Belarus attempts to replenish its international reserves at China’s expense
On July 19th, National Bank’s Chairman Ermakova talked about ongoing negotiations with China concerning an untied loan to replenish the gold reserves.
As a result of Lukashenko’s Chinese visit, USD 1.5 billion worth agreements were signed. The Chinese visit’s main purpose was to find further funding to support Belarusian socio-economic model. Belarus offered China a duty-free access to the Russian market at a relatively small cost. China continues evaluating what Belarus has to offer.
Official reports say that as a result of the Chinese visit, a number of economic cooperation agreements were signed, altogether worth circa USD 1.5 billion. On the one hand, Belarusian exports to China are insignificant – mainly potash fertilizers. In January - May 2013 Belarusian exports to China earned USD 279.1 million (of which potash exports were USD 184.1 million). On the other hand, Belarus’ imports from China were USD 1.13 billion during the same period, and trade deficit with China is only worse than Russo-Belarusian. The newly signed contracts will only strengthen the negative trends in Belarus’ foreign trade, but country’s leadership is not particularly worried about it.
The planned potential of the Sino-Belarusian industrial park (USD 50 billion) is already higher than the current exports and for a number of reasons cannot be considered as a potential export growth source. Russia will not allow for all variety of goods to be supplied at its market, irrelevant of the created common economic space. Belarus’ statements about the signed agreements deemed to disguise the main purpose of the visit, i.e. searching for financial resources to replenish the gold reserves. China is the largest international reserves holder – over USD 3.3 trillion – and is searching for profitable investments. Belarus needs financial fueling for its economic model, which is back to negative current account payment balance after a short ‘break’ in 2012.
From Belarus’ view, mutual interest is obvious. At a relatively small costs China can get a base for expansion into the Russian market and other Belarus’ neighbouring markets. As an additional bonus, China receives contracts to expand Chinese exports to Belarus and enhances its long-term impact on the country. Belarusian exports to China should be regarded as development of potential competition for Belarusian goods in the Russian market. China has a successful market expansion tactics: it makes test purchases of marketable products, makes their copies and offers analogues at prices, lower than their market values. Belarus needs financial resources, and China has it. Using Chinese funds, Belarus will attempt to modernize its economy, hoping for further growth in exports, which might lead up to a positive trade balance. So far, Belarus’ progress in this regard is questionable.
Belarus continues searching for additional financing to support its ineffective economic model. In the long term, Belarus will strengthen its financial dependence on the external contractors and will have to agree to projects that are not the most efficient.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.