In Belarus, Russia's problems reverberate
Western sanctions and falling oil prices continue to strain the Russian economy. The impacts of this crisis are being felt across the former Soviet periphery, with neighbouring Belarus experiencing particularly acute spillover effects.
Minsk is closely integrated with Moscow, and the falling rouble has put Belarus' government in a difficult position, especially as it strives to preserve this relationship amid Russia's standoff with the West over Ukraine. Furthermore, Belarus is set to hold presidential elections at the end of 2015. The nation's economic troubles could have significant implications for domestic stability and international ties in the coming year.
Belarus has been a key player in the conflict between Russia and the West over Ukraine. The standoff is a manifestation of the two sides' broader competition over the entirety of the former Soviet periphery. That competition has been most visible and intense in Ukraine, resulting in Russia's annexation of Crimea and an ensuing conflict between Ukrainian security forces and pro-Russian separatists in eastern Ukraine. Belarus, however, has been the site of a more subtle contest between Moscow and the West.
Belarus is one of the former Soviet states the European Union has targeted for inclusion in its Eastern Partnership program, which seeks to build closer economic and political ties between the European Union and ex-Soviet countries in Eastern Europe and the Caucasus. This is the program that promoted an Association and Free Trade deal between the European Union and Ukraine. When former Ukrainian President Viktor Yanukovych decided to abandon the deals, a controversy ensued, ultimately culminating in his ouster and replacement with a pro-Western government in Kiev. This new government then signed the EU deals, as did other Western-oriented former Soviet states, including Moldova and Georgia.
For its part, Belarus has chosen for the past few years not to pursue closer political and economic ties to the European Union for several reasons. Minsk's domestic political situation is at the top of this list. The government is strongly centralized and dominated by long-serving president Alexander Lukashenko — an arrangement the European Union has harshly criticized. Minsk severely restricts the activities of opposition groups in Belarus, and security forces cracked down on demonstrators following a controversial presidential election in 2010. In response, the European Union and United States imposed sanctions on Belarus, deepening Minsk's isolation from the West. In addition to this, Belarus and Russia have long cooperated on security and economic matters, and Belarus has served as a loyal member of Russian-led blocs such as the Collective Security Treaty Organization and the Eurasian Economic Union. This, along with Lukashenko's concerns over EU-backed efforts to support the opposition in Belarus, has served as a hurdle to any meaningful integration between the country and the West.
But the crisis in Ukraine and the ensuing economic tailspin in Russia have significantly shifted the strategic picture. The weakening of the Russian rouble and the ensuing economic volatility have proven costly for Belarus. As the Russian rouble's value has declined over the past year, Belarusian firms — which send 40 percent of their exports to Russia — and the country's currency have come under pressure. After the Russian rouble's sharp weakening on Dec. 16, Belarus' top priorities became maintaining the value of the its currency and preventing large-scale price hikes within the country. To support the value of the Belarusian rouble, on Dec. 19, the government imposed a 30 percent fee on the purchase of foreign currency and instructed firms to sell 50 percent of their foreign currency reserves. Over the following days, Belarusians, like consumers in Russia, rushed to buy durable goods such as refrigerators and television sets while the government shut down critical news outlets and online stores accused of raising prices. The country's reserves declined by $760 million in December alone. They now stand at around $5 billion.
The Russian rouble's value stabilized, at least temporarily, in early January, and Belarus took steps to gradually lift restrictions on foreign currency purchases and devalue its own currency. On Jan. 5, Belarus lowered the official value of its currency against the dollar by seven percent — a move that Minsk followed with another seven percent devaluation three days later. On Jan. 8, the Belarusian government also introduced new export duties on crude oil and potash fertilizers despite its efforts over the past few years to improve competitiveness by reducing tariffs on these key exports. Belarus' choice to first introduce strict measures to support the value of its currency, followed by a slow depreciation of the currency points to the government's fear of potential panic in its domestic market. It also highlights Belarus' strong integration with the Russian economy. At a time when Belarus is facing declining reserves, the decision to raise tariffs reflects Belarus' need to raise revenues and avoid expenditure cuts.
For the Belarusian regime, ensuring that consumer prices remain stable is key because inflation could spark or inflame opposition protests. This is especially important because presidential elections are set for Nov. 20, 2015. In an effort to deflect responsibility for Belarus' ongoing economic problems, on Dec. 27, President Lukashenko announced the dismissal of the prime minister, the head of the central bank and several ministers. This was in line with Lukashenko's track record of making significant personnel changes in difficult times, a tactic he employed in 2011, the last time the country faced a financial crisis
The economic crisis and the conflict in neighboring Ukraine has also forced the Belarusian government to reassess its foreign policy. Lukashenko has positioned Belarus as a mediator in the Ukraine crisis via the Minsk talks. In the meantime, Belarus has engaged in a gradual but noteworthy economic opening to the West. Lukashenko hopes to prevent EU- and U.S.-backed domestic opposition movements from challenging his regime like they did in Ukraine. At the same time, the economic deals give the country some reprieve as it feels the repercussions of its economic ties with Russia.
So far, Belarus has been able to manage the political and security fallout from the crisis. If the economic situation continues to worsen, however, it will pile pressure on the Belarusian government beyond normal levels. Several opposition groups — including the United Civic Party, the Belarusian Popular Front and the Movement for Freedom — have announced plans to hold demonstrations in January. While the government will likely contain such demonstrations in the near term, the country's economic situation and the government's ability to balance between Russia and the European Union will test the sustainability of Lukashenko's government going into elections later this year and beyond.