Poland, Belarus & Ukraine Report: March 9, 2006

THE HARD ROAD AWAY FROM PRESIDENTIAL RULE. Two diverging political trends have emerged over the past five years in the Commonwealth of Independent States (CIS). In the first group of countries, comprising the five Central Asian states and Belarus, incumbent presidents already serving their second term have instigated referendums with the aim of extending their rule for one or more additional terms. Other CIS states, including Moldova, Ukraine, and Armenia, have set about curbing presidential powers through constitutional reforms. Proponents of parliamentarism emphasize its greater potential for democratization and emphasize the potentially authoritarian character of presidentialism.

Yet whatever the official justification for these democratic reforms, basically they reflected bitter power struggles among political elites. In all three cases, the bulk of the bargaining was conducted behind the scenes, with little or no effort made to explain the essence of such important constitutional changes to the public. The Armenian opposition launched a vocal campaign urging voters to boycott the November 2005 referendum on constitutional changes, arguing that the amendments did not do enough to curb the president's powers, and they subsequently rejected as rigged official claims of 65 percent turnout, with 93 percent of participants endorsing the proposed changes. President Robert Kocharian's opponents fear that he plans to use the reform to remain at the peak of Armenian politics beyond 2008, when his second presidential term expires, by assuming the post of prime minister. It is speculated that Russian President Vladimir Putin too may favor a transition to parliamentary rule in order to remain in power as the head of the cabinet after his second presidential term ends in 2008.

These constitutional changes determine the official rules of the political game, and, therefore, are vital to mitigating conflicts among ruling elites. To that end, the implementation of the new rules counts more than the debates surrounding their design. With a parliamentary republic in place since March 2001, Moldova offers an indication of how things might develop in Armenia and Ukraine.

The Moldovan parliament approved a reform bill by an overwhelming majority (98 votes to 2) in July 2000. The reform aimed at dampening the political aspirations of then President Petru Lucinschi to introduce a super-presidentialist system along the model established in Russia by Boris Yeltsin. According to Lucinschi, such magnified presidential powers were a necessary precondition for successfully carrying out enduring economic reforms.

By contrast, his most vocal opponents, including Party of Moldovan Communists (PCM) leader Vladimir Voronin, insisted parliamentary rule would distinguish Moldova from the authoritarian regimes of Central Asian and set it on a solid path toward European-style democracy. In addition, the proposed reform abolished direct presidential elections, thus significantly reducing the legitimacy of future heads of state.

But following a landslide victory in the February 2001 parliamentary elections, it was PCM chief Voronin who obtained the leverage to interpret and implement the constitutional reform. Voronin could have chosen either of the two most influential positions under the parliamentary republic -- parliamentary speaker or prime minister. Instead, he preferred to serve as president, albeit with a much more powerful mandate than his constitutionally reserved ceremonial role.

Given the popular prestige of the presidency and a lingering Soviet legacy for strong executives, Voronin's choice was not unexpected. In addition, he managed to retain his position as PCM chairman by skillfully exploiting a gap in the reform design, namely the absence of a clear constitutional ban on the president simultaneously holding two positions. A proposal floated by PCM officials in the summer of 2001 to have Voronin take over the premiership on top of his presidential function never saw the light of the day. In fact, the dual executive system was established to use the cabinet as a scapegoat for potential policy failures.

The issue of a politicized presidency rose to the top of the country's political agenda in the wake of the parliamentary elections of March 6, 2005, when in exchange for voting in favor of Voronin's reelection as president, several political parties agreed one month later to depoliticize the position of the head of state. Also, the PCM pledged to abandon its communist orthodoxy and join the mainstream of modern European leftist parties.

With a communist-majority government and a multiparty presidential coalition, Moldova's parliamentary republic continues to function as it did during the communists' first term in power (2001-05). And almost a year after the assurances given to the opposition, Voronin is still PCM chairman. Nor are there any signs that the party's name will be changed in the near future. Voronin intends to control both the process of modernizing the PCM and the timing of his resignation as party chairman in order not to jeopardize the Communists' success at the ballot box in the local and parliamentary elections due in 2007 and 2009, respectively.

But while reform of the PCM might well be an internal party affair, the depolitization of the presidency is not. It deals with the constitutional rules of the political game and affects both the government and opposition players alike. In November 2005, the leaders of the Democratic Party (PD) and Social Liberal Party (PSL), Dumitru Diakov and Oleg Serebrian, who backed Voronin's reelection, publicly accused the president of reneging on his promise to step down as party chief. The PSL leader went even further, calling for the president's impeachment.

