Milk Wars, Breakaway Republics and Loans

Interfax reports that as of in the first four months of 2009, the foreign state debt of Belarus had increased by 33.8% to $4.976 billion. In Belarusian rubles, foreign state debt soared 70.6% to BYR 13.96 trillion.

Last week, Russia offered an additional $500 tranche of loans. Lukashenka scoffed at the deal, which was contingent on the fact it would be dispersed in Russian rubles as opposed to dollars. "It's not working out with Russia. We don't need to beg. We don't need to whine and cry. We need to look for happiness in another part of the planet," said Lukashenka to his PM.

Suddenly on 3 June, Belarus asked for a whopping $9 billion loan. "We could get confronted with the Belarusian government's insolvency as early as in late 2009, or next year," said Deputy Prime Minister and Finance Minister Kudrin in response. This sum was too much for MinFin RF to handle.

"If those who want to help Belarus and want a balanced and stable economy are equated to opponents, then I don't know what Belarus wants," said Kudrin on the difficult loan negotiations. But it is certainly clear what Moscow wants from Belarus. Moscow Times today reported that the original $500 million loan was contingent on Belarus' support for South Ossetian and Abkhazian independence.

Stepping up pressure, Russia slapped a ban on 500 types of Belarusian milk products in response on 6 June. Rospotrebnadzor head Gennady "Swine Flu" Onishchenko said that Russia would be ready for talks on the resumption of imports but "only with those officials who represent manufacturers and are 'competent' enough to solve the problem (Moscow Times, 9 June).

This begs the question -- if Russia offered a loan of, say $300 million in rubles, would 300 types of Belarusian milk products have been blocked? In an even more arbitrary move, Rospotrebnadzor blocked an additional 800 dairy products today.

This non-tariff measure will cost Belarus $1 billion comes at a time when Economy Minister Nabiullina and US Trade Representitive Ron Kirk last week optimistically talked about Russia's languid WTO accession process finally drawing to a close. The milk wars, not to mention the meat wars, indicate that the process could drag out even longer than next year.

Even more bizarre, Putin announced today that Russia would join the WTO, not as an individual member but as a part of a joint customs block with Belarus and Kazakhstan.