VITEBSK OFFICIALS' OPTIMISM SHROUDS CONTINUED

C O N F I D E N T I A L SECTION 01 OF 02 MINSK 000733

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/27/2017
TAGS: PGOV ECON PHUM BO
SUBJECT: VITEBSK OFFICIALS' OPTIMISM SHROUDS CONTINUED
REPRESSION

REF: A. MINSK 003


B. MINSK 676

Classified By: Charge Jonathan Moore for reason 1.4 (d).

Summary
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1. (SBU) Poloffs recently traveled to two cities in Belarus'
Vitebsk region to survey the local political and economic
landscape. The regional authorities were generally
optimistic about the region's economic performance and
potential for foreign investment, particularly in its Free
Economic Zone. Meanwhile, despite severe GOB repression,
local pro-democracy forces seek more coordination among
opposition and civil society groups as they gear up for
Belarus' 2008 parliamentary elections. End summary.

Regional Authorities Upbeat about Economy...For Now
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2. (SBU) Poloffs recently traveled to Belarus' northern
Vitebsk region (Oblast) to discuss the local
political-economic situation with GOB and opposition
politicians. On August 15, members of the Gorodok District
Executive Committee (Rayispolkom) described a generally rosy
picture of their district's economy. Rayispolkom Chair
Anatoliy Moroz touted Gorodok's unemployment rate of 0.9
percent, with eight-percent growth in the agricultural
sector. According to Moroz, the recent conflicts between the
GOB and Gazprom over energy prices had no significant effect
on his district's mainly agrarian economy and dairy industry
(ref A and B). However, when pressed, Moroz conceded to
Poloffs that this growth was unsustainable given the area's
lack of outside investment and steady migration of young
Gorodok residents to Minsk and abroad.


3. (SBU) A day later, Vitebsk City International Relations
and Entrepreneurship Office Head Natalya Korolyova similarly
confided to Poloffs her concerns that such migration trends
could also negatively affect Vitebsk City's economy and
underscored the need for attracting foreign investment,
particularly from the United States. Nevertheless, Vitebsk
City Executive Committee First Deputy Vladimir Katashuk
boasted that his city's pro-investment policies resulted in a
67 percent increase in the number of private enterprises over
the last five years. Attributing much of his city's success
to its Free Economic Zone (FEZ),Katashuk claimed that his
region is experiencing an economic boom with a 1.4 percent
unemployment rate and annual industrial and investment growth
rates of 12 and 22 percent, respectively, over last year.

Free Economic Zone: Too Good to Be True?
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4. (SBU) GOB-appointed FEZ Administration Head Leonid
Shevchenko also lauded the FEZ's performance. He boasted
that the FEZ hosts 32 investment projects with capital from
11 countries, including USD 51.5 million from the U.S.
According to Shevchenko, for the last three years the
production value of FEZ residents in actual prices increased
eight times and totaled USD 111 million, and sales profits
skyrocketed 11.3 times. Shevchenko attributed the FEZ's
success to import and export duty waivers and tax breaks of
up to 60 percent for its residents. Noting that the FEZ is
planning projects for the construction of a brick plant and
production of ultra-sound sensors, Shevchenko requested the
Embassy to invite more American businesspeople to invest in
FEZ projects.


5. (SBU) Later Poloffs toured the FEZ's largest resident
company, German-owned Vitella Chocolate Factory, whose
Managing Director Michael Chechenev was less sanguine about
his company's and, more broadly, the FEZ's prospects.
Chechenev noted that the Vitella profits had declined over
the past year because of recent Russian import restrictions
on Belarusian sugar products. Moreover, the manager
complained about the mercurial nature and application of GOB
tax and labor regulations and lack of legal recourses for
foreign companies to settle disputes with local authorities
and expressed doubts about future capital. Nevertheless,
manager concluded, "Vitella has invested more than USD seven
million in the facilities alone since 2001 and is not ready
to pull out -- yet."

Vitebsk's Dissidents: Repressed, Depressed, and Divided
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6. (C) Poloffs also spoke with Vitebsk region's democratic
opposition, civil society representatives, and independent

MINSK 00000733 002 OF 002


media, who were even more pessimistic regarding region's
future. Like Moroz, Assembly of Local Soviet Members and
Democratic Activists Leonid Gorovoy also seemed forlorn as he
described how migration was dashing hopes of revitalizing and
sustaining Gorodok's development. Gorovoy elaborated that
the lure of finding work elsewhere had eviscerated Gorodok's
base of youth opposition and that most of Gorodok's remaining
residents are older and more pro-Lukashenko. Nevertheless,
despite intensifying harassment by local authorities, he and
an opposition Belarusian Popular Front representative quietly
pledged to organize what democratic opposition remains in
Gorodok for Belarus' 2008 parliamentary elections.


7. (C) All opposition leaders in Vitebsk and Gorodok agreed
that the lack of alternative news sources in regions outside
Minsk remained the single greatest obstacle to Belarus'
democratic transition. Independent newspaper editor Vladimir
Bazan reported that local officials continue to use economic
instruments, such as restrictions on advertisements and
subscriptions for businesses, to suppress independent
newspapers. According to Bazan, the effects GOB repression
are sometimes worsened by some rival opposition leaders who
tend to blur distinctions between professional journalists
and partisan activists. Independent journalist and human
rights defender Leonid Svetsik added that the lack of
coordination among Vitebsk's civil society groups and with
their counterparts in Minsk had become a serious challenge.
However, he predicted more opposition unity, despite
heavy-handed GOB repression against democratic activists, as
the elections approach.

Comment
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8. (C) Throughout the trip, the local government seemed
upbeat but defensive. Pro-democracy forces were circumspect
but resolute. The most surprising aspect of the trip was the
complete absence of state media, local ideological officers,
and BKGB, who were usually unrelenting during previous trips.
It is too early to consider authorities' affectation of
civility as part of something more than a veneer for their
repression of local pro-democracy forces. We can say,
however, that our regional trips continue to send an
important signal of support and encouragement to regional
opposition activists as they prepare for the upcoming
parliamentary elections and remind the regime that the USG is
closely monitoring its actions in Belarus' more remote areas.

Moore