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. Last Updated: 07/27/2016

Economists Say 'Hasty' Deal Will Harm Russia, Belarus

A deal for closer political and economic cooperation between Russia and Belarus could bring problems for both sides, economists said Tuesday.


Alexander Pochinok, head of the tax subcommittee of the State Duma, said implementing the treaty would be prohibitively expensive for Russia, which might have to subsidize its Slav neighbor.


"It is either impossible to implement what the treaty says in 1996 to 1997 or it would lead to grave consequences," he said. "When we consider the 1997 budget we should allocate subsidies for Belarus and effectively include it in the Russian budget."


A Western economist said plans for fixed currency rates meant Belarus, which depends on Russia for fuel, could face big problems if prices changed, unless Russia subsidized its energy.


"A lot of economic prerequisites would have to be met for this to work, and I am not sure Belarus realizes the economic consequences," he said.


The presidents of Russia and Belarus on Tuesday signed a treaty creating a Community of Sovereign Republics, which will coordinate foreign and economic policy and create the conditions for a single currency by the end of 1997.


The community, a fast-track toward integration, will be open to other former Soviet republics.


The two countries, joined by Kazakhstan and Kyrgyzstan, have already agreed to lift customs barriers and border controls, but Mikhail Dmitriyev, program associate for economics with the Carnegie Institute, said this could be expensive for Russia.


He said the deal could increase illegal exports from Russia, depriving Moscow of customs revenues, while the small size of the Belarussian market compared to the Russian one meant Moscow's economic gains would be limited.


"The economic logic is for slow, gradual integration towards a free trade zone or a common market, but that cannot be resolved with this deal. It is an immature and hasty agreement and the economic costs are definitely negative for Russia," he said.


Previous attempts to create a single currency for Russia and Belarus foundered on Moscow's reluctance to pay Minsk's energy bills and Minsk's unwillingness to give up its central bank.


Pochinok said things could be difficult this time as well.


"We can align tax and customs systems or even introduce a single currency, but it is impossible to follow the procedure of German unification. We just do not have money for it," Pochinok said.





"If the two countries are serious about monetary union, they have to ask themselves a lot of questions





Yeltsin, facing a strong communist challenge in June's presidential election, hopes the deal will help him win support from communist and nationalist voters, many of whom blame him for destroying the Soviet Union.


Belarussian leader Alexander Lukashenko wants to make good on a promise to bring his country of 10 million back to a union with their 150 million Russian neighbors.


"Free borders mean there is more scope to reexport Russian commodities without paying customs duties, which bring in 7 or 8 percent of government revenues," he said.