Russia agrees to sponsor Lukashenko’s election campaign

President Lukashenko will receive enough financial aid from the Kremlin to support Belarus’ economy over the next year and a half. He has therefore secured a comfortable environment for holding the 2015 presidential campaign. However, the funds will come in portions, with time restrictions, allowing the Kremlin to retain control over Belarus’ policies and to enhance her long-term dependence on Russia.

On May 9^th, while speaking about his recent talks with the Russian leadership in Moscow, President Lukashenko said that he would not block the signing of the Eurasian Economic Community’s founding treaty, and laid out the agreed terms of economic cooperation.

In late May, the presidents of Belarus, Kazakhstan and Russia will sign a founding treaty establishing the Eurasian Economic Community (EEC, Eurasian Economic Union). Until recently, the Kremlin has kept everyone in suspense over if it will continue to demand Belarus to return oil product duties to the Russian budget – an extremely sensitive issue for Belarus.

Russia’s uncompromising position regarding customs exemptions for petroleum products has prompted President Lukashenko to make several harsh statements, challenging the prospects for signing the EEC founding treaty. As they have their own viewpoint on events in Ukraine, the Belarusian authorities sought not to take sides in the Russo-Ukrainian conflict. Unlike Moscow, Minsk has recognised the new authorities in Kiev and is opposed to Ukraine being federalised. Lukashenko also made a few bold statements on counteractions to potential threats to Belarus’ sovereignty from the East.

Belarus’s efforts to push through her interests in the Kremlin have paid off. Russia has softened her stance on some issues, and has agreed to additional preferences within the framework of bilateral agreements with Belarus. President Lukashenko referred an agreement with the Russian leaders on several major issues: as requested by Belarus, oil supplies would increase up to 23 mln tons per year and export duties on oil products would be gradually repealed. The President hopes that by 2015 half of the export duties on oil products will remain in Belarus and the budget will earn circa USD 1.5 bln in additional revenues.

Russia has also promised to issue a USD 2 bln loan to Belarus, which may be allocated as soon as May 2014. The loan will be a boost to Belarus’ languishing international reserves. In addition, in 2015 Russia will allocate a USD 500 mln loan to support the foreign exchange market’s stability. Belarus also received a sales quota for Sino-Belarusian cars made in Belarus to be sold on the Russian market (20,000 – 25,000 cars). All restrictions on Belarusian carriers’ access to the Russian market have been removed. Overall, in 2014-2015 Russia’s aid to Belarus will amount to circa USD 4 billion, implying that Belarus will manage to retain her economic model without having to privatise assets or make significant adjustments to the Belarusian ruble exchange rate, at least for a year.

The alleged aid from Russia would help quell people’s fears of devaluation and would make it possible to maintain their living standards until the 2015 presidential election. Belarus would also have sufficient funds to service her public debt.

Having received aid from Russia, Belarus’ economic model (with the state prevailing in the economy) will remain unreformed until new consumption levels are reached, requiring additional external funding. Belarus might resume its practices of administrative wage growth to keep labour in the country, which will boost her appetite for economic aid from Russia in the mid-term.

Belarus attempted to benefit from Russia’s increasing isolation from the West in order to enhance her economic stance and to promote Belarus-made products on the Russian market. However, after the meeting in Moscow, President Lukashenko was prompted to demonstrate his loyalty to the Kremlin by narrowing the gap between Minsk and Moscow’s assessments of the recent developments in Ukraine.

Russia’s promise of financial aid creates a comfortable environment for President Lukashenio’s re-election for the next term, but also increases Belarus’ dependence on Russia and deepens her involvement in the Eurasian integration. Moreover, Belarus is becoming highly dependent on the volumes of external aid and is losing motivation to reform the economy.