Previous Quarterly Editions
Expropriation Risk: 62 72 74 73 ►Political Violence Risk:59 66 67 67 ►Terrorism Risk:25 25 26 27 ►Exchange Transfer and Trade Sanction Risk: 64 64 64 73 ▲Sovereign Default Risk:57 66 57 66 ▲
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Belarus remains Russia’s closest ally and is largely dependent on trade with and financial support from Russia for economic and political survival. In 2000, the two countries formed the ‘Union State’, which implies progressive rapprochement in several areas with the ultimate, but as yet unrealised, goal of forming a single state. In 2014, alongside Kazakhstan, the two countries also co-founded, the Eurasian Economic Union, which grew out of a single customs area established in 2010.
In 1993, Belarus joined the Collective Security Treaty Organisation, originally created in 1992 by six former Soviet Union member states. The country is currently home to three Russian military facilities and regularly conducts joint military drills with Russia. Belarus’s military role increased significantly with the Russia/Ukraine crisis in February 2022, not least because the invasion also happened from Belarusian territory.
Belarus’s relations with the West have been historically haunted by President Alexander Lukashenko’s rampant authoritarianism. In 2015-16, the U.S. and European Union initiated an opening to Minsk. However, they had to reintroduce sanctions following the rigged presidential election of 2020 and to impose even harsher restrictions post-February 2022.
The influence of friendly countries other than Russia, such as China, is insignificant in Belarus. While most Belarusians, including members of the political opposition, seem to view Russia as an inescapable neighbour whose interests ought to be accommodated one way or another, Belarus’s future political orientation is uncertain.
The downfall of Lukashenko, because of either Russia’s defeat in Ukraine or the Belarusian dictator’s natural death or renewed domestic protests, would almost inevitably challenge Moscow’s monopoly over Belarus’s foreign affairs, although many scenarios are possible.
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Unlike neighbouring Russia, Belarus did not go through a painful privatisations process in the 1990s and has no standalone class of oligarchs. All major enterprises are state-owned and Belarus’s richest people owe their wealth and position to Lukashenko.
In 2020, the authorities stopped short of nationalising Belgazprombank whose chief executive officer, Viktar Babaryka, had earlier announced his intention to challenge Lukashenko for the presidency. In January 2021, the bank’s board of directors appointed new permanent management. Five months later, Babaryka was sentenced to 14 years in prison.
The authorities reserve harsher treatment for small businesses without political backing which had dared to join their voices to the anti-regime protests sparked by the August 2020 presidential vote. Many business owners and qualified workers, especially in the liberally minded information technology (IT) sector, have had to leave Belarus. According to the US state department, one-third of remaining IT workers have further emigrated since the Russia/Ukraine crisis beginning in February 2022.
U.S., U.K. and EU firms’ operations in Belarus remain at risk amid the regime’s anti-Western rhetoric in the context of the Russia/Ukraine crisis. While several Western firms have decided to withdraw from Belarus for its support for Russia, the authorities have so far refrained from any form of retaliation.
Political Violence Risk
For years, Belarus had been seen as an island of stability in the former Soviet Union, even at the price of disparagingly being called Europe’s ‘last dictatorship’, thanks to a combination of patrimonialism, a strong security apparatus, pinpoint reforms, and continuous financial support from Russia.
All that changed in August 2020 when the Belarus electoral commission certified Lukashenko’s victory, despite allegations of electoral rigging. The election sparked unprecedented nationwide protests which shook the Lukashenko regime to its core but have nonetheless failed to bring it down.
Shortly after, the executive initiated a constitutional reform, which was approved by voters in a February 2022 referendum held under close police surveillance. The poll was unsurprisingly decried by the exiled opposition as a political trick because the redistribution of powers hailed by Lukashenko resulted in greater powers for himself and an extended stay in office.
Amid the continued standoff and Belarus’s support for Russia’s war against Ukraine, the risk of further political violence remains high, especially if Russia suffers a decisive defeat on the battlefield or experiences political instability.
The risk of terrorism in Belarus is low. The last time the country suffered a terrorist incident was in April 2011, when a bomb attack on a metro station in central Minsk left 15 people dead and 203 injured. Nevertheless, Belarus is known to be a transit hub for individuals that participate in hostilities abroad, for instance in Syria.
In February 2022, Belarus provided its territory to Russia for the attack on Ukraine from the north, but it did not send troops there. Cases of sabotage of Belarusian military and industrial infrastructure have still been reported, most likely by guerrilla fighters.
Following the Western sanctions that came in response to the May 2021 diversion of a Ryanair flight carrying an opposition activist, Lukashenko announced in July the dismantlement of a terrorist cell allegedly funded by the U.S., Poland, Lithuania, Germany, and Ukraine. Terrorist designations have since been routinely used by the Lukashenko regime to crack down on what is left of domestic opposition and to stoke fears of foreign influences to undermine internal stability.
Starting on February 24, Belarus has been targeted by unprecedented Western sanctions for its support of Russia in its aggression against Ukraine. In particular, the European Union has disconnected four Belarusian banks from the SWIFT messaging system, restricted transactions with the Belarusian central bank and banned the sale of euros to Belarus.
Severe export restrictions follow the first sectoral sanctions imposed by the European Union, United Kingdom, United States, and Canada in mid-2021. They targeted the financial services, sovereign debt, insurance and reinsurance, telecommunications, tobacco, petroleum, and fertiliser markets. Restrictions against strategic petroleum and potash exports will only deepen Belarus’s dependence on Russia.
In March 2022, the Belarusian central bank hiked its benchmark interest rate to 12%, up from 9.25% since July 2012, in response to Western sanctions against both Belarus and Russia. This may not be enough to rein in soaring inflation, estimated to be in the range of 17-19% on an annualised basis by the end of 2022.
Amid the crippling sanctions on Russia and a growing list of restrictions against Belarus itself, the Belarusian authorities failed to make a dollar-denominated coupon payment on the 2027 sovereign Eurobond in June. As a result, Fitch and later S&P have declared the country to be in selective/restricted default. Moody’s has yet to update its non-default rating since March.
Belarus’s foreign currency and gold reserves have declined from over USD8.5 billion in early February to less than USD7.5 billion by September. In August 2022, the Belarusian government said it was in advanced talks to receive a USD1.5 billion loan from Russia, which in April had already extended by more than a year the repayment of an earlier USD1 billion loan.
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