Lukashenko to Rule Economy

UNCLAS SECTION 01 OF 02 MINSK 001499 SIPDIS SENSITIVE SIPDIS PASS USTR FOR ALLGEIER AND DWOSKIN E.O. 12958: N/A TAGS: ECON EINV WTRO PGOV USTR BO SUBJECT: Lukashenko to Rule Economy Ref: Minsk 1383 ¶1. (U) Summary: In recent months President Lukashenko has issued several presidential decrees that put vast powers over the economy into his hands. Most egregiously, Decree 520 specifically gives Lukashenko expansive authorities, and baldly states that any legislation that contradicts the decree will expire in June 2006. From that date, Lukashenko will essentially be the law when it comes to economic matters. End summary. ¶2. (U) On November 3, Lukashenko signed Presidential Decree 520, "On Improving Legal Regulation of Certain Economic Relations." This decree gives the President of Belarus broad powers over the entire economy, and takes authority away from parliament, the National bank, and even market forces. More telling, it concludes, "Legislative acts, signed prior to this decree coming into force... which stipulate other regulations than set in this decree, remain in force until June 1, 2006." From that date, Lukashenko will be above the law when it comes to economic regulation. ¶3. (U) This decree gives the president the power to manage, dispose of, and privatize all state owned property. [Note: the state controls an estimated 80% of all economic activity.] Furthermore, the decree states, "The president and (or) laws shall:" --establish, introduce or change all taxes and duties; --establish tax, duty and other budgetary payments, as well as dismiss from tax and other obligations "certain [undisclosed] categories of legal entities and individuals"; --provide customs and income tax benefits to individuals; --create state non-budgetary funds and determine their sources and usage; --adopt general monetary policy guidelines, including exchange rates, growth of the money supply, levels of international reserves, and the growth rate of credit and investment; --"regulate other budget, tax and monetary policy issues"; --create regulations for the provision of budget loans and grants; --and regulate the setting of prices for "socially significant goods, such as housing, natural gas, electricity, heating, fuel and diesel." ¶4. (U) The decree gives the president sole jurisdiction over the following, as they relate to legal entities and individual entrepreneurs: --changing deadlines for the payments of taxes and duties --allocation of subsidies and resources for financing capital investment from the republic budget; --providing complete or partial acquittal from economic liability; --relief from transferring profits received from using state property to the republic budget; --regulating the seizure and granting of land plots; --deciding on the seizure and granting of land plots, underground areas, and forests. ¶5. (U) The decree also gives the president sole authority to approve legislation that will result in a decrease to the state budget, or the creation or expansion of expenditures. ¶6. (SBU) Vladimir Karyagin, head of the Minsk Association of Entrepreneurs and Employers (which functions as a proto-chamber of commerce),commented to Econoff that his association's lawyers examined this decree and concluded it essentially gives all economic power to the president. Business members of his group are worried that, after all economic legislation expires on June 1, the management of the economy will depend on Lukashenko's whim. Lack of legislative continuity is already a marked feature of the Belarusian economy. This decree is likely to decrease predictability and continuity of rules and regulations even further. As if that Wasn't Enough -------------- ¶7. (U) In recent months Lukashenko has signed several decrees greatly increasing his personal power over the economy. In October, Lukashenko signed Decree 481, giving the president sole authority to exempt companies from economic penalties, including those imposed by court order. This includes penalties for tax and customs violations, or any other fine issued by the government. MINSK 00001499 002 OF 002 ¶8. (U) In late November Lukashenko signed Decree 545, setting procedures to regulate the importation and sales of all cars in Belarus. According to this decree, any company that wants to import and sell automobiles must be Belarusian owned, have at least USD 13.5 million in assets, have a warehouse of at least 1,000 square meters, and be licensed by the GOB. The decree states the president has to personally approve each license. So Much for Rule of Law -------------- ¶9. (U) In addition to the above decrees, a Belarusian judge recently demonstrated the further erosion of the rule of economic law in Belarus. In January, the GOB took control of the oil refinery shareholder company MNPZ Plus using the Golden Share mechanism (reftel). The presidential decrees regulating the Golden Share claim it can only be used against a company in which the GOB at some point owned at least one share. The GOB has never owned a single share of MNPZ Plus. Therefore, MNPZ Plus' shareholders took the GOB to court for illegally using the Golden Share against them. GOB representative Vyacheslav Pernikov argued to the court that, despite what was written in the presidential decrees, the GOB used the Golden Share "to protect state interests." The judge from the Gomel Regional Economic Court agreed with the GOB and threw out the shareholders' case. Comment -------------- ¶10. (U) These decrees simply continue trends begun long ago, concentrating all power in Lukashenko's hands. Lukashenko continues to give his diktat the facade of legality. However, in practice, such decrees can only increase uncertainty and instability, and further ensure investors stay away from Belarus. Furthermore, these decrees are indisputable evidence that Belarus is becoming less, rather than more, prepared for WTO accession. KROL