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Belarus: Lack Of Democratic Reform Threatens Loan Prospects

The European Bank for Reconstruction and Development is drafting a new strategy for its role in Belarus. The move follows an earlier threat to cut back financing unless Minsk improves its record on democratic reforms. RFE/RL's Ron Synovitz takes a closer look at how the bank is reacting to the conduct of President Alyaksandr Lukashenka's regime during elections in September.

Prague, 7 November 2001 (RFE/RL) -- Concerns over the failure of Belarusian authorities to respect basic democratic standards during last September's presidential elections has led the board of directors for the European Bank for Reconstruction and Development (EBRD) to order a new strategy on operations within the country.

The EBRD is not expected to halt all of its lending and investment in Belarus. But several officials at the bank's London headquarters told RFE/RL privately this week that the conclusions of election monitors from the Organization for Security and Cooperation in Europe (OSCE) mean that a freeze on financing for public sector projects is likely to be incorporated into the strategy.

The call for a new strategy follows a warning issued last April in a letter from EBRD President Jean Lemierre to Belarus's President Alyaksandr Lukashenka. Lemierre warned Lukashenka that an effective freeze on public-sector projects in Belarus would remain in effect unless notable progress was made toward democracy in the September elections.

Lemierre told RFE/RL at the time that continued delays from Minsk would lead the EBRD to either cut back its activities in Belarus or even cancel the country's membership in the institution altogether.

The EBRD board of governors also expressed grave concern about the conduct of last year's parliamentary elections in Belarus -- including reports of harassment of opposition candidates and measures that hampered election monitors.

Last week, OSCE monitors released their final report on the September elections. The report included three key conclusions for consideration by international institutions.

First, the monitors said the campaign and balloting had failed to meet the OSCE's basic standards for democratic ballots.

Secondly, the report acknowledged that a pluralistic civil society is emerging in Belarus, which could serve as the foundation for developing a democratic political structure that represents all segments of the population.

Finally, the OSCE said the isolation of Belarus is not in the best interests of the people there and will not help strengthen democratic development.

EBRD Secretary-General Antonio Maria Costa told RFE/RL yesterday that it is still too early to discuss details of the new Belarus strategy because the plan is still being drawn up. But he indicated the OSCE's recommendation against the isolation of Belarus is important.

"We are obviously very familiar with the three points which were raised in the OSCE document. It's premature for us to pass any view on any of these three points -- especially on the third one. But indeed, it is one of the considerations which will be kept in mind at the time of drafting [the new country strategy for Belarus] and, above all, at the time of the board discussion."

Costa noted that Article One of the EBRD's founding charter means that the EBRD places more emphasis on democratic reform in recipient countries than other international financial institutions, like the International Monetary Fund or the World Bank.

"Certainly, what I would like to stress is the importance we attribute at the bank to Article One, which is indeed a distinctive feature of our mandate in respect to other institutions. We can only operate in countries which progress in the realization of [democratic] and [market] economic [reforms]. That will be the key first consideration to be made before any other operational considerations can be put forward in the strategy."

Costa explained that before any draft strategy on a country reaches the board of directors for a final decision, it is usually examined by board members in an informal "workshop" environment where views are exchanged and an initial assessment is passed. He said that step would be taken during the next three weeks and that final approval of the strategy is likely during December.

"During the month of November, [the board will review the draft of the strategy] probably only [in an informal] workshop. And we do not know what kind of revisions the document will itself require following directors' comments. Therefore, we are talking about a possible board consideration [of a final strategy] sometime in December."

It would be an unprecedented step for the EBRD to cancel the membership of Belarus. Turkmenistan is the only other EBRD member that has seen financing frozen for disciplinary reasons linked to failed democratic reforms.

That move followed repeated warnings from the bank and culminated when Turkmenistan's President Saparmurat Niyazov refused to meet with a group of senior EBRD officials who had flown into the country specifically to see him.

The IMF halted lending to Belarus in 1995 due to the Lukashenka government's continued rejection of recommended economic reforms.

Cooperation between Minsk and the IMF resumed this year in March with a six-month IMF "staff-monitored program." That program did not include any lending but served as a test of the government's ability to meet its declared policy targets.

But the IMF announced yesterday that the government had only partially completed the program. A senior IMF official, John Odling-Smee, said in Minsk yesterday that it is too early to discuss the possibility of resuming IMF loans to Belarus.

The World Bank also is drafting a "country assistance strategy" for Belarus that could result in loans of up to $260 million during the next three years.

World Bank policy is to make lending decisions based on economic criteria. But its draft program includes health and environmental projects that would rely on co-funding from governments and other donors. That co-financing also could be threatened by concerns over the lack of progress on democratic reforms from Minsk.