President Lukashenko is compelled to provoke a crisis

Public administration crisis is deteriorating in Belarus, undermining the main promises and basic principles announced by the leadership: to raise the average salary up to USD 500 by the year-end, to achieve 5% GDP growth, to prevent national security destabilization and ensure law enforcement agencies’ loyalty.

President Lukashenko’s promise to increase an average salary up to USD 500 by the end of the year is hampered. The suspension of naphtha supplies to Belarus in mid-July undermined a very profitable scheme for export earnings from the production and sale of solvents by Belarusian companies, which were produced from naphtha using “innovative” technology and exported duty free, without making due payments to the Russian budget.

Even if naphtha supply is resumed, its current termination for indefinite period of time implies tensions are growing between Minsk and the Kremlin. For sure, Belarusian leadership will have to make concessions, as refusal to cooperate will increase risks of failure to fulfill political promises, i.e. to raise wages and comply with projected GDP growth.

Presidential Administration’s staffing policy demonstrates that the immediate surroundings of Lukashenko will insist on conservative economic policies and abandon market reforms, demanded by Belarus’ foreign creditors. This trend is reflected in the targeted weakening of the “liberal” team of Prime Minister Myasnikovich in the government, i.e. resignations of two deputy prime ministers.

Moreover, risk of a crisis in the government is enhanced by the dismissal and disciplinary actions against key power forces officials. President’s decision to punish security forces officials guilty of omission in the case of violation of Belarusian airspace is highly controversial and has caused a wave of discontent. As President Lukashenko cannot undo his decision, he will have to apply serious efforts to retain loyalty of a wide range of security forces, whose interests have been infringed.

Finally, deterioration of international situation around Belarus as a result of non-renewal of Swedish Ambassador’s accreditation is likely to resume the debate on sanctions against Belarusian authorities and businesses. If sanctions are extended, nomenclature and businesses’ discontent of the President’s actions will increase and the issue of resumption of cooperation with the IMF will be postponed once again.

Objectively, all these factors create very unfavorable conditions for public administration’s stability and compel President Lukashenko to concessions to Russian partners. Most likely, concessions will concern privatization deals. President will postpone privatization decision as long as he can. Some additional opportunities may open if crisis is triggered by the President himself.