VZCZCXYZ0000
RR RUEHWEB

DE RUEHSK #1525/01 3560738
ZNR UUUUU ZZH
R 220738Z DEC 05
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC 3501
INFO RUEHKV/AMEMBASSY KIEV 3038
RUEATRS/TREASURY DEPT WASHDC

UNCLAS MINSK 001525 
 
SIPDIS 
 
KIEV FOR USAID 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EAID ENRG SENV UNDP BO
 
SUBJECT: WORLD BANK IN BELARUS: FUTURE ENGAGEMENT RESTS ON 
CHERNOBYL PROJECT 
 
 
¶1. SUMMARY:  Increasing GOB impediments to the provision of 
foreign assistance and further resistance to outside advice 
call into question the future of World Bank operations in 
Belarus.  The Bank is pinning its hopes on realization of a 
proposed $50 million project in energy conservation and gas 
distribution in the Chernobyl affected area.  The project 
addresses what UN agencies see as the most critical problem 
in the zone - poverty.  The country resident representative 
stresses that the project is geared to helping the 
impoverished communities and not supporting infrastructure 
or the regime.  In addition to conserving energy and 
financial resources, the project provides a health benefit 
by replacing wood as a heating fuel, which is a source of 
radiation exposure.  Progress on project implementation to 
a great degree will determine the future scope and 
direction of Bank activities in Belarus.  Post urges 
careful consideration of the project in light of the 
desperate situation in the Chernobyl affected area and the 
need to keep IBRD engaged in Belarus.  END SUMMARY 
 
¶2. In its recently completed country economic memorandum 
the Bank concluded that the Belarusian economy had achieved 
significant growth, but non-sustainable in the absence of 
structural reform (septel).  Although the economic success 
is largely a consequence of high energy prices and 
preferential access to the booming Russian market, 
microeconomic reforms, particularly in the budget and 
energy efficiency spheres, have helped the economy capture 
the benefits of the external factor.  In fact, the GOB has 
implemented many of the measures the Bank and the IMF have 
recommended, i.e., technical measures not requiring 
political approval.  However, these steps have taken the 
economy about as far as it can go without major reforms 
that would fundamentally change the economic structure. 
And there is clearly no will on the part of the 
increasingly Soviet nostalgic leadership to take the 
country in a more market-oriented direction. 
 
¶3. In the face of the regime's increasing hostility to 
Western countries and institutions, growing bureaucratic 
and political impediments to technical assistance, some 
World Bank members are questioning the appropriateness of 
continued engagement in Belarus.  Its sister organization, 
the IMF, pulled its resident representative out of country 
a year ago, now maintaining a very small, locally staffed 
office to administer small technical assistance missions. 
The local office World Bank office argues for maintaining 
at least the current project level.  Bank staff cites the 
long-term impact on the country's economic policy, in 
particularly, keeping up the skill levels of the very 
competent staff at the technical staff in the ministries 
and preparing for future leadership.  Outside economists 
unanimously praise the capabilities and dedication of their 
Belarusian counterparts.  However, in the country's self- 
imposed isolation these skills will dry up without the 
constant contact with the IFI experts, training and access 
to new information. 
 
¶4. In the quest to stay engaged, the World Bank has been 
working over the past year to design a loan project which 
the GOB will accept and which also meets IBRD development 
goals (Global Public Goods).  The result is the $50 million 
loan Post-Chernobyl Recovery Project, focusing on energy 
efficiency and gas distribution.  In recent conversation 
with DCM and pol/econ chief, the head of the World Bank 
office in Minsk, Vadim Voronin, stressed that the project is 
directed at helping local communities, not building 
infrastructure.  He explained that the project will help 
alleviate the difficult financial straits that municipal 
budgets face in the Chernobyl zone.  Given the very low 
fiscal revenues, local budgets can be as low as USD one per 
member of community.  Installation of energy efficient 
equipment, which can cut energy use by some 50 percent, 
could result in significant cost savings for these villages. 
The gas distribution component of the project would be 
directed at villages, which are already connected to the 
network and would be used to provide street pipelines and 
house connections. The substitution of gas for wood - the 
most common heating fuel in the region - also provides a 
health benefit by reducing risk of radioactive exposure 
through burning contaminated wood. 
 