Although the PSL lacks the institutional means to carry out this initiative (the votes of two-thirds out of the country's 101 lawmakers are required to impeach the president, while there are currently only 11 PSL and PD deputies), it is an important symbolic move from the so-called "constructivist opposition." These developments show that depoliticizing the presidency could become the most explosive political issue of the communists' second term in power.

Of course, only a constitutional amendment could bridge this legal gap. Even if such a proposal is not currently on the table, Voronin's official relinquishing of his chairmanship post might strengthen, rather than weaken, the PCM. The Moldovan president could follow the example of his Romanian counterpart, Traian Basescu. Although Basescu gave up the leadership of the Democratic Party (PD) after winning a presidential election in December 2004, he remains an influential behind-the-scenes actor in PD affairs. In addition, an unofficial role for Voronin would conform perfectly to the Byzantine character of present-day Moldovan politics.

In addition, by abandoning the post of PCM chairman, Voronin would deprive critics from within the sultanistic regime of Transdniester separatist leader Igor Smirnov of any pretext to accuse him of authoritarianism. A consolidated democracy is not only a precondition for the reunification of the country with its rebellious Transdniester region, but also for Moldova's efforts to integrate into the European Union.

Although a similar reform has been in effect for two months in Ukraine, its effects remain inconclusive. The current standoff between the Verkhovna Rada and President Viktor Yushchenko will subside after next month's parliamentary elections only if the president manages to reassemble a strong Orange coalition capable of winning a majority. Despite the procedural irregularities associated with deciding the reform's design before the critical third round of voting in December 2004, Ukrainian democracy would be better served if it is implemented without significant revision. That would make the Ukrainian political process more transparent and help make the democratic aspirations of millions of Ukrainians who unequivocally supported Yushchenko during the Orange Revolution a reality.

It is clear from the Moldovan experience that the transition to parliamentary rule is a very complicated political process. Because the rules of the political game remain fluid, politicians tailor them to promote partisan agendas, meaning that democratic advancement is often sacrificed for political stability. However, curtailing the power of a strong executive is a decisive step in the right direction. Had this process been launched after the first wave of reforms in the mid-1990s, some CIS countries, including Moldova, would be further down the path of democratic consolidation today. (Ilian Cashu)

(Ilian Cashu is a doctoral candidate in political science at Syracuse University.)

THE PECULIARITIES OF POLITICAL DISCOURSE IN BELARUS. Belarusian President Alyaksandr Lukashenka made a nearly four-hour-long televised speech to some 2,500 handpicked loyalists at a gathering called the All-Belarusian People's Assembly in Minsk on March 2. The speech was very distinctive of Lukashenka's oratorical skills and fully reflected the authoritarian character of official political discourse in Belarus, where only one individual -- the incumbent president -- is allowed to know and publicize answers to all imaginable questions from all walks of life.

Lukashenka's speechmaking is based to a considerable extent on the Soviet-era tradition of Communist Party congresses, when first secretaries delivered lengthy reports on virtually all aspects of life over which the party extended its control. Lukashenka's presidential addresses are similarly protracted, all-embracing, overloaded with statistical data, and indigestible to listeners after the first 30 minutes -- as were those by his antecedents in the Soviet Communist Party.

Here is a typical example of this style: "With satisfaction, I report to this high assembly," Lukashenka said at the very beginning of his speech. "The country has achieved major indicators of the Program of Socioeconomic Development of the Republic in the years 2001-2005 of the 21st century. The development course we worked out has proven correct. The confirmation of this can be found in high rates of economic development demonstrated by our economy in the past 10 years. Compare: our average annual economic growth in the past five years was 7.5 percent, versus 3.5 percent in the world as a whole."

However, there is one feature that makes Lukashenka's lengthy orations lively for his listeners even after two or three hours -- the Belarusian president often strays from the text prepared by his speechwriters and inserts impromptu passages, sometimes pages-long and usually emotionally loaded. Take, for example, the following phrase in which the Belarusian president, beginning the third hour of his address with criticism of the United States and Western democracies in general, expressed in passing his displeasure with the "colored revolutions" in the CIS.

"There has been a sequence of various revolutions of various colors in the former republics of the Soviet Union, including with support from those democratic -- I would rather say -- dung-ocratic states," Lukashenka said.

