BELARUSIAN ECONOMY WEAK BUT STABLE, VISITING DAS

C O N F I D E N T I A L SECTION 01 OF 02 MINSK 000337

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/25/2017
TAGS: ECON PGOV PREL BO
SUBJECT: BELARUSIAN ECONOMY WEAK BUT STABLE, VISITING DAS
TOLD

REF: A. MINSK 298


B. MINSK 250

Classified By: Ambassador Karen Stewart for reason 1.4 (d).

Summary
--------------


1. (C) Belarusian economists and business leaders told
visiting EUR DAS Kramer the Belarusian economy, while weak,
would remain stable. The slightly dampened economy might
cause Lukashenko finally to consider one or two
multibillion-dollar privatizations this year to raise
revenues. Corruption, while present, does not dominate the
economy. End summary.


2. (SBU) On April 24, EUR DAS David Kramer met with Vitaliy
Arbuzov, General Director of FENOX, a holding company whose
concerns include retail and hydraulic systems assembly;
Sergey Levin, CEO of Detroit Breweries; Roman Osipov, lead
investment analyst for Uniter Investments; Sergey Zhbanov,
economics correspondent for the independent weekly
"BelGazeta;" and economics professor Leonid Zlotnikov. DCM,
Pol/Econ Chief and Deputy Pol/Econ Chief attended as well.

Effects of Higher Energy Prices Not Catastrophic
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3. (C) Zlotnikov gave DAS Kramer the most pessimistic
economic forecast, predicting growth would grind to a halt
once Belarus began paying the full price for gas. The other
interlocutors all saw room for expansion. Osipov highlighted
opportunities in real estate (ref A) and retail. Osipov
noted the huge expansion in the Russian market would allow
for continued export opportunities in the foreseeable future
despite the weakness of Belarusian manufacturers. Zhbanov
told Kramer concerns about foreign reserves falling
precipitously had passed. Both Arbuzov and Levin said the
cost of energy price inputs has only a negligible impact on
their businesses.

Lukashenko Still Undecided on Privatization
--------------


4. (C) Levin said Detroit Investments hoped to raise hundreds
of millions of dollars for new projects in Belarus. Osipov
added that foreign investors were eyeing the cement industry.
Zhbanov argued the crux of the energy dispute with Moscow
hinged on Russia's desire to invest in Belarus. All agreed
that the final decision rested with Lukashenko and no one
could know whether he was ready to allow major
privatizations. Levin said one or two major privatizations a
year, hopefully worth in total about USD 1-2 billion, could
provide the government with sufficient funds to finance pet
projects without cuts to social spending. Levin explained
that Lukashenko saw his fundamental task as keeping enough
profit-making industries afloat to cover those unable to
break even.

Corruption Persists, but Not a Primary Concern
-------------- -


5. (C) In response to a question from Kramer, all the
interlocutors conceded low-level corruption persisted in
Belarus just as it did throughout much of the former Soviet
Union. Osipov pointed to real estate as an area rife with
corrupt dealings at a higher-level. At the highest level, a
small circle of elites helped businesses carry out business
plans in return for a fee. Arbuzov added that certain firms
claimed they could fix court decisions. Zhbanov argued the
most significant insider deals involved giving monopolies to
favored individuals. Levin said companies seeking subsidies
and special favors opened themselves up to the whims of
officials.

Comment: Business Hoping the Time is Right for Investment
-------------- --------------


6. (C) Levin's evaluation of the Belarusian economic outlook
as "poor and stable" represented the general consensus of
analysts and business leaders. Even absent the threat of an
imminent economic collapse, we agree with their assessment
Lukashenko will need to make some concessions, such as major
privatizations, to prevent gradual economic decline. We also
understand the ultimate decision rests squarely with the
Belarusian dictator, who would rather seek open-ended loans

MINSK 00000337 002 OF 002


(ref B). If he perceives significant short-term political
risks in selling off major assets, he will hold off
regardless of the economic arguments.


7. (U) DAS Kramer did not clear this message prior to his
departure from post.
Stewart