Crisis complicates Russia’s relations with Belarus

Russian President Dmitry Medvedev labeled as ‘undiplomatic’ comments made by the Belarusian president. This is the latest accusation in a recent war of words between Moscow and Minsk.

“We are actively working with our neighbouring countries in close partnership, helping them to overcome crisis issues. Our help includes financial aid and not of the smallest scale […] Sometimes this involves commenting on the economic situation in those countries. But we have never given, and will never give, any personal characteristics to the leaders of those countries, though we could have said a thing or two about the effectiveness of their economic measures – the reason why they need our support in the first place,” Medvedev said at a meeting at the Ministry of the Economy.

These words were the Russian President’s reaction to harsh statements made by his Belarusian counterpart last week.

Not a day without a retort

Last week’s visit of Prime Minister Vladimir Putin to Belarus underlined some tensions between the countries.

On Thursday, Russia’s Finance Minister, Aleksey Kudrin, started the war of words, stressing that the credits demanded by Minsk will be given only if it provides satisfactory measures on maintaining the country’s economic stability.

Minsk, which has already received $3 billion from Russia since 2007, wants two new credits: $500 million and 100 billion roubles.

“We might well have to contemplate Belarus’ inability to pay up as early as late 2009 or early 2010 due to its insufficient state gold and currency reserves” Kudrin said, adding that the “Belarus’ government has not taken the necessary measures to secure the stability and financial solvency of the country’s economy.”

Kudrin’s main concern is that Belarus may use this credit to maintain its massive social payments and to maintain the exchange rate of the Belarusian rouble in times of crisis.

In a separate matter, Belarus asked Russia for another $9 billion to build an atomic power station and Kudrin has demanded proof that the station would be built and its target market is sufficient to make repaying the credits possible.

However, Kudin’s comments were met by a harsh reaction from Belarus President Lukashenko.

“Yesterday we witnessed a peculiar situation, when the Belarus’ President sits down with Vladimir Putin and begins a friendly discussion over an array of questions from private and personal to political ones. And the discussion goes smoothly. At the same time, Kudrin spoke at a press-conference aimed to inspire panic in Belarus […] Yesterday Putin told me that he has discussed the situation with Kudrin, and then Kurdin makes his tirade. And you say it wasn’t concurrent?” he said on Friday, accusing Kudrin of “completely conspiring with hoodlums from our opposition and hoping to teach us how to work”.

Putin also criticized the member of his own Cabinet, to a certain extent, for making some “extreme valuations” of the situation in Belarus.

“Whatever happens with the world’s economy – I would like to stress – if Belarus needs a shoulder, Russia will provide it,” Putin said, showing his support of Lukashenko.

Seeks fortune elsewhere

This Wednesday, Ukraine’s Finance Minister, Andrey Kharkovets, also dismissed some of Kudrin’s accusations.

“We are ready to provide all requested economic information. The stats are not that bad,” Kharkovets said.

He also vowed that neither of the two credits would go for financing Belarus’ budget, which was one of Kudrin’s concern. The $500 million will go into the currency-gold reserves, while 100 billion roubles will be used to cover imports from Russia. The budget, in turn, was recently adjusted to fit the surging deficit.

“On average, our external debt [around $5 billion] is taken for eleven years, with 4% interest. This figures show that the loan servicing is ludicrous. We are completely secured in terms of debt/GDP ratio,” Kharkovets added.

According to Kharkovets’ ministry, the cap of the external debt/GDP ratio in Belarus is set at 20%, while most other countries allow it to reach 50%.

But earlier on Tuesday Lukashenko spoke again, calling for his ministers to seek their fortunes elsewhere around the globe “if it isn’t working out with Russia”.

“The game is on now and the stakes are the highest. Should we stay firm, we’ll have a country, should we fail – we’ll be crumpled and put in a pocket. […] When shall we learn to act as an administration of an independent country? New times have come […] we shouldn’t bow and cry,” he said.

Quarrels soon mended

Belarus still hasn’t recognized the independence of South Ossetia and Abkhazia, which many experts saw as a factor in the credit discussions.

That recognition was expected for some time now by the Kremlin, though the credits were approved.

Another issue that many thought might affect Moscow’s willingness to hand over money was Belarus’ acceptation into the EU’s Eastern Partnership program.

But last week, Russia’s Foreign Minister, Sergey Lavrov, said that the Eastern Partnership isn’t directed against Russia. Lukashenko stayed in Minsk during the Partnership’s summit in early May and instead sent first Deputy Prime-Minister and the FA minister, the lowest level delegation among all participants.

According to some sources, the Belarusian leader’s visit to the Vatican and Rome last week was more of a PR-project, having no economic or political meaning.

So it’s too early to view the situation as Lukashenko’s attempt to sever his ties with Russia, while preferring the West.