VZCZCXRO6464
RR RUEHIK
DE RUEHSK #0394/01 3382004
ZNR UUUUU ZZH
R 042004Z DEC 09 ZDK
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC 0575
INFO RUEHZG/NATO EU COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUEHVEN/USMISSION USOSCE 0017
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHSK/AMEMBASSY MINSK 0584

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SUBJECT: BELARUS BI-WEEKLY POL/ECON REPORT - DECEMBER 4, 2009 
 
MINSK 00000394  001.6 OF 005 
 
 
¶1.  The following are brief items of interest compiled by 
Embassy Minsk. 
 
TABLE OF CONTENTS 
 
Civil Society 
------------- 
 
- Council of Europe Official Discusses Death Penalty with GOB, A 
CoE Condition (para. 2) 
- Santa Claus May Be Sent to Prison in Belarus (para. 3) 
- Despite Differences, Opposition Parties Seek to Cooperate in 
Run-Up to Local Elections (para. 4) 
 
Belarus' Foreign Relations 
-------------------------- 
 
- Lukashenka: Defensive, But Sees Signs That U.S.-Belarus 
Relations Could Improve (para. 5) 
- Lukashenka and Berlusconi Optimistic About Bilateral Economic 
Relations, But the EU Has a Different Opinion (para. 6) 
 
Elections 
--------- 
 
- Bill Amending Electoral Code Passes First Reading, But Has Not 
Been Open to Public Scrutiny (para. 7) 
 
Economy 
------- 
 
- Russia, Belarus and Kazakhstan Signed Customs Agreements But 
Barrier-Free Trade is Long Way off (para. 8) 
- IMF's Staff-Level Agreement on Third Review Comes Amid 
Unresolved Concerns (para. 9) 
- GOB Optimistic About Economy Prospects in 2010, but at Odds 
with IMF's Projections (para. 10) 
- WB approves $200-million Development Policy Loan for Belarus, 
but the EU's $300M is Now the Focus (para. 11) 
- Seven Businesses Scheduled for Privatization, but Bill is Not 
Yet Ready (para. 12) 
- Medvedev:  2010 Natural Gas Price for Belarus to Comply With 
Current Contract (para. 13) 
- Access to Government-Subsidized Housing Becomes More 
Difficult, but the List is Long (para. 14) 
- Tax Ministry: Belarusians Pay Flat-Rate Taxes, but Revenues 
Stay the Same (para. 15) 
 
Quote of the Week (para. 16) 
--------------------------- 
 
------------- 
Civil Society 
------------- 
 
¶2. Council of Europe Official Discusses Death Penalty with GOB, 
A CoE Condition 
 
According to press reports, Jean-Louis Laurens, the Council of 
Europe's Director General for democracy and political affairs 
visited Minsk on December 1 for talks aimed at promoting 
agreement on the abolition, or moratorium, of the death penalty 
in Belarus.  To regain its special observer status in the CoE, 
the GOB will have to demonstrate political will on this issue, 
he said.  Laurens added that a decision could be taken directly 
by the GOB to abolish capital punishment without requiring a 
national referendum.  Lukashenka has pledged that an 
"information campaign" with parliamentary hearings and media 
coverage would be held in Belarus to discuss the use of the 
death penalty in the country. Nevertheless, it will be the 
people's opinion that will play the crucial role in the making 
of a decision as to whether the death penalty should be 
abolished.  In 1996, a majority of the Belarusians voted for the 
preservation of the capital punishment in the 1996 national 
referendum. 
 
¶3. Santa Claus May Be Sent to Prison in Belarus 
 
On November 13, the Prosecutor's General office issued a warning 
to a group of 15 human rights advocates and civil society 
leaders could face criminally liable under Article 193 for their 
participation in an unregistered organization. The group, 
dressed as Santa Clauses, handed the Prosecutor's office a 
 
MINSK 00000394  002.6 OF 005 
 
 
statement, saying that they participate "in an unregistered 
association of Santa Clauses" and organize "New Year 
celebrations," distribute "gifts, including among minors," and 
extend their wishes of "happy New Year at meetings and through 
media."  The advocates have been urging the GOB to abolish 
Article 193 of Criminal Code which criminalizes any public 
activity on behalf of an unregistered organization, NGO, or 
association. 
 
