BELARUS BI-WEEKLY POL/ECON REPORT - FEBRUARY 12, 2010

UNCLAS SECTION 01 OF 04 MINSK 000047 SIPDIS FOR EUR/UMB (ASHEMA) FOR DRL (DNADEL) FOR EUR/ACE (KSALINGER) EMBASSY KYIV FOR USAID (JRIORDAN AND KMONAGHAN) E.O. 12958: N/A TAGS: PGOV PREL PHUM ECON ENRG BO SUBJECT: BELARUS BI-WEEKLY POL/ECON REPORT - FEBRUARY 12, 2010 REF: A. A: MINSK 032 ¶B. REF: B: 09 MINSK 426 MINSK 00000047 001.3 OF 004 ¶1. The following are brief items of interest compiled by Embassy Minsk. TABLE OF CONTENTS Civil Society -------------- - GOB Crackdown on Polish Minority Group Raises Tensions - One Year of Pretrial Detention for Two Vaukavysk Activists - Presidential Edict: Possible Move To Control the Internet - Despite the Constitution Alternative Service Is Not An Option Economy -------------- - Belarus Coming to Grips with Limited Duty-Free Russian Oil - GOB Satisfied with Russian Electric Supply and Transit Agreement - IMF: Economy is Fragile, Some Encouraging Signs, But What Next? - Gazprom Contract Remains Unchanged Despite GOB's Expectations Quote of the Week -------------- -------------- Civil Society -------------- ¶2. GOB Crackdown on Polish Minority Group Raises Tensions A series of moves by authorities against a Polish minority group in Belarus not recognized by the GOB has triggered a diplomatic response by the Polish government. According to press reports, the Polish MFA conveyed its "serious concerns" through the Belarus ambassador in Warsaw, while recalling its ambassador from Minsk for two days of consultations. These actions followed a police raid, February 8, on the Polish House in the Ivyanets of the local Warsaw-backed Union of Poles of Belarus (UPB). Management of the Polish House (educational and cultural center) was cited for "illegal possession of property" (Ref A). Seizure of the Ivyanets facility leaves only two of the original 16 UPB-run Polish Houses remaining in Belarus, one in Barysau, the other in Baranavichy. Press reports also quoted Polish FM Radoslaw Sikorski as saying that "respect for the rights of national minorities and the opposition are conditions for rapprochement between Belarus and the EU." In related actions, a Hrodna-based company Polonica, headed by UPB leader Anzhelika Borys, was fined $25,000 on February 5 over purported tax evasion in connection with receiving money from the Polish organization "Wspolnota Polska." Polonica has provided support for Polish Houses that promote Polish culture and language in Belarus. Also on the same day, the court fined Borys $1,500 in absentia. In a separate incident on February 5, Borys' car was vandalized in Hrodna. On February 10, over 200 UPB activists and supporters held a peaceful unsanctioned demonstration of solidarity to remember Polish victims of Stalinist purges in the 1930's. Police closely observed and recorded the meeting but did not interfere, and no detentions were reported. ¶3. One Year of Pretrial Detention for Two Vaukavysk Activists Two Vaukavysk activists, Mikalay Autukhovich and Uladzimir Asipenka, have now spent more than a year in pretrial detention awaiting conclusion of criminal investigations against them and a Supreme Court decision for scheduling a hearing date. The court is also expected to rule on whether the two defendants will be tried in open or closed session. The two were arrested on February 8, 2009 on charges of arson and later elevated to terrorism allegedly targeting local officials in the Hrodna region. Interior Minister Anatol Kulyashou said the case would not have been sent to the Supreme Court without substantial evidence, but he expects the case to be tried in open court. Autukhovich and Asipenka remain in custody at a pretrial detention center in Minsk. An associate, Yury Lyavonau, also arrested February 8, 2009, was unexpectedly released in August 2009 and cleared of charges on September 24, 2009. ¶4. Presidential Edict: Possible Move To Control the Internet MINSK 00000047 002.3 OF 004 President Lukashenka signed on February 1 an edict on use of the Belarus national segment of the internet. Officially described as aiming to improve usage of the internet, the Presidential Operational and Analytical Center (OAC),an agency in charge of maintaining information security, stated that the edict was adopted "for people and the care for people." According to official claims, the document is based on "the experience of leading countries, including Germany, Sweden, the U.S. and France," as well as "Kazakhstan which is well advanced in this area." Communications Minister Mikalay Pantsyaley asserted that "every user will have the right to ask his or her provider to limit access to certain sites." The CEO of a software company and owner of