The Financial Times: ‘Last dictator' seeks to woo the west

British Financial Times believes that complicated dance Lukashenko has led to keep power is becoming ever more difficult.

Belarus bears a more than passing resemblance to the former Soviet Union. Lenin broods from his plinth in the centre of town, the KGB is still called the KGB, the economy remains in state hands and the state is under the authoritarian control of a single leader.

Despite the presence of McDonalds, Mercedes cars, and the internet, this is a country in which Soviet leaders could have felt at home. But change is on the way. The dictatorial regime that president Alexander Lukashenko has built with generous Russian backing is now coming under pressure from Moscow - and Minsk is responding with tentative overtures to the west.

The 54-year-old Mr Lukashenko will not relax his ruthless grip on power. He jokes about being "the last dictator" in Europe. But, convinced of his own popularity, he may be ready to temper his repressive rule, and to liberalise the economy, including increasing access for foreign investors, in return for US and European Union support.

A prolonged surge in economic growth, powered by Russia's energy boom, has highlighted the state-led economy's limitations. Exports to Russia are mostly sturdy machinery such as tractors that have few buyers elsewhere. There are growing demands for reform and privatisation from enterprises seeking western capital and state officials hoping to profit from sell-offs.

However, with the global economic crisis raging, a resurgent Russia determined to reassert itself in the region and the west divided over how to deal with Moscow, it is unclear how the diplomatic game that Mr Lukashenko has initiated will end.

Russia's intervention in Georgia has shown the Kremlin is ready to resort to arms. While nobody expects a military assault on Belarus, the range of possible Russian actions has expanded. Russian nationalist politicians want Mr Lukashenko to fulfil old promises to merge Belarus with Russia - promises he no longer wants to keep.

So tricky is Belarus's position that even some anti-Lukashenko opposition leaders say they must stick with him, perhaps until the next presidential elections in 2011. Alexander Milinkevich, head of the Freedom Movement, an opposition alliance, says: "We are flying with Lukashenko in one airplane, and we should take care not to crash the plane just to change the pilot."

It is a far cry from Mr Lukashenko's first decade in office. After taking power in 1994, the former farm manager secured from Russia cheap oil and gas which enabled him to build a welfare state that cushioned his people from much of the turmoil that enveloped the region. The deal worked when Russia was weak, but has become increasingly strained after Russia's revival under Vladimir Putin, the former president and now prime minister.

With Russian subsidies reaching an estimated 30 per cent of Belarus's gross domestic product in 2006, the Kremlin increased the price of gas and started taxing oil shipments. In the winter of 2006-7, gas supplies were interrupted. To clear debts, Belarus had to sell to Gazprom, the Russian gas monopoly, half of Beltransgaz, the gas pipeline operator, for $2.5bn.

With Moscow determined to make Minsk pay EU prices for gas by 2011, the debts are mounting and Belarus is now getting a new $2bn Russian loan. "With Russia it's simple. They'll give us a credit which we'll spend on their gas and end up being in debt to them," says Leonid Zaiko, an independent economist.

Since 2006, Moscow has also raised the political pressure, with Mr Putin and Dmitry Medvedev, the Russian president, successfully resisting the west's efforts to extend Nato membership to Georgia and Ukraine. Earlier this year, Minsk decided to improve ties with the US and the EU. They indicated they could respond only if Mr Lukashenko eased his repressive regime by freeing political prisoners and conducting a fairelection.

The president released his last political inmate in August and he relaxed some election campaign rules. But efforts to improve his image suffered when international observers found the election did not meet democratic standards and the opposition failed to win a single seat. The EU replied by temporarily lifting travel bans on 36 officials, including Mr Lukashenko, but is cautious about further gestures. One European diplomat in Minsk says: "There is no will to democratise or to reform, but there is a need to continue the enormously complex game which Lukashenko has been playing for years."

The result is that relations with the west are slightly improved but Russian pressure remains relentless. Moscow wants Belarus to recognise the independence of the two breakaway regions of Georgia, Abkhazia and South Ossetia. Mr Lukashenko is reluctant to become the first ex-Soviet republic to follow Russia's lead. The Kremlin also seeks Belarus's cooperation in its response to the planned US missile shield bases in Poland and the Czech Republic - including possibly deploying its own missiles in Belarus.

"We don't see the military point of [the US] system," said Sergei Martynov, the Belarusian foreign minister.

Some Belarusians fear Minsk and Moscow may already be too close to separate. "Integration with Russia has advanced so far that if it goes any further we will disappear," says Viktor Martinovich, editor of BelGazeta, an independent weekly newspaper.

Mr Lukashenko's opening to the west is also aimed at attracting investment to help firms modernise. The government has started economic reforms, including a planned flat tax, and is talking about privatising up to 600 state-owned companies. The friendlier environment has investors including Heineken, the Dutch brewer, and Telekom Austria, which bought the country's second-largest mobile operator for €730m ($915m) last year. Mr Lukashenko says foreign companies are welcome. "If you do come to us ... you will be guaranteed full support from this dictator, from this country and our people," he says.

The opportunity to invest in a fast-growing economy with 10m people (including skilled workers), a central location in eastern Europe, and good roads could draw investors. But it will take time before western business people are convinced Mr Lukashenko will keep his promises.

Meanwhile, with Russian subsidies declining and the global crisis hitting the Russian economy, Belarus's economic stability is coming under threat. According to the International Monetary Fund, GDP growth is set to fall from 9.2 per cent this year to 8 per cent next year. Belarus is negotiating with the Fund for a $2bn facility to help finance its growing current account deficit.

Opening the economic system also carries political risks. Today, after years of repression, the opposition is fragmented and small. Mr Lukashenko, who won the 2006 presidential election with 83 per cent of the vote, appears popular. But economic liberalisation could prompt demands for political change. Economic disparities could grow, particularly if state officials use privatisation to enrich themselves as in Russia and Ukraine.

There are no easy answers for Mr Lukashenko. Only the knowledge that the complicated dance he has led to keep power is becoming ever more difficult.

By Jan Cienski and Stefan Wagstyl