Europe's last dictatorship on the brink?

The financial crisis in Belarus could mark the beginning of the end for “the last true remaining dictatorship in the heart of Europe.”

President Alexander Lukashenko has ruled Belarus since 1994, making him the longest serving head of state in Europe. Despite this, his time in office has been dogged by accusations of electoral fraud, brutal crackdowns of political opposition and increasingly economic mismanagement. (For more, see James Kirchick's blog on last December's election)

To date his position has been secured by the ruthless use of the security services and the country’s economic success since the collapse of the Soviet Union, much of which has relied on large gas and oil subsidies from Russia.

By the middle of 2009, however, the Belarusian economy had stalled. An unwise government-led credit boom during the financial crisis, coupled with the incremental removal of natural resource subsidies from its neighbour, put public finances on an inescapable downwards spiral.

Officials were forced to go cap-in-hand to the IMF for a bailout that ultimately totalled $3.5 billion with a further $2 billion added by Russia. These measures were aimed at averting a contagion effect that could have had broader humanitarian and economic repercussions, especially considering the fragility of the global financial system at that point.

Nevertheless these interventions did little to alter the attitude of the Lukashenko regime to dissent. Following the announcement that the incumbent had won an overwhelming 79.1 per cent of last year’s presidential vote—widely criticised by election observers—more than 10,000 opposition supporters took to the streets calling for the president to go.

The response was brutal. Riot police beat protesters and arrested hundreds, including seven of the nine opposition candidates. Lukashenko himself dismissed the protests as “banditry” and suggested they were in fact the product of “too much democracy” as he sought to undermine hopes of a popular revolution.

It is against this backdrop that the current crisis in Belarus should be seen. In May the country was forced to devalue its currency by 36 per cent against the dollar as it struggled to turn around its current-account deficit, which reached 16 per cent of GDP in 2010. Such is the severity of the problem that without foreign intervention the country would effectively be bankrupt.

With the European Union already having imposed sanctions including asset freezes and travel bans for Belarusian officials the only hope for the regime was an appeal to its traditional allies in Moscow or international bodies. This time, however, there was no easy get out clause for Lukashenko.

Firstly his negotiating position was weak. The regime’s reliance on favourable oil and gas deals with Russia and the disastrous impact of its post-election crackdown on foreign relations meant Belarus was no longer able to play west off against east. For both sides the country currently offers little strategic value, especially with a character as unreliable as Lukashenko at its head. Indeed Vladimir Putin is widely regarded as having a personal dislike for the Belarusian president and was unlikely to take a soft approach.

Secondly, having already received a bailout, the terms of any future financing were bound to be harsher, demanding thorough structural reforms. Both Russia and the IMF, for example, had called for large scale privatization of Belarusian state assets as a central part of any bailout arrangement.

For these reasons the deal struck last month with the Eurasian Economic Community, under Russian leadership, for a further $3 billion loan is far from a victory for the politicians in Minsk. Included in them is a commitment to sell $7.5 billion of state-owned assets, the proceeds from which have been the lifeblood of the regime.

Ben Aris, editor of Business New Europe, says assets that could come under the deal include two of the region’s most advanced oil refineries, which Russian oil companies desperate for additional refining capacity have been eying enviously. Equally important is the gas pipeline network that would allow Russia to get direct access to European markets.

What this will mean for the long-term independence of Belarus is anybody’s guess but it is plausible that the country will ultimately be integrated into the Russian Federation, de facto if not de jure. For Lukashenko, without a remarkable change in fortune this looks to be his final card before a gradual decline of his influence both within the country and in the region as a whole.

Yet as the broader foreign policy discourse appears to be shifting from a narrow focus on promoting “regional stability” to active support for grassroots democratic movements after the Arab Spring, many will be asking why one autocrat has been given a decade to arrange his retirement. For the dozens of protesters still held in Belarusian prisons the news will provide little solace.