MINSK, Belarus — The economy here, still loaded with Soviet paraphernalia, is sick and getting sicker. A hard currency crisis that began in March has brought parts of the private sector to a standstill, and a systemwide financial collapse looms if the government can’t hit upon a solution.
Because of President Alexander Lukashenko’s brutal crackdown on protesters after December’s disputed elections, he’s not likely to get help from the West. He’s maneuvering to arrange what loans he can from a wary Russia. The government and national bank have tried one tack after another over the past three weeks to stem the crisis, but Belarus continues to burn through its reserves and live beyond its means.
“The biggest risk now is lack of any control over the situation,” said Sergei Chaly, an independent economist who once worked for Lukashenko. “It’s a catastrophic situation.”
Yet Belarusans have been no strangers to distress over the years, and even opposition leaders expect they will absorb once again whatever fate sends their way.
“We keep hearing the regime will collapse, because hungry Belarusans will turn out,” said Sergei Balykin, director of an association of small and medium-sized businesses. “But hungry Belarusans do not turn out.”
The people Lukashenko has to watch out for are probably those closest to him. It’s the clan of insiders who could prove dangerous. If the Russians spurn him, he will be in trouble. But by the same token, when the United States blacklisted a major Belarus oil company in late March, in a largely symbolic gesture, by all accounts it sent a jolt through those hoping to get in on the country’s inevitable sell-off of state-owned enterprises. If the European Union were to join in targeted sanctions, that jolt would be magnified several times over.
Belarus is an island of capricious authoritarianism and dodgy accounting on the edge of central Europe, a corridor for Russian energy exports that is bordered to the north and west by NATO nations. It is a potential source of trouble for the entire region. And it has assets that Russians would love to get their hands on.
Lukashenko campaigned in the fall on the notion that Belarus has a model economy. To prove it, he ordered that pay for workers in the state sector be increased by up to 50 percent. That turned out to be a key factor in launching the crisis.
It was confirmation that the government had abandoned its pledges of reform, made when it got a loan from the International Monetary Fund in early 2009, and Belarusans understood that the additional rubles they were getting were backed by nothing, said Stanislav Bogdankevich, former head of the national bank.
So they went on a buying spree — of dollars, euros, cars, gold, sugar. They emptied their bank accounts and bought dollars, until, finally, the government realized in March that the country was running out of hard currency and began an array of restrictions, all of which caused further disruptions. Ratings agencies then downgraded Belarus’s debt rating and that of six commercial banks.
The national bank was forced to act to protect reserves, said Yury Alymov, the acting chairman. Now it promises to make no further changes in currency market regulations. The government has ruled out a devaluation of the ruble.
As a result, it’s almost impossible to get any but the smallest amounts of dollars or euros, except on a black market where the exchange rates are 20 to 100 percent higher than the official rate.
Travel abroad has fallen sharply. Advertisers are cutting back at the country’s main Web portal, tut.by, said its chairman, Yuri Zisser. (On the bright side, page views at its financial Web site have more than doubled.)
New car sales have ground to a halt. “Our only hard currency is the cars we have on the lot,” says Sergei Mikhnevich, Volkswagen’s director here. Now, he said, without access to dollars or euros, the company will have to close its service operations for lack of spare parts.
Yelena Pisarchuk isn’t sure what she will do. She owns the five-year-old Yuranta Plyus tea company, which sells retail and wholesale out of a small basement shop on Karl Marx Street. She buys various aromatic teas from a distributor in Lithuania, which gets its tea mixes from a company in Hamburg, Germany. “We need hard currency, and we don’t have it,” she said. “We wish we knew a way around it.”
She’s out of her best-selling brands. She said the distributor is sympathetic. For now, she is keeping her nine employees on the payroll. “Belarusans are optimistic,” she said. “And that’s the basic difference between Belarusans and the rest of the world. We have been through crises before — and we just keep working.”
The unemployment rate here is officially 1 percent. State-owned enterprises, which account for 70 percent of the economy, reduce workers’ hours but never lay anyone off. Belarus exports fertilizer, trucks, buses and agricultural products, but it is dependent on imports — especially Russian oil and gas. The country’s account balance has gone from zero in 2006 to $8.7 billion in the red at the end of 2010, with $2 billion more added in January and February, Chaly said.
Lukashenko wants $2.7 billion in loans from Moscow. The Russian finance minister, Alexei Kudrin, has demanded that Belarus present a reform plan. Russia badly wants to see Belarus go forward with privatization, though in a way that Russian oligarchs can take advantage of.
The question for Russia, Bogdankevich said, is whether Belarus will stick to any plan it draws up.
Lukashenko is also making overtures to the West, which might give him some purchase as he bargains with Russia. Charges were reduced against 10 of those arrested after December’s protest. Although Lukashenko had earlier accused Poland and Germany of plotting a coup against him, he told the new Polish ambassador on Monday that relations between their countries were based on equality and mutual respect.
Kudrin and Russian Prime Minister Vladimir Putin are said to despise Lukashenko, but they loathe the idea of a Western-oriented Belarus even more.
“But even if he gets 2 or 3 or 4 or 5 billion dollars, this will not be a solution,” said Leonid Zaiko, head of a think tank called the Strategia Analytical Center. Without a dramatic shake-up of the economy, he said, the money will just be spent the way all the rest of the money has been spent.
“We’re just trying to patch the holes,” said Balykin, the business association director. “We don’t have a future.”