Why Belarus isn’t on investors’ radar screens

MINSK, Belarus — Vladimir Ilyich Lenin may have his best days behind him, but he still retains pride of place in the main square of Minsk, the capital of Belarus, where his statue towers atop a plinth overlooking the ex-Soviet republic’s government buildings.

Other Lenins are scattered around town, prominently at the Lenin Tractor Works, one of the country’s main industrial plants, while just down the road from the main square, a bust of Felix Dzerzhinsky, the bloody founder of the Soviet secret police, glowers at the headquarters of the Belarusian KGB.

The continued presence of the venerable icons of the Soviet past is a sign of the authoritarian government’s lack of interest in undertaking any dramatic reforms in the country of 10 million people. While neighboring Ukraine holds a truly democratic election and in Russia enormously wealthy oligarchs dominate the country’s economy, Belarus is the least changed part of the former Soviet Union.

But the model created by President Aleksander Lukashenko, the mustachioed former collective farm director called Europe’s last dictator who has ruled Belarus since 1994, is showing increasing signs of strain, and may begin to break down under the twin impacts of the global economic crisis and increasingly frosty relations with Russia.

Belarus was able to keep itself afloat and not undertake any significant reforms thanks to enormous help from Russia. For years Russia would sell Belarus cheap oil and gas, some of which Belarus then re-exported for higher prices to western Europe, while shipping low-tech but reliable goods like trucks and tractors to Russia. In return, Lukashenko promised to unite his country with Russia.

But when it became clear to Lukashenko that Belarus would only be a junior partner with Russia, and that he had no realistic chances of besting Vladimir Putin, now Russia’s prime minister, and becoming the leader of a Russian-Belarusian federation, Minsk’s ardor for a union cooled.

In return, Moscow grew tired of subsidizing its increasingly prickly neighbor, and demanded world prices for its exports of energy. Russians also became reluctant to buy lower quality Belarusian goods.

“As Russian industry grows, it has shifted to more modern and innovative goods, which makes it difficult for Belarusian companies to compete,” said Pavel Daneyko, director of the Belarusian Economic Research and Outreach Center, a policy think tank.

On top of that the economy has been battered by the global crisis. Last year growth was slightly above zero, better than in much of the rest of the region, but government finances are under increasing strain, which makes it difficult to continue the generous subsidies that are crucial to maintaining the regime’s support.

The government has responded by trying to save energy wherever possible, and by opening the doors a crack to the west. However, the European Union has made it clear that aid and investment are contingent on allowing political freedoms. Political prisoners have been released, and opposition parties are able to function, although they are still harassed and have little media access. The country also hoped to attract foreign investment needed to modernize its antiquated factories.

But the opening came just as the crisis hit, and very few investors are showing up in Minsk.

“Belarus is not high on the radar screen of investors,” said Valdas Vitkauskas, head of the Minsk office of the European Bank for Reconstruction and Development. “It was a very difficult place for a foreign company to do business — it has become less so but it is still difficult.”

Pressured by Russia on one side, and by the global economy on the other, Lukashenko can either hunker down and do nothing, hoping that his relations with Moscow improve, or else he can undertake further economic reforms in the hopes of reviving growth and attracting investors, but that could endanger his control of the country.

“It is very dangerous to let go of control,” said Alexander Milinkievich, one of the leading opposition leaders. “I’m sure the government wants to try a Chinese variant — to maintain political control while allowing some small privatization.”

The fear of losing power pervades the government — and there is no sign of any willingness to let go.

“I don’t see any connection between [political] and business reforms,” said Andrei Kobyakov, the deputy prime minister. “But politics are a different area. We’ll change when it is convenient for our society. If you try to force someone, it can cause a negative reaction.”

That means that Lenin is unlikely to be leaving his pedestal anytime soon.