the popular TUT.by news portal, Yury Ziser, commended the GOB for significantly amending the original "repressive" version of the edict (Ref B),saying the proposed regulations have been "changed for the better." However, Ziser underscored that "much will depend on how the proposed measures are implemented by the GOB." The edict, not yet in final form, awaits cabinet review by the Council of Ministers and issuance of specific provisions and regulations. Activists and independent media fear the edict will permit the GOB to block access to opposition web sites, especially important in the run-up to the presidential 2011 elections. Civil society representatives continue to express concern about provisions that will require internet service providers to identify subscriber devises and services provided to clients, describing the edict as a means of "controlling information that is distributed over internet." Belarusian Association of Journalists Chairwoman Zhana Litvina called upon the GOB to submit the edict to international experts for their assessment to establish whether it is consistent with international standards. ¶5. Despite the Constitution Alternative Service Is Not An Option GOB continues to deny youth their right to alternative civilian military service as guaranteed by the Article 57 of the Belarus Constitution. Despite Belarus' international human rights commitments, the GOB has failed to enforce a mechanism of an alternative service for those army recruits who seek civilian service due to their religious beliefs. On February 1, a court in Minsk sentenced Ivan Mikhaylau, a member of a Messianic Jewish community, to three months in jail for allegedly avoiding compulsory draft. Mikhaylau had been in pretrial detention since his arrest on December 15 after he refused to appear at a conscription office. In addition, Mikhaylau's sister was expelled from a vocational school on February 10 for missing classes on February 1 when she attended her brother's trial. In a separate case in Homyel, a local court fined opposition activist Yauhen Yakavenka $60 for failing to comply with enlistment office summons to appear on January 29. Yakavenka filed his third application for civilian service on February 2, citing that he was not "a draft-dodger and only wanted to exercise constitutional rights." Opposition youth and civil society remain committed to promote their campaign For Alternative Civilian Services and urge the GOB to respect religious rights of recruits. -------------- Economy -------------- ¶6. Belarus Coming to Grips with Limited Duty-Free Russian Oil According to the media, Russian Energy Minister Sergei Shmatko said at a news conference in Helsinki on January 29 that this year overall subsidies on Russian crude oil supplies to Belarus will amount to $2 billion. Citing new limits on the amount of Russian oil imported duty free under the recent oil agreement, Belarus' First Deputy PM Vladimir Semashko stated on February 2 that terms for oil supply have changed "for the worse" for Belarus. The GOB has begun dividing the 6.3 million ton quota between Belarus' two oil refineries and the Belarusian Oil Company. Applications by Russian companies that operate networks of filling stations in Belarus for allocations under the new terms were reportedly denied. Those companies are being directed to buy oil products from Belorusneft to supply their outlets. According to various media reports, as of February 11 duty free oil is not yet being provided to Belarus, which is yet to ratify the January 27 oil-supply agreement with Russia. MINSK 00000047 003.3 OF 004 Belarusian officials are reportedly worried that as soon as the agreement is ratified, it will be harder to insist on an upward adjustment of oil delivery terms. Russian Ambassador to Belarus Aleksandr Surikov told reporters in Minsk on February 10 that the duty-free oil supply quota for Belarus will not be increased above 6.3 million tons this year, adding that, if the signed agreement fails to be ratified, Belarus will lose the quota and will have to pay the full price for all supplies. ¶7. GOB Satisfied With Russian Electric Supply and Transit Agreement According to media reports, Belarusian energy monopoly Belenerha and Russia's Inter RAO UES signed a contract on Russian power supplies to Belarus and power transit via Belarus to the Baltic countries and the Kaliningrad Region in 2010. The two sides have reportedly agreed on "a well-balanced approach regarding both the supply and transit" of energy. "We are satisfied with the price, and they are satisfied with the transit terms," the General Director of Belenerha Alexei Shirma maintained on February 1 without elaborating on