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