Relationship with Russia: A Bi-Monthly Analysis from Minsk Dialogue Experts

Minsk Dialogue experts present their own view how relationship between Belarus and Russian had been developing in September and October 2018.

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The political agenda of the relationship with Russia in September and October comprised meetings with its top management along with complex and intensive negotiations of the updated teams over the adjustment of the terms of collaboration. As we predicted in the previous issues of the Barometer, the parties reached compromise on most of the controversial issues, which, however, produced almost no effect on the media support for the bilateral relations: some journalists and experts continued making wild guesses predicting a disaster, all the way up to citing the Kremlin’s plans and capacity to destroy the Belarusian statehood.

This factor shows – among other things – that some political forces in neighboring countries (Russia, Lithuania, Poland and Ukraine) are not interested in improving Belarus’s international image as a country capable of negotiating and pursuing its own foreign policy.

Summit meetings

Since the beginning of September, new negotiation teams had got familiar with the agenda and with each other, and started preparing a summit meeting in Sochi. The preparatory phase clarified the specifics of the negotiation process over lending by EDB and the Russian government, the parties’ approaches to the import of Russian oil products in Belarus

and compensation due to the tax maneuver in the Russian oil industry. For the first time statements were made that Russia, despite the difference in approaches, considers the compensation itself to be fair.
On September 21, a summit meeting was held in Sochi. The talks between the two presidents covered an extensive range of issues of political and union-based engagement within the CIS, the Union State, the CSTO and the EEU, specifically the problems with the CSTO Secretary General and Ukraine’s decision to shut down its representative office in the CIS. It was decided to softpedal those issues, that is, to avoid any statements about the ongoing crises in those organizations.

As for the bilateral agenda, the Sochi summit resolved:

• To extend lending to Belarus by the Eurasian Fund for Stabilization and Development (EFSD) by another installment. Receiving a 7th installment remains unlikely and, most probably, Belarus will request a new EFSD loan program.
• Negotiations on the terms of the USD 1 billion loan to refinance the state debt of Belarus by the Russian government are still underway. The Russian side believes it reasonable to refinance only as much as USD 630 million.
• Export of food to Russia will be included in the indicative balance, which implies quotas on deliveries of Belarusian products to Russia. This is not good news for Belarus, because within the EEU, there should be no obstacles to sales of Belarusian products in Russia; however, the Belarusian side had to agree to the proposal, it being the best option (the others being constant fault finding and bans by Rosselkhoznadzor, or export of all Belarusian foods via the Russian monopolist).
• The import of Russian oil products in Belarus is also included in the indicative balance, with the volume of imported products limited by the requirement of Belarusian producers. Revenues lost by the Belarusian budget due to quotas on the import of oil products in 2018-2019 can be preliminarily estimated at around USD 100-200 million.

Overall, the agreement should be viewed as a compromise, because both sides had to make concessions.

On October 12, Mahilioŭ played host to a forum of the regions of Belarus and Russia. Such forums are held annually in various cities of both countries; this year saw the fifth edition. They serve as an advertisement of allied relations and a platform for establishing direct contacts between regions, as well as searching for common interests – both between Russian producers and between Russian and Belarusian manufacturers. The Mahilioŭ forum saw several agreements signed. In addition to that, Putin announced the promotion of the project to build the Belarusian Nuclear Power Plant, noting that the developers proceeded with the project as scheduled, as well as the establishment of the Center for Nuclear Science and Technology.

Trade

Two-way trade in the first eight months of 2018 totaled USD 23.4 billion, up by 14.5% from the same period in 2017. Export to Russia went up by 2.2% year-on-year to USD 8.54 billion, and import from Russia expanded by 23% to USD 14.8 billion. The deficit in trade with Russia amounted to USD 6.3 billion. Apparently, by the end of the year, the deficit will have exceeded USD 10 billion, as we assumed at the start of the year.

Machine-building products (cars and trucks, tractors, agricultural equipment, spare parts, elevators, electrical transformers) contributed USD 1.23 billion to Belarusian export supplies in January-August 2018. All of the commodities in this group, except for tractors and agricultural equipment, showed an increase compared to last year. Export of tractors (USD 186 million) increased by 15% year-on-year in volume terms, but dropped by 7.9% in value terms, and of agricultural equipment rose by 30% year-on-year, while falling in value terms by 42.4%.

