Presidents Alexander Lukashenko and Vladimir Putin met and agreed on all the 28 road maps for further economic integration, though no specific details were released. Among other measures, the integration involves harmonizing monetary policy, aligning customs and tax systems, and integrating payment systems. Most notably, Lukashenko received a new energy agreement in which Belarus will receive cheaper gas, which is critical to the nation financially. The agreements are part of the implementation of a 1999 “union state” agreement that foresees the creation of a single parliament, a single currency, and common state symbols. Putin noted the importance of economic integration before any political integration could occur. The meeting occurred as the two nations conducted their joint military exercise, Zapad-2021, near the NATO and EU borders.
Our View
Following Western sanctions this summer on Belarus, it was inevitable that Lukashenko would be forced to turn irrevocably and decisively to Moscow for support that, in turn, demanded considerable concessions from Minsk. This economic integration assuredly presages future political and military integration, with Lukashenko now even much more amenable to hosting Russian military forces in the country, a policy he has resisted for the past decade. Ultimately, Lukashenko achieved a short-term win, allowing his regime to continue for the time being, while the Kremlin wins politically over the longer term, exacting more political concessions and eventually Lukashenko’s departure from power. However, Russia greatly fears incurring further Western sanctions as a result of either its own actions to influence Belarus or being held accountable for Lukashenko’s unpredictable behavior. With the political stalemate prolonged and seemingly intractable, Moscow may now be more willing to consider scenarios for Lukashenko’s removal that would be agreeable to the West and the Belarusian domestic population, i.e., a so-called Armenia model in which regime change can occur through a democratic process, though with guarantees that Belarus remains within the Russian sphere of influence.
Business Implications
Firms should strengthen relations with local partners amid the fluid economic, political, and business environments. Despite the relatively solid economic recovery seen so far this year, currency volatility, depressed investment, and greater demand hesitance are expected in the coming months, with the timing and severity in question in light of the uncertain political path ahead.
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