The play on the sound similarity between the word "demokaraticheskii" (democratic) and the neologism "dermokraticheskii" (dung-ocratic) is hardly an ingenious oratorical device, but his listeners usually are not lovers of a lofty or subtle literary style. The people listening to the president on March 2 woke up at this point, preparing for more. And Lukashenka did not fail to meet their expectations. He immediately delivered a 30-minute impromptu diatribe, in which he branded Western democracies as being "covered in blood."

But Lukashenka is not consistent in his vision of the West. In another passage -- some 60 minutes after his "dung-ocratic" comparison -- he portrayed the West as "the developed countries toward which we are getting orientated."

Finding a generally accepted socioeconomic measure under which Belarus could compare favorably with Western states is still an unachievable task for Lukashenka, so he occasionally proposes criterion that are not immediately verifiable or perhaps unknown in the West. This time the Belarusian president claimed that Belarus is the only country in the world that created a system of "social standards" for the population and asserted that his government would observe no fewer than 44 such standards.

"Who else, which other country has taken such responsibility upon itself?" Lukashenka asked rhetorically. "Name it! There are no such countries! And we, I do not doubt it, will make this system work!"

Apart from publicizing plans for the future, Lukashenka also likes to touch upon a broad variety of topics either serving as illustrations of his economic theses or emphasizing his self-imposed stature as considerate "father of the nation."

During the All-Belarusian People's Assembly on March 2, the Belarusian president in particular gave Belarusian sportsmen advice on how to fight for Olympic medals, briefed publicly his ministers on how to sell Belarusian fertilizers abroad with profit, and instructed Belarusian men and women in general on how to keep a good physical and sexual form and overcome a demographic crisis in the country.

"The average life expectancy of our men is 10 years lower than that in developed countries," Lukashenka said. "Soon [our] women will bear children of Western men, my dear ones.... There are several reasons for this [situation], but two of them are the most important. First, this is nonobservance of the healthy style of life: lack of physical exertion and overeating, particularly late at night. This is the main thing. And then we groan and moan and cannot breathe, weigh 130-150 kilograms and cannot walk, while women applaud Western men."

Lukashenka is also known for using highly offensive language with regard to his opponents, whether specific people or political organizations. This time was no different. He referred to his political opponents in Belarus as "otmorozki" (which can be translated as "bastards" or "thugs") and "soplivye" ("the snotty ones"). And he publicly advised the defense minister to draft opposition politicians and their children into the army, in order to "clean out [their] brains."

Taken as a whole, Lukashenka's address on March 2 was rather typical for him, in both content and style. But it was evidently more emotive than on other occasions, which can be explained by his stress connected with the upcoming presidential election on March 19 and the political stake involved in it. This, incidentally, was admitted by Lukashenka himself.

"This election campaign costs our armed forces, our security forces a lot of nerves and health," he noted at the end of his speech. "The tension is so high, you cannot even imagine." (Jan Maksymiuk)

THE BELARUSIAN ECONOMIC MODEL: A 21ST CENTURY SOCIALISM? The "Belarusian economic model" seems to defy economic theory. An economy entirely consisting of the old, unreformed Soviet industrial base, manages to churn out high single digit growth in gross domestic product (GDP), provides guaranteed monthly income and full, if not always full-time, employment, even as it remains in a state of complete isolation from the modern world. It is this model that causes Belarusians to feel fearful of changes that may unleash a chaos, criminality, and suffering associated with reforms in Russia and Ukraine -- the reference countries for the average Belarusian.

The model is based on three foundations: a favorable valuation of Russian energy, efficient internal controls, and supply-side problems that beset the rest of the former USSR, where most Belarusian output is exported.

Russia charges Belarus $47 per 1,000 cubic meters of gas and $27 per barrel of oil compared to world prices of $230 and $60, respectively. For a country consuming about 20 billion cubic meters of gas per year and 250,000 barrels of oil per day this amounts to direct fiscal support of $6.6 billion annually. Besides consuming oil for its own needs, Belarus is also reselling it in the form of refined products processed at the two refineries whose capacity far exceeds the country's internal needs. Statistics confirm that the country imports about 100,000 barrels a day more than it consumes.

The overall usage of oil began to increase from 2002, the time of the first jump in oil prices, and has continued upward since. According to a study by Belarusian economic expert Leanid Zaika, in 2005 the share of Belarusian exports to Russia and the Commonwealth of Independent States was only 45 percent, compared to the stable 80 percent in the preceding decade. The main user of Belarusian exports (36 percent) is now Europe, by way of buying refined petroleum. Purchased at $27 and sold at $60, this petroleum yields 100 percent profits, or $1.3 billion a year of not even a subsidy, but pure disposable income to the state.

