buying the raw materials would be 2-3% of GDP higher.

Finally, the output from the EEU will mean that Minsk will formally spoil relations with all who are part of the organization – not only with Russia but also with Kazakhstan, Kyrgyzstan and Armenia. The price of such move could be even higher. “In the fall of GDP by 3-5% to the failure of industrial production may sink on an additional 2-4%. The decrease for the year 2016 the average is 1%. Inflation can grow at 4-6% to the existing rate of about 9% by the end of 2016. With high probability there will be difficulties with the placement of debt and loans. Creditors are China and the world Bank, but the rates will likely be higher than before,” paints a hopeless picture Bodrov. In any case, equivalent replacement this Alliance with Alexander Lukashenko, now there is, she concludes.


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