¶4. Despite Differences, Opposition Parties Seek to Cooperate in 
Run-Up to Local Elections 
 
The BIB (Belarusian Pro-Independence Bloc) has proposed that 
United Democratic Forces join them in drawing up a common list 
of nominees for the April 2010 local elections.  United Civic 
Party Chair Anatol Lyabedzka, also Co-Chair for UDF, said his 
party is willing to cooperate with BIB, but "it was technically 
impossible to hold talks with BIB" since that bloc did not yet 
speak with one voice.  Lyabedzka underscored on November 25 the 
importance of opposition forces cooperating to overcome a 
shortage of resources and manpower needed to establish a 
presence in even a handful of electoral districts in the 
country.  Mostly recently the European Coalition has publicly 
stated it too will look to cooperate with the other blocs.  The 
three opposition coalitions today, December 4, postponed for the 
third time a meeting between their leaders.  A new date has not 
been set.  BIB has called on the coalitions to form a permanent 
consultative body, and UDF has appealed to the OSCE to send 
observers to monitor the local elections. 
 
-------------------------- 
Belarus' Foreign Relations 
-------------------------- 
 
¶5. Lukashenka: Defensive, But Sees Signs That U.S.-Belarus 
Relations Could Improve 
 
In an interview to Italy's La Stampa newspaper on November 29 
Lukashenko stated characteristically that a dictatorship in 
Belarus is impossible, just as it could not occur in Italy or 
other European countries today.  By contrast, he said a 
dictatorship could be established in larger states, including 
the US, China or Russia, reasoning that larger countries are 
more immune from outside pressures, "even if the whole world 
were to crack down on them."  Lukashenko went on to express 
confidence that relations between the United States and Belarus 
would significantly improve in the future.  While the new 
administration in Washington has been in place for a relatively 
short time, he continued, "we do not see any tension building up 
in our relations.  It's a good sign for us." 
 
¶6. Lukashenka and Berlusconi Optimistic About Bilateral Economic 
Relations, But the EU Has a Different Opinion 
 
Italian Prime Minister Silvio Berlusconi met with GOB leaders in 
Minsk on November 30 during a one-day working visit.  He met 
with Lukashenka and took part in delegation-level talks, which 
resulted in the signing of several technical agreements, 
including an intergovernmental agreement on economic 
cooperation.  The two sides also signed a memorandum of mutual 
understanding between the Belarusian government and Italy's 
industrial group Finmeccanica on cooperation in the fields of 
transportation, energy, space, security and security systems, 
and a protocol of exchange of ratification instruments for an 
agreement on the avoidance of double taxation for income and 
capital taxes and the prevention of tax evasion.  In an 
interview with Italy's daily La Stampa last week Lukashenka 
claimed that "major [Italian] businesses are now ready to invest 
in the Belarusian economy" and promised that the Belarusian 
government would provide firm investment safety guarantees. 
During his talks with Berlusconi Lukashenka reportedly announced 
that the meeting "will give a green light to the implementation 
of joint projects".  Berlusconi responded by promising to 
further promote bilateral relations and committed himself to 
bring to Belarus a group of Italian business leaders.  He 
pointed to "huge opportunities" in the proposed 
Russia-Belarus-Kazakhstan Customs Union.  "This will be an 
enlarged market where we can supply products from our joint 
ventures," noted Berlusconi.   When asked to comment on Silvio 
Berlusconi's recent visit to Minsk, a spokesperson for the EU 
high representative for foreign affairs and security policy said 
that the EU has not changed its stance on Belarus. The Italian 
prime minister became the first EU leader to visit Belarus in 15 
 
MINSK 00000394  003.6 OF 005 
 
 
years. While meeting with Alyaksandr Lukashenka in Minsk on 
November 30, Mr. Berlusconi said, "Your people love you and this 
is evidenced by the results of the election," a remark that drew 
criticism from Italian opposition politicians. 
 
--------- 
Elections 
--------- 
 
¶7. Bill Amending Electoral Code Passes First Reading, But Has 
Not Been Open to Public Scrutiny 
 
According to media reports November 30, Chair of the Central 
Election Commission (CEC) Lidziya Yarmoshyna, dismissed as "a 
provocation" opposition calls for international observation of 
the country's 2010 local elections.  She said the CEC is not 
planning to invite observers to monitor the local elections, 
pointing out that OSCE's Office for Democratic Institutions and 
Human Rights (ODIHR) representatives could only come at the 
invitation of the CEC.  However, she recognized that Belarus' 
relations with the West could be influenced by how the elections 
are carried out in Belarus. She said the CEC has taken into 
consideration EU and OCSE proposals on election code reform to 
the maximum extent possible, and claimed the GOB had even gone 
beyond the recommendations in some cases.  On the same day, the 
bill amending election regulations passed its first reading in 
the lower chamber of parliament. The provision stating that 
observers will be allowed to observe ballot counts from a 
distance that would enable them to clearly see the process was 
removed from the final version, according to Yarmoshyna. The 
amended bill has not been open to public scrutiny and debate, 
and despite an undertaking with the OSCE last February to 
prevent the amended bill for review prior to its adoption, the 
GOB has not yet presented a copy of the bill to ODIHR. 
 
