Only the Economic Problem

By Dmitry Babich

Russia Profile

Putin and Lukashenko Likely to Stick to the Union State Budget, Disappointing Kremlin-watchers

The visit of Russian President Vladimir Putin to neighboring Belarus began in an atmosphere of secrecy, which fed the traditional rumor mill on "imperialist" integration initiatives purportedly coming from Moscow.

One such rumor was the perspective of Putin becoming the president of the "Union State" of Russia and Belarus following the end of his term as Russia's president. This rumor was first circulated by the Russian news radio station Ekho Moskvy. The station attributed this information to a source inside the administration of Belarusian President Alexander Lukashenko, who supposedly added that after Putin becomes the president of the Union State, Lukashenko could become its parliamentary leader.

On the eve of the visit, Pavel Borodin, the state secretary of the Union State, did not confirm this information, but fed the rumor mill further, presenting journalists with three drafts of the Constitutional Act of the new supra-state. All three drafts make provisions for the position of a Union State president or "head of state." This position is supposed to be filled either by the Russian president automatically, or by a person elected by a direct vote by citizens of the new supra-state - currently Russian and Belarusian citizens.

"The problem is that Lukashenko won't agree to be anything less than the head of the Union State," said Leonid Zaiko, head of the Minsk-based Strategiya think tank. "A few years ago, Lukashenko agreed with Yeltsin to create a Union State on a condition that some day Lukashenko will head it. For Lukashenko, Putin is someone who double-crossed him on the way to the Kremlin throne."

The other problem is that the Union State of Russia and Belarus, formally created in 1999, continues to exist largely only on paper, as both countries repeatedly miss the deadlines on several important steps aimed at integrating the two former "fraternal republics" of the now-defunct Soviet Union. Since 1999, both countries have failed at establishing:

- A common currency and a joint Central bank controlling the money emission (planned for the start of 2005);

- A constitutional act establishing the state organs of the Union State, including a joint Parliament with two chambers, the Council of Ministers, the Court of the Union State and its Auditing Chamber (a commission working on the Constitutional Act was set up in 2001, but no results have been produced so far);

- Citizenship in the Union State for all citizens of Russia and Belarus, including equal rights on the territories of both countries, including such spheres as health care, education and pensions.

Since none of the goals have been achieved, leaders of both countries have concentrated on day-to-day problems of economic life, with the Russian side giving Belarus a $1.5 billion loan, which is due to be returned over a period of 15 years. The Belarusian budget for this year was based on the presumption that the price of Russian natural gas wouldn't exceed $125 per cubic meter, $25 up from the current $100 price. Meanwhile, growing world energy prices and a recent scaling of the price for Turkmen gas by the government of the Central Asian republic of Turkmenistan push many experts to an estimate of $165 per cubic meter as a more realistic option. However, there is no unity among experts on the issue of the Belarusian economy's ability to sustain energy price hikes. So far, Western economists and Belarusian opposition figures have made numerous predictions of an imminent collapse of Lukashenko's "unreformed" or "Soviet-style" economy after the next scaling of natural gas prices, but so far these fears have been unrealized.

"Even the crisis in January 2007, when Russia nearly doubled the prices, upping them to $100, causing alarm even in the EU, even that crisis did not "kill" the Belarusian economy, as it was widely predicted, " said Lidiya Kosikova, an expert on Ukraine and Belarus at the Institute of Economy of the Russian Academy of Sciences. "Belarusians had prepared themselves for this price hike for years without publicizing these preparations. However Lukashenko tried to bring the negative impact to a minimum, arguing over every kopeck and incessantly talking about the collapse of the alliance with Russia, his regime was never in an immediate economic danger."

Friday morning, officials of the Permanent Committee of the Union State, one of the few actually working institutions of the still to be formed supra-entity of Russia and Belarus, made a disappointing announcement that during their meeting, Putin and Lukashenko will discuss only the budget of the Union - a relatively small annual allocation of money (between 2 billion and 3 billion rubles, or $80-120 million), spent every year on joint economic, educational and cultural projects, 65 percent of which is provided by Russia.

"If this is all they are going to discuss, the question will be - why did Putin come to Belarus?" said Belarusian economist Valery Karbalevich. "Lukashenko would have willingly visited him in Moscow, thus making an impression of putting the energy crisis behind us. I am puzzled."

For Belarus, the good news is that Putin's visit can be seen as a certain guarantee against a sudden soaring of gas prices. Last year, the official position of the Kremlin was that the gas dispute was not an interstate affair, but just an "economic problem" that needed to be settled between the Russian natural gas giant Gazprom and its Belarusian business partners. The crisis, which included a temporary cut of gas supplies to Belarus that was immediately passed by Minsk to Gazprom's West European consumers, was not preceded by any visits from Russia. The current visit may indicate a certain softening of Moscow's tough market game.