the details of prices and transit fees, referring to terms as "a commercial secret." The transit of Russian electricity via Belarus is expected to increase in 2010. ¶8. IMF: Economy is Fragile, Some Encouraging Signs, But What Next? According to the IMF staff report released on February 1, the country's macroeconomic stability remains fragile and needs to be reinforced as Belarus remains highly vulnerable to external shocks, given its high current account deficit and low level of reserves. In 2010, it estimates that Belarus' external financing gap will be $2 billion. Russia is no longer committed to providing the final $500 million tranche of a bilateral loan, but Belarus intends to apply to EurAsEC Stability Fund. The IMF report adds that "the financing gap for 2010 beyond the program period could be filled by additional financial support from the Fund, if a successor arrangement is agreed upon." The European Union could also provide $290 million in financial assistance if a follow on Stand By Agreement is adopted, but unlike in previous years the European Parliament, because of the Lisbon Treaty, must also give its consent as well. The World Bank must also have the new IMF Stand By Agreement in place if it is to release $100-150 million dollars in 2010. The GOB is also considering the possible issuance of a Eurobond, but IMF has advised the GOB not to seek too large an issuance as the number of buyers may be limited. The Chairman of the National Bank, Pyotr Prakapovich, admitted in late January that Belarus would need additional external financing. In preparing the ground work, although not having committed, the GOB and the National Bank have already sent a letter of intent to the IMF promising to maintain a tight credit policy in 2010 by limiting loans under government programs. The IMF report notes several encouraging signs in the economy. Export volumes have stabilized and are projected to recover. The exchange rate depreciation during the year has improved competitiveness, while confidence appears to be growing among households, as evidenced by the partial reversal of currency substitution. Fiscal policy has been consistent and strong, and the inconsistencies in the authorities' credit policies are being addressed. The Head of the IMF mission to Belarus Chris Jarvis stated at a conference on Belarus' integration into Europe, which was held in Minsk on February 10, that Belarus is capable of managing the losses and external economic shocks caused by oil price increase if the country takes firm measures. He also noted that keeping Belarus' national currency stable will be a major challenge for the country's banking sector this year. To stimulate economic growth and reform, the GOB will need to continue cutting costs and reduce interference in economic processes. Profitability and not government orders should be the basis for banks' lending decisions, Jarvis concluded. The end of its visit, the IMF delegation concluded that it will recommend that the final tranche under the current SBA be released to Belarus this April. However, the IMF Board's sentiments, according to Chris Jarvis, would be that any follow on SBA would have to include significant structural reforms with clear commitments by the GOB. ¶9. Gazprom Contract Remains Unchanged Despite GOB's Expectations MINSK 00000047 004.3 OF 004 According to press reports, Prime Minister Sergei Sidorski said on February 3 that Belarus expects to reach an agreement with Russia's Gazprom that the price of Belarus-bound natural gas will remain this year at the 2009 level. Russian Ambassador to Belarus Alexander Surikov told the press in Minsk on February 10 that Russia is not considering the possibility of reducing the gas price for Belarus this year. "The contract between Belarus and Gazprom was signed in 2006 and covers this year's gas trade, he said. The contract is effective, and no changes are considered now," he continued, but he did not completely rule out the possibility of new talks. Commenting on speculation in Belarus about Gazprom's possible participation in investment projects in the country, the ambassador declined to offer details, saying that "thus far we have (seen) only declarations (of interest)." -------------- Quote of the Week -------------- ¶10. The Chairman of the Chief Council of Warsaw-backed Union of Poles Andjei Pochobut told the press on February 10 that the Belarusian authorities should discontinue interference in the operations of the Union of Poles. "The conflict with the authorities emerged when, violating its own law, the Belarusian authorities tried to put "their people" at the head of our organizations and our members did not agree to it." SCANLAN