Plan to unite Belarus and Russia sparks concern

Date: 14/01/1999

By Simon Taylor

BELARUSSIAN President Alexander Lukashenko's planned union with Russia threatens to worsen Minsk's already poor relations with the EU.

The main reaction to Lukashenko's plan has been confusion and puzzlement over what is actually being proposed. There is also weary resignation that he is falling back on traditional links with Russia instead of addressing his country's serious economic problems, which include an annual inflation rate expected to top 115% in 1999.

In December last year, Lukashenko and Russian President Boris Yeltsin announced plans to unify the two countries, which separated in 1991 on the break-up of the former Soviet Union.

They said the two nations would prepare a draft treaty on reunification by the middle of 1999. However, they added that this agreement would ensure "the preservation of the national sovereignty of states party to the union".

Commission officials say that it is still too early to assess what the exact implications of the proposed union would be for relations with the EU. They point out, however, that it would complicate matters because the Union has a formal link with Russia through the Partnership and Cooperation Agreement (PCA), but not with Belarus.

EU governments voted to scale down contacts with the country in 1997, freezing technical assistance provided under the Tacis programme, in retaliation for Lukashenko's decision to expel foreign ambassadors from their official residences to make room for extended presidential quarters. Member states withdrew their top diplomats in protest, but they are expected to return early this year following a deal with the government on new premises.

Lukashenko's decision to strengthen links with Russia is being seen as a response to Belarus' worsening financial problems. But analysts are already warning of the dangers of setting up two central banks, both with the power to print money and, consequently, to stoke the fires of inflation.

Although Belarus achieved the best growth rate of all the Commonwealth of Independent States countries apart from Georgia last year, economists at the European Bank for Reconstruction and Development (EBRD) say that this has been bought with foolhardy state subsidies to industry and agriculture.

In its annual report on economies in transition, the bank said the government was forced to reintroduce price controls to try to get a grip on raging inflation. This led to a shortage of basic foodstuffs including sugar, milk and eggs in the run-up to Christmas.

Fears of political unpopularity prompted Lukashenko to delay key reform measures such as introducing minimum capital requirements for banks which would have closed many institutions. The government also resumed direct control of the central bank in 1998 in an attempt to restore stability to the Belarussian rouble, which plummeted as a result of the Russian economic crisis.

Such backward-looking measures led the EBRD to give Belarus the lowest marks in its annual assessment of progress towards a market economy, below even Albania and the central Asian republics.