------- 
Economy 
------- 
 
¶8. Russia, Belarus and Kazakhstan Signed Customs Agreements But 
Barrier-Free Trade is Long Way off 
 
Following the EurAsEC summit in Minsk on November 27, the 
Russian, Kazakh and Belarusian presidents signed agreements on 
the introduction of a Single Customs Tariff starting January 1, 
2010 and a Single Customs Code starting July 1, 2010. However, 
the leaders did not agree on the common customs area, which the 
Belarus side would like to see come into effect as early as July 
1 and which, it believes, is necessary for the creation of a 
fully-fledged Customs Union.  The three presidents will 
reportedly readdress the issue during their meeting in 
Kazakhstan on December 18.  Prime-TASS news agency (Nov 30), 
citing an anonymous source close to negotiations in Minsk, 
reported that Russia could agree to a single tariff for the 
three countries but does not want a common customs area to 
threaten its domestic producers.  During their December 18 
meeting, the presidents are expected to discuss the 
establishment of a common economic zone that, in addition to 
regular customs union benefits, removes all technical, sanitary, 
and other non-tariff barriers.  Belarus supports progress on a 
common economic zone, hoping to gain improved access to Russian 
and Kazakh markets as well as elimination of export tariffs on 
Belarus-bound Russian crude oil.  Belarus also wants 
Belarus-bound natural gas to be set at Russia's domestic pricing 
levels.  According to Russian First Deputy PM Igor Shuvalov, the 
issue of oil export duties will be settled in the first half of 
¶2010.  Russian President Medvedev told Belarusian journalists on 
November 22 that in 2010 Russia will charge natural gas prices 
to Belarus in accordance with existing contracts.  Without 
elaborating, Lukashenka claimed (Dec 1) that Belarus' views on 
all issues relating to the formation of a customs union have 
been taken into consideration by the parties involved. 
Interestingly, on December 2, Russian Energy Minister Sergei 
Shmatko suggested preserving preferential oil and oil product 
supplies for Belarus in exchange for a stake in the Belarusian 
oil infrastructure.  Russia, Belarus and Kazakhstan, with a 
population of 180 million people, account for approximately 83 
percent of the economic potential of the former USSR. 
 
¶9. IMF's Staff-Level Agreement on Third Review Comes Amid 
Unresolved Concerns 
 
According to media reports, an IMF mission visited Minsk 
 
MINSK 00000394  004.6 OF 005 
 
 
November 10-19 and reached agreement with the Belarusian 
authorities, subject to approval by the IMF Executive Board, on 
completion of the third review of the SBA with Belarus.  The 
third review will be considered by the IMF Executive Board in 
late December.  Upon completion of the review, approximately 
$700 million would become available for disbursement.  In its 
November 20 press release the IMF mission noted that 
"performance under the economic program supported by the SBA has 
been good.  All end-September performance criteria and 
structural benchmarks were met.  The agreement reached on the 
macroeconomic framework for 2010 will help achieve program 
objectives."  The National Bank Chairman Pyotr Prokopovich 
registered confidence that the IMF will issue another tranche 
and relayed those assurances directly to Lukashenka after the 
mission departed.  Serious concerns remain.  Belarus' two 
largest banks, Belarusbank and Belagroprombank, accounting for 
more than 60% of the country's banking sector, have a liquidity 
gap of approximately $6.9 billion. The NBB is urging the GOB to 
recapitalize these state-owned banks, and although that step is 
restricted under the SBA agreement, the NBB hopes to 
successfully negotiate a recapitalization.   Another concern is 
the extensive system of state subsidized housing loans for the 
needy.  Deputy Prime Minister Viktor Burya admitted on November 
25 that the system places stress on the GOB budget as 
expenditures on servicing concessional home loans will soon 
equal the entire volume of these loans.  Deputy PM Andrei 
Kabiakou posited on November 13 that the GOB has not yet made a 
decision whether they will apply for a new IMF Stand-By 
Arrangement (SBA) program after the current one is completed on 
April 11, 2010. 
 
¶10. GOB Optimistic About Economy Prospects in 2010, but at Odds 
with IMF's Projections 
 
On November 30, the GOB and the National Bank of Belarus (NBB) 
submitted to the Presidential administration the draft budget 
and a tentative plan for the country's social and economic 
development in 2010.  According to official projections, 
Belarusian GDP is expected to grow 11-13 percent, industrial 
growth numbers are scheduled to reach 10-12 percent; inflation 
and capital investment are projected at 8-10 percent and 23-25 
percent respectively.  Deputy Prime Minister Andrei Kobyakov 
referred to these figures as "a mobilizing forecast", while the 
NBB Deputy Chairman Nikolai Luzgin called them the basis for the 
country's monetary policy in 2010.  These lofty estimates differ 
sharply from the IMF's projection of 3-4% GDP for 2010. 
 
