Europe’s Last Dictator Steps Into the Unknown

During last weekend’s parliamentary elections in Belarus — a country of just under ten million people that Swedish economist Anders Aslund once described as a “Soviet theme park” — two opposition politicians were elected to the lower house for the first time in more than a decade. This minuscule opposition gain may appear insignificant, but it points to deeper, though incremental, changes.

Other signs of change — sometimes quite odd ones — have appeared throughout the year. In May, Jon Basil Utley, publisher of the American Conservative, made an unlikely visit to the isolated Eastern European state. Even more improbably, while in Minsk, the country’s pristine capital, Utley took the time to outline his libertarian economic vision to an audience of about forty students at a basement venue called Kto Takoi Dzhon Galt? — or “Who is John Galt?”

Utley was a guest of Minsk’s Liberal Club, a think-tank and advocacy group that promotes free-market reforms for an economy that is 70 percent state-owned and in which 20 percent of companies fail to turn a profit. He was also part of a delegation that met with officials at the Belarusian foreign ministry, with whom he says he enjoyed “good and frank talks.”

Until recently, such meetings between senior Belarusian officials and Western campaigners for economic liberalization would have been nearly unthinkable. After all, state control of the economy has long been non-negotiable — in part, the regime says, to fulfill its promise of preventing the country from descending into oligarchy.

But the economic and geopolitical consequences of Russia’s aggression against Ukraine have rocked Belarus’s once-stable economy. Today, reforms that once seemed a distant dream are starting to enter the realm of possibility.

The so-called “last dictatorship of Europe” is ruled by President Alexander Lukashenko, the former head of a collective farm, who claims to have been the only Belarusian parliamentary deputy to vote against the dissolution of the Soviet Union. Since coming to power in 1994, the wily leader has managed to keep Belarus’s neo-Soviet economy afloat by exploiting its strategic position between Russia and the West — although Minsk has always been, and remains, much more closely aligned with Moscow.

Until recently, a fifth of Russian gas exports and two fifths of its oil exports to Europe passed through Belarus. The country has also been able to profit by refining Russian oil at its Soviet-era Mazyr facility. But Minsk also benefits considerably from trade with the EU and the willingness of western financial institutions to protect it from wholesale Russian domination, as well as Kremlin loans and subsidies designed to prevent it from straying too far in the other direction.

Now, however, Belarus’s economic dependence on Russia has become a serious liability, and the old balancing act is looking more and more precarious. The collapse of global oil prices and western economic sanctions in response to Russia’s war on Ukraine have rocked its economy, and this in turn has dragged Belarus into an economic crisis more grave than anything it has faced since Lukashenko rose to power.

Belarus’s GDP contracted 3.7 percent year-on-year in the first quarter of 2016, and the IMF predicts that the economy will shrink by 2.7 percent over the course of the year. Unemployment was almost twice as high in 2015 as it was in 2014. The Belarusian ruble has lost half of its value against the U.S. dollar over the past two years, and relentless inflation has forced a redenomination, with four zeros knocked off the currency on July 1.

The crisis is all the more intractable because its principal cause — Russia’s war on Ukraine — has also made Belarus both less able and less willing to turn to its main patron and benefactor for help. Even if Moscow still had the requisite financial resources bail out Minsk, Belarus’s concerns about its behavior in Ukraine have cautioned it against surrendering any further sovereignty to its giant neighbor.

In an indication of the depth of his concern, Lukashenko has expressed veiled criticism of Russia’s annexation of Crimea on several occasions, remarking in October 2014 that if Crimea was an historically Russian territory, then virtually all of Russia itself should be given back to Mongolia and Kazakhstan because it had once been ruled by the Golden Horde.

Stuck between the economic crisis and a desire to maintain its independence, Minsk has been forced to commence reforms and to engage with Western institutions in a way it has never done before, with Lukashenko declaring on the eve of presidential elections last October that he was “ready for reforms and transformations, including revolutionary ones.”

The National Bank of Belarus has eased foreign exchange restrictions, and employment in the largest industrial factories has been reduced. The government has also reduced financial support to state-owned firms, and some of the most unprofitable industrial enterprises have been liquidated altogether. In April, Minsk implemented a politically sensitive decision to raise the state pension age for both men and women by three years, and in June it hosted an IMF delegation for a round of talks on further structural reforms.

“Our dialogue with government officials has intensified and become more open,” says Peter Dohlman, who led the IMF’s June delegation. “The government’s response to recent pressures has helped stabilize economic and financial conditions, and this effort has been more sustained than in past crisis episodes. Most senior officials we have met with recognize the need for further, deep institutional and structural reforms.”

This willingness to countenance reform has raised hopes among Belarusian free-marketeers that their time has come, generating a sense of optimism they have not felt since the early 1990s, before Lukashenko came to power.

“Compared to ten years ago, when the authorities were arrogant and skeptical, the government is more receptive” says Jaroslav Romanchuk, a Belarusian economist. “We have got more people on board and supporting free market reforms, including within government structures.”

“The government understands that this cannot go on any longer” says Yauheni Preiherman, founder of the Liberal Club. “It’s obvious that this economic system is not working. When the crisis started, the system had nothing to offer.”

The Belarusian public appears to accept the need for changes, according to Andrei Vardomatski of the Belarusian Analytical Workroom, an independent polling company based in Warsaw. Vardomatski conducted a poll in December in which 66 percent of respondents expressed support for economic reforms, with 44 percent saying that they should be gradual and 22 percent in favor of a rapid transition to a market economy.

Rapid reform remains unlikely, not least because of the fear held by many Belarusians of the rise of a Russian or Ukrainian-style oligarchy — a concern shared by the free marketeers. If the changes are too quick, says Preiherman, “then most probably you will have something like Ukraine. Then people who are closer to power will simply create an oligarchic system.”

Aware that a loosening of the economic reins would also pose a threat to his grip on power, Lukashenko is likely to share these concerns, if only for self-interested reasons. Reformers were demoralized in July by the removal of Kiryl Rudy, a key presidential advisor who earlier this year published a candid book on the state of the economy, from his role close to the president.

Unfortunately for the Belarusian leader, his artful maneuvering may no longer cut the mustard. With the status quo of the past two decades looking increasingly unsustainable, some regard his predicament as unenviably similar to that of Mikhail Gorbachev in the 1980s — he is aware that reform is unavoidable, but fearful of its potential consequences.

For some, this fear means that the president will remain reluctant to embrace change. “Lukashenko and his colleagues are still trying to restore the old system instead of working on a new model of development,” says Romanchuk. “Essentially, we are facing the prospect of Soviet Collapse 2.0.”

However, for others, the significance of the government’s response is that it demonstrates that, however slow and frustrating the process may be, change in Belarus is possible. “Western officials may not get very far when it comes to political liberalization, but if they could be more assertive in developing relationships with a new generation of Belarusian administrators, they would be sowing the seeds for long-term change,” says Yaroslav Kryvoi, director of the Ostrogorski Center, a think-tank based in London and Minsk.

“Many people regard Belarus as a kind of European North Korea where meaningful reform is impossible, but this is simply not the case,” insists Kryvoi.

Meanwhile, Jon Basil Utley retains his faith in his free-market worldview. “We libertarians believe that economic prosperity will be followed by political freedoms,” he says. Lukashenko will be hoping to prove him wrong.

In the photo, Belarusian President Alexander Lukashenko and his son Nikolay attend a wreath-laying ceremony at the Tomb of the Unknown Soldier in Moscow on December 15, 2015.

Photo credit: ALEXANDER ZEMLIANICHENKO/AFP/Getty Images