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Russia/Belarus: Officials Agree On Currency Union, But Will It Hold?

  • Askold Krushelnycky

Officials from Belarus and Russia have announced a timetable agreement on plans to unify their currencies by the beginning of 2005. RFE/RL examines the plan, which appears to chip away at Belarusian sovereignty.

Prague, 20 June 2003 (RFE/RL) -- Delegations from the Belarusian and Russian Finance ministries earlier this month (10 June) unveiled a 30-month plan to replace Belarus's currency with the Russian ruble by 1 January 2005.

Under the plan, agreed in the Belarusian capital, Minsk, there will be an interim period when both currencies will be used in Belarus at a floating exchange rate. This period will last until 1 January 2004. The Belarusian ruble's exchange rate will then be fixed to the Russian ruble until its final elimination a year later.

The plan for monetary unification is an important element of Belarus President Alyaksandr Lukashenka's desire to form a union state with Russia.

Lukashenka has preserved his country as a Soviet relic, refusing to introduce democratic and market reforms. He views a union state as the first step in the recreation of something akin to the old USSR.

His authoritarian style, including the persecution and alleged killing of opposition politicians, has isolated him from most Western governments and stifled foreign investment in his country.

The lack of investment and the Belarusian government's erratic economic management led to high inflation with the Belarusian ruble currently valued at around 20,000 to the dollar. The Russian ruble, by comparison, is viewed as a much more stable currency.

Lukashenka's critics and independent observers alike say that if the monetary unification scheme becomes a reality, Belarus -- with its population of just 10 million and a comparatively tiny economy -- will be ceding economic control and, effectively, sovereignty to Russia.

However, some like the president of the independent, Minsk-based Mises Center economic think tank, Jaroslav Romanchuk, believe the plan will not be implemented by the 2005 deadline and may eventually be abandoned altogether. He said Lukashenka considers the introduction of the single currency "not a pure economic issue but a joint economic-political [issue]." In that respect, he says, "the future of this project is still vague."

Romanchuk said Lukashenka's political agenda is driven by his determination to stay in power after his second -- and, according to the present constitution, final -- presidential term expires in 2006.

He said Lukashenka wants Moscow's backing for another term but some, including Russian President Vladimir Putin, have said the days are over when leaders could expect to stay in office for life.

"The political aspect of the problem is seen by Minsk in the following way: If Lukashenka agrees upon the single currency, then the Kremlin should agree on his third term in office. That's kind of a trade-off between the countries and as far as I know many experts and people in the presidential administration in Moscow object to Lukashenka's third term in office. So it's still vague what sort of a bargain Lukashenka will get if he agrees on the single currency," Romanchuk said.

Lukashenka is expected to hold a referendum later this year asking for a third term in office. Romanchuk believes he may link the question about staying in power to the currency union -- something that many Belarusians believe will improve their standard of living.

But Romanchuk said a currency union would place Belarus effectively under Russian control but without bringing any notable improvements. "Russia is far from being a stable democracy, a stable economic country with a competitive economy. And it would be a big mistake to copy its institutions for Belarus because it's much weaker and lagging behind all reforms, even reforms in Ukraine," he said.

He believes the biggest beneficiary of a monetary union would be Russian businesses, which have been eager to buy into Belarus's oil, gas, and chemical industries. Lukashenka has resisted privatization, but Romanchuk said if Belarus becomes locked into the Russian ruble system it will help enable Russia to buy the Belarusian businesses or take them as payment for debts.

"This Russian money, Russian loans, will be used to pay off Belarusian debts so sooner or later we'll come to the point when Belarusian companies must be sold to Russian companies either [to pay off debts] or for very little money," Romanchuk said.

The co-author of the Economist Intelligence Unit's report on Belarus, Dafne Ter-Sakarian, believes Russian entrepreneurs favor the currency union. "It would benefit the businessmen in Russia but I think they're going to get hold of those assets anyway," Ter-Sakarian told RFE/RL.

She also believes that currency union would effectively surrender Belarusian sovereignty to Moscow. But she said that Russia has higher priorities than integration with Belarus. Putin has angered his Belarusian counterpart several times by snubbing Lukashenka's efforts to hasten the union state.

Ter-Sakarian pointed out that Putin did not even mention the Belarusian integration project in his state-of-the-union address. "In Belarus this is the top issue. There's nothing else -- there's [only] currency unification with Russia. In Russia that's so low on the list of priorities the perspective is very different. So yes, there are assets to be bought in Belarus, conceivably, but there are also more important ventures, say, in the Caspian," she said.

Ter-Sakarian said that Moscow can afford to snub Lukashenka because Russia is the only country of significance that has relations with the Belarusian leader. She said the disparity between Russia and Belarus means any currency or political union will be on Moscow's terms.

"[Lukashenka's] choice is whether he's willing to subordinate himself and his authority to Russia. Because any talk of a union of equals is out of the question as far as Russia is concerned. And in fact Putin came up with a very radical proposal of saying, 'Well, if Belarus wants to become a Russian republic, that's fine,'" Ter-Sakarian said.

Ter-Sakarian believes that Lukashenka intended the currency- and political-integration plans to provide him a substantial position that would enable him to retain power in Belarus and give him an important role in Russian government.

But that no longer seems likely and she doubts Lukashenka will surrender control over his economy that is essential for him to remain Belarusian ruler. "Originally, we and other analysts thought that the whole [currency and integration] project was an exit strategy and Lukashenka would become some sort of union figure and that would let him step out of the presidency. Now that's not really on the cards. And it's difficult to see how he envisages staying in power while surrendering the monetary policy on which he relies to subsidize his entire economy," Ter-Sakarian said.

Mises Center Director Romanchuk believes Lukashenka will pretend to favor currency union without allowing it to happen. "I think that the Belarusian government and Lukashenka personally is not ready to sacrifice that much even for short-term benefit. He will be [more] interested in the process than in this kind of practical result," he said.

Meanwhile, Lukashenka continues to demonstrate the kind of Soviet-style repressive rule that not only deepens his isolation from the West but is out of step with Putin's own declared democratic vision.

On 17 June, a court in Belarus's Homel Oblast ordered the closure of a pro-democracy activist group called Civic Initiatives. Other groups regarded as opposing the government have been threatened with similar measures. Also, the opposition newspaper "Belarusskaya delovaya gazeta" recently lost a court attempt to overturn an order banning it for three months.