¶11. WB approves $200-million Development Policy Loan for 
Belarus, but the EU's $300M is Now the Focus 
 
The World Bank's (WB) Board of Executive Directors on December 1 
approved a $200-million Development Policy Loan (DPL) for 
Belarus.  It is intended to support the GOB's economic program 
aimed at addressing the social impact of the economic crisis and 
advancing structural reforms to help enable a sustained 
recovery.  The $200 million DPL along with the EU $300 million 
MFA will close half of Belarus' $1 billion 2009 financing gap. 
However, with the adoption of the Lisbon Treaty has chance the 
mechanism for releasing the EU $300M, namely providing for the 
first time a decision making role for the European Parliament. 
This has injected some uncertainty to the issue.  At minimum, EU 
sources already acknowledge that the it is unlikely that the 
funds will be released this year. 
 
¶12. Seven Businesses Scheduled for Privatization, but Bill is 
Not Yet Ready 
 
According to November 25 press reports, the Belarusian State 
Property Committee has drawn up the list of seven open 
joint-stock companies in which government stakes will be sold in 
order to meet GOB's commitments to the WB and IMF.  Target date 
for privatization is February 2010.  However, the new 
privatization bill was reportedly sent back to the GOB for 
revision. The bill was originally expected to be ready for 
parliamentary hearings by September 30.  Speaking about 
privatization on November 30, Lukashenka explained that state 
companies would be sold to "those who give more, offer a good 
investment project and agree to keep workers' jobs".  He said 
the GOB will take company performance into account in 
privatization decisions.  Lukashenka, who reiterated that 
Belarus, "cannot allow what has happened in many post-socialist 
countries where companies were sold for nothing, then closed and 
left thousands of people jobless," will continue to play a 
 
MINSK 00000394  005.6 OF 005 
 
 
direct role in privatization decisions. 
 
¶13. Medvedev:  2010 Natural Gas Price for Belarus to Comply With 
Current Contract 
 
Russian President Medvedev told a group of visiting Belarusian 
reporters on November 23 that the price of Russian natural gas 
in 2010 for Belarus will be roughly 30 to 40 percent lower than 
for "comparable countries."  The price will be set in accordance 
with the existing contract between Russia's Gazprom and Belarus' 
gas supply company Beltranshaz, which sees Belarus paying 
European prices by 2011.  He also mentioned that Russia may 
consider the possibility of building a second leg of the 
Yamal-Europe gas pipeline via Belarus if contracts for 
deliveries along this route are concluded.  According to 
information posted by the Russian Embassy in Minsk on November 
20, Belarus has thus far been paying an average annual natural 
gas price of U.S. $150 per 1,000 cubic meters. 
 
¶14. Access to Government-Subsidized Housing Becomes More 
Difficult, but the List is Long 
 
In an effort to reduce the waiting list of Belarusians seeking 
to purchase subsidized housing, Lukashenka issued an order on 
November 16 to amend regulations governing state assistance to 
those "in need of better housing conditions." The new edict 
declares that families who own an apartment with a size of more 
than 15 square meters per member may not be put on the waiting 
list for better housing, and families who have already received 
state assistance from the government are no longer eligible for 
additional assistance.  Over 700,000 names are currently on the 
waiting list for subsidized housing, out of a population just 
short of 10 million. 
 
¶15. Tax Ministry: Belarusians Pay Flat-Rate Taxes, but Revenues 
Stay the Same 
 
Belarus Deputy Tax Minister Larisa Kondratova told the press on 
November 24 Belarusians began paying taxes more openly in 2009 
after the introduction on January 1 of a flat-rate income tax of 
12 percent.  "Income tax revenues in the budget 
[however]remained the same after the introduction of the 12 
percent uniform income tax," added the official. 
 
 
----------------- 
Quote of the Week 
----------------- 
 
¶16. Speaking with the visiting delegation of Russia's 
southeastern Privolzhskiy Federal District on December 3 
Lukashenka said: 
 
"We want our older brother, Russia, treat us like a younger 
brother.  Sometimes scold us but never leave, never offend, 
never bow us down and reproach that we are a weight on Russia's 
feet." Lukashenka went on saying that "Belarus never turned 
neither left, nor right, nor towards America, nor turned its 
back on Russia.  We create absolutely no problems to Russia, or 
to the Baltic states, or to Poland, or to Ukraine, or to the EU, 
or to America."SCANLAN