The total effect of the energy price discount amounts to over $7 billion a year, or 30 percent of the nation's GDP. This is a staggering proportion -- even in the United Arab Emirates this share is under 10 percent -- but is it really a subsidy? President Vladimir Putin of Russia thinks so. Marshall Goldman, a Harvard economist, quotes him as affirming the use of energy subsidies for political influence in the near abroad. President Alyaksandr Lukashenka of Belarus disagrees. "The notion that I am supported by the Kremlin is absolutely absurd," he stated earlier this year. According to him, the discount on the Russian fuel is really a barter payment for transit through Belarus, for which Russia nominally pays very little.

Simple arithmetic can check this hypothesis: the $183 per 1,000 cubic meters that Russia loses by selling gas to Belarus equals a transit charge of $18 per 1,000 cubic meters per 100 kilometers. The European average is $2.5. So, by bartering $183 away from the price they could charge, the Russians effectively pay Lukashenka seven times the European average cost of gas transportation. Figures for oil are not readily available, but it is reasonable to expect a comparable valuation.

Whether this is a fair deal is in the eyes of the beholder, but it is the valuation on which the entire Belarusian economy is based. It supports the second main feature of the Belarusian model -- its relatively effective management. Lukashenka, who portrays himself as an anticapitalist crusader, is in fact the country's chief businessman. He presides over a company that has reached the scale of a nation. Almost all Belarusians work for the state enterprise, run by the "vertical," a hierarchy of administrators appointed by the president. This state-owned corporation, Belarus Inc., is a multiline conglomerate with revenues of about $25 billion that would place it in the top segment of the Fortune 500 list. It employs over 4 million workers and controls the services, health-care, and education sectors.

While controls disintegrated in Russia and Ukraine, in Belarus they were preserved and even improved by introduction of the vertical and appointment of the personally loyal corps. As Zaika points out, for some time this created a competitive advantage -- while the dilapidated Russian competitors went through catastrophic reforms, their output fell, creating a gap in supply of low-quality, cheap goods, which Belarusian enterprises were able to fill. Exports to Russia were stable throughout most of the Lukashenka reign, helped in part by an arrangement that some payment for Russian energy comes in the form of Belarusian products.

Two significant risks threaten this model. First, is the risk of a repricing of the energy valuation if Russia gains a controlling stake in Beltranshaz, Belarus's gas-transport company. Deprived of its transit monopoly, Belarus would lose a key bargaining advantage and could be forced to pay higher rates. In practice, however, the current valuation is likely to continue, as political considerations will likely prevail as long as Belarusian policies remain in the Russian wake. Even so, Lukashenka has made statements implying that he fully understands his dependency on Russian energy and is seeking solutions with nuclear reactors and more frugal energy use.

A greater risk comes from within the system. In the 12 years of Lukashenka rule there has been no investment to modernize the 1950s asset base that is now 80 percent worn out. The oil windfall of recent years has been spent, not invested in the future. In the meantime, Russian competitors are beginning to gather fruits of the painful restructuring, and foreign competitors produce in low-cost locales. This is beginning to show in the numbers -- Zaika's study cites 2005 decreases between 10 percent and 70 percent in key Belarusian exports to Russia, and inventories of unsold products are growing. As the industrial output declines, the Belarusian GDP relies increasingly on refining Russian oil for speculation.

This opens the future for several scenarios. One could be called "Singaporization." Lee Kwan Yu ruled Singapore for 30 years as a dictator but he also opened the country up for trade, welcomed foreign investors, guaranteed their rights, and achieved the level of living that surpassed that of Britain by using a mix of market economy and state planning. The Belarusian regime is well positioned to do the same, more likely seeking partners in the East than in the West, but its insecurity about foreign investors and bad reputation may impede this scenario.

Another scenario is a complete change of power. Besides being unlikely, it also poses the danger of energy repricing, as in Ukraine. The disintegration of internal controls that scenario would provoke could mean a delayed period of chaos and potential return to populism.

Finally, conserving the current arrangement is also possible, as long as Russia does not challenge the status quo in exchange for political subservience. This would not remove the problem of the worn-out assets and obsolete technologies, but it seems to be the bet the Belarusian president is making at the moment. (Siarhej Karol)

Siarhej Karol, a chartered financial analyst, is a financial manager at American International Group (AIG), a global financial services company.