Export of food products in the same period amounted to USD 1.87 billion. Meat, sour milk products, canned fish, other milk products, butter, cheeses, processed fish, sausages and sugar showed as increase in comparison with the previous year. Powdered milk export faced the worst challenge due to the direct ban imposed by Rosselkhoznadzor: in January-August, deliveries fell by 42.3% year-on-year in volume terms, and by 49.8% in value terms.

To understand the real weight and significance of the commodity groups and individual commodities in the overall structure of Belarusian export supplies to Russia one should keep in mind that food accounts for 22% of all export deliveries, while machine-building products account for 15%. Milk and cream individually contribute 3% to Belarusian exports, and the powdered cream and milk subgroup, 1.5%. The drugs, wires, furniture, clothes, plastic products, and household appliances product groups are comparable in revenue to the milk and cream group, or exceed it, but export is never on the agenda when the state leaders of Belarus and Russia negotiate, and, accordingly, is not in the focus of the media.

Also notably, the EEU market partially makes up for losses in trade with Russia: in the first eight months of 2018, export of food products to Armenia exceeded USD 5 million, and meat deliveries went up tenfold; and food export to Kazakhstan reached USD 172 million, whereas butter supplies went up 11-fold. As a result, the surplus of trade with the countries of the EEU (except Russia) helped bring down the overall trade deficit for Belarus to USD 5.7 billion.

Meeting of the Synod of the Russian Orthodox Church in Minsk

The Minsk meeting of the Synod of the Russian Orthodox Church resolved to break with the Patriarchate of Constantinople. Although the decision puts parishes of the Russian Orthodox Church outside of Russia and Belarus in a difficult position, when it comes to the engage-ment between countries – Belarus and Russia, and Belarus and Ukraine – the change will not have a significant effect.

Apparently, two factors should be added to that development. First, it is inappropriate to speculate, as some media did, about the increasing dependence of the Belarusian Exar-chate of the Moscow Patriarchate on the mother church in connection with the meeting of the Synod of the Russian Orthodox Church in Minsk and its declaration. This dependence is already absolute: the Belarusian Orthodox Church does not exist separately from the Russian Orthodox Church. On the contrary: the schism may give a slight acceleration to the emanci-pation of the Belarusian Exarchate. Secondly, partly because the Belarusian Exarchate does not enjoy any independence, the political influence of the church in Belarus, which is already quite insignificant due to the weaker religious orientation of the population, is rigorously limited by the state.

Shoygu’s visit

The proposal of President of Poland Andrzej Duda voiced to his U.S. counterpart Donald Trump to open a U.S. military base in Poland and Trump’s statement about the intention of the United States to withdraw from the treaty to eliminate medium-and short-range missiles increased Moscow’s concerns. Statements by Russian Defense Minister Sergey Shoygu made during his visit to Minsk for a joint board meeting of the ministries and by Russian Ambassador Mikhail Babich about retaliatory measures are designed to make it clear that Moscow remains a reliable military ally and patron – at least for Belarus. For its part, the Belarusian leadership seeks to indicate to Western partners that arms buildup in Europe will lead to an increase in arms (mainly Russian) deployed in Belarus and increase security risks.

Forecast

The refinancing of Belarus’s state debt to the Russian government will have been resolved by the end of the year, it is also possible that Belarus will request a new loan from Eurasian Development Bank. As for compensation for the tax maneuver, it does not seem the matter will be resolved before the end of the year, since the compensation mechanism has not yet been worked out even in Russia.

By the end of the year, negotiations over the price of natural gas will be stepped up, in particular, on the tariff component.

In general, during the final months of the year, cooperation should continue building on compromise. However, the growth of political tension in the region, coupled with the emotional hype in the media due to the upcoming election campaigns in Ukraine (presidential), Poland (parliament and European Parliament) and Lithuania (presidential) will provoke an increase in negative expectations in society and, accordingly, distrust in politicians.