Belarusian President Alexander Lukashenko replaced several top government officials this month. The seasoned bureaucrat Andrei Kobyakov was replaced by banking executive Sergei Rumas as prime minister, and almost all of the deputy prime ministers were displaced too, along with several ministers, including those responsible for economics and industry.

Formally, the shake-up stemmed from Lukashenko’s frustration with the government’s apparent inability to eradicate unemployment and improve the efficiency of loss-making enterprises in the city of Orsha in eastern Belarus, an economically depressed region that has seen unusually large public protests by Belarusian standards. But Orsha was also a convenient cover for removing government officials who needed to go anyway, for various reasons.

Deputy Prime Minister for Social Policy Vasily Zharko, for instance, had tarnished his image with healthcare corruption scandals, while one of the key liberals in the old Cabinet, Deputy Prime Minister Vasily Matyushevsky, who was responsible for economic issues, apparently wore Lukashenko out with his persistent lobbying for economic reform.

The new Cabinet has been called the youngest in Belarusian history: the appointments have reduced the average age of its members by a full ten years. It can also be described as the most technocratic. The new ministers, deputy prime ministers, and prime minister all have strong managerial backgrounds. With the departure of the old guard, the government’s economic bloc—which was already fairly market-minded—no longer has any conservative members.

The dismissal of Matyushevsky could have dealt a serious blow to the reformers in the Belarusian government, but for the appointment of Sergei Rumas as prime minister. Lukashenko’s choice was both good and puzzling news for proponents of liberalization.

The forty-eight-year-old Rumas comes from the banking sector. He is known to be a good negotiator, as well as a tough, discipline-minded manager and a staunch disciple of the market economy. Rumas previously served as deputy prime minister from 2010 to 2012, and is remembered for his rather unorthodox public remarks: he criticized Lukashenko’s Marxist advisor Sergei Tkachyov for his anti-market initiatives, and the central bank for its soft monetary policy that led to currency devaluation. He also named government bureaucrats as the main obstacle to foreign investment.

Back then, Lukashenko intervened, and the daring deputy prime minister was transferred to a more placid position in the banking sector. It has also been reported that Rumas himself wanted the transfer. In any case, Lukashenko has always maintained respect for the principled banker capable of restoring order.

Rumas’s return to the government, therefore—especially his promotion to the highest position—may look like a clear signal that Lukashenko is willing to allow full-fledged economic liberalization. But right after the government shakeup, Lukashenko appeared to cast doubt on that notion. At his first meeting with the new government, he voiced his displeasure with its predecessor’s attempts to increase utility rates and its inability to bring the average salary up to the level of $500 a month. Lukashenko accused the old government of abandoning the course chosen by the people.

Perhaps the president simply uses such paternalistic rhetoric to reassure the Belarusian public: it may be that he doesn’t want ordinary people to fear the planned market reforms before they are even announced. But this is all guesswork, because in the twenty-fifth year of Lukashenko’s presidency, there is still no sign of him finally giving in to those in favor of market reform. His belief in the state-dominated economy has survived a number of serious economic crises, and right now the country is not even going through one.

The young technocrats just happen to be reform-minded: any professional economist who wasn’t brainwashed with Soviet ideology would adhere to the same views. The Rumas government may continue with some individual reforms started by its predecessor, but as soon as the process encroaches on the president’s comfort zone, he’ll put a stop to it. On the other hand, it’s hard to imagine that the current Cabinet will seek to restore the state’s previous economic role and depart from today’s harsh monetary policy. 

The remaining question now is what Lukashenko sees as a threat to the stability of the Belarusian system. What threat necessitates the replacement of familiar and convenient bureaucrats with ideologically alien youths?

It is quite telling that the changes in the government only affected the socioeconomic sector. The doves from the Foreign Ministry and the hawks from the security services have retained their seats, because the reshuffle has little to do with the foreign policy agenda. It’s the economic situation that concerns Lukashenko the most.

The Belarusian economy is a mixed bag. On the one hand, thanks to central bank monetarists, the Belarusian ruble is more stable than ever. After three years of recession, the GDP recovery growth rate is quite good: 4 percent year-on-year. On the other hand, growth has slowed in recent months, and record-breaking foreign debt payments are due next year, which experts consider the greatest threat to the Belarusian economy.

But the most serious danger lies to the east. The country’s relations with Russia, marked by their fair share of political and economic disagreements, seem to be heading for another serious crisis. Moscow is taking unilateral steps to secure its border with Belarus, while Belarus is strongly resisting the appointment of the new Russian ambassador, Mikhail Babich. According to several published leaks, Minsk is far from thrilled by a candidate with a security service background who was rejected by Ukraine for the same position. In addition, Babich was Chechnya’s head of government during the second Chechen war.

The economic aspect of Russia-Belarus cooperation looks even more alarming. Under their customs union, Belarus does not pay duty on crude oil that it buys from Russia. Moscow is upset that Minsk then re-exports duty-free hydrocarbons, which results in revenue losses for Russia. Now Moscow is planning to scrap its oil export duty and make up for lost revenues by raising crude extraction taxes. This move will lead to crude oil price increases and will deprive Minsk of collecting oil export duties. As a result, Belarusian budget revenues may decline by 3.8 percent of GDP in the next five years, according to Finance Ministry estimates.

Moreover, documents recently disclosed by Reuters suggest that Russia is determined to curtail its liquefied natural gas and oil product shipments to Belarus starting in the fourth quarter of 2018. It has also been reported that Russia is unwilling to transfer funds under existing loans to Belarus, although the parties dispute this information.

Considering that oil product export is one of Belarus’s main sources of currency revenues, and factoring in the record foreign debt payments coming up next year, Lukashenko may have cause to worry. Parliamentary and presidential elections scheduled for 2019 and 2020 only amplify the perception of the impending storm.

It seems that in the face of such upheaval, Lukashenko saw a young, pro-market, technocratic government as the lesser of two evils. After all, what can they do without the president’s signature?

By:
  • Artyom Shraibman