¶5. The Belarusian government has approved the loan proposal, 
but it is still awaiting final approval by the presidential 
administration.  (In its original design last year the 
project was to be multisectoral, including a component on 
 
forestry, but the Bank found it too difficult to work with 
the unreformed forestry industry.  The energy sector, in 
contrast has already made significant reforms.) If approval 
is secured, the project will be presented to the Board on 
January 27.  Realizing that some member countries will 
object to the project, Voronin intends to explain the 
project to Bank President Wolfowitz in advance of the Board 
meeting.  He claims to have already won the agreement at the 
vice-presidential level in the Bank. 
 
Looking Ahead 
------------- 
¶6. Preparation of the next Country Assistance Strategy 
(CAS), which will take place next year, is constrained by 
the lack of areas where assistance is acceptable to both the 
GOB and the IBRD.  According to Voronin, the CAS will 
probaby concentrate on broadening the current Chernobyl 
proposal.  In addition to continuation of energy eficiency 
and gas distribution, likely proposals re improving water 
quality in rural areas, foresry management and agriculture 
development.  Voroin laid out the rationale behind 
selection of thse topics.  Before the Chernobyl 
catastrophe, thearea relied on surface water - lakes and 
rivers - for household use.  When these sources became 
ontaminated, they switched to underground water.  owever, 
the quality of the underground water is ery poor with high 
levels of iron (exceeding the orm by 20 times), zinc and 
other heavy metals.  oronin estimated that bringing the 
quality up toacceptable levels would cost $15-20 million. 
 
¶7. Voronin continued to explain that forests in the egion 
ae poorly manged and vulnerable to fires,which create 
radioactive clouds that can threate neighboring countries. 
He did not envisage a mater forestry plan for the region, 
but a focused roject to improve management in the areas of 
lowand average contamination and to develop small 
enerprises by privatizing forest farms (leskholkhoz)  If 
such wood is processed under IAEA approved tandards for 
commodities, such wood could be exprted.  According to 
Voronin, only the surface iscontaminated, so that log cores 
are safe.  Develoment of agriculture in the zone is, not 
unexpectdly, very controversial and the government's 
annunced plans to do so have been criticized in theindependent press.  Voronin 
stressed that the Bank however, 
would focus on non-food agriculture, asthere is no way to 
avoid risk from radioactive pllutants in food grown in 
contaminated areas, esecially meat and milk. 
 
¶8.  Voronin noted that frther development of these ideas is 
contingent o the GOB's level of cooperation on the first 
Cherobyl project.  He predicted that approval of the nw 
CAS would occur by the end of 2006, at best.  n addition to 
these programs, the CAS would probbly include continued 
technical assistance on th budget, taxes and WTO accession. 
 
¶9. COMMENT:  Pst urges Washington to seriously consider the 
Bak's proposed loan project, weighing the risk of cuting 
off Bank involvement in Belarus against thepresumed benefit 
this project would bring the reime.  As the GOB 
increasingly isolates itself by losing down exchanges and 
forbidding officials fom travel abroad, it is ever more 
important thatinternational organizations, such as the 
World Bnk, remain engaged in Belarus.  The flow of expert 
into Belarus is one of the few means that Belaruian 
technical level government officials have to expand their 
knowledge and sharpen their skills - skills that will be 
essential when Belarus does eventually undertake democratic 
and market-oriented reforms.  Furthermore, the Chernobyl 
project addresses the very serious problem that Belarus 
faces revitalizing a significant portion of its landmass and 
people - a problem that will continue to bedevil any future, 
democratically elected, government, as well. 
 
KROL