The Economic Presence of Russia and Belarus in the Baltic States: Risks and Opportunities
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THE ECONOMIC PRESENCE OF RUSSIA AND BELARUS IN THE BALTIC StATES: RISKS AND OppORTUNITIES Editor Andris Sprūds Riga, 2012 This study has been financed by the Wider Europe Program of the Soros Foundation – Latvia and Open Society Foundations’ East East Beyond Borders Program Editor: Andris Sprūds This book is the result of a collective work. The Latvian Institute of Project director: Andis Kudors International Affairs and Centre for East European Policy Studies (Riga) had Reviewers: Dr. Toms Rostoks, Dr. Ainārs Lerhis a leading role in the implementation of this research project. The efforts of Lithuanian and Estonian researchers from the Centre for Geopolitical Studies Authors: Edijs Bošs, Kārlis Bukovskis, Andrejs Jakobsons, Didzis Kļaviņš, (Vilnius) and the Academic Center for Baltic and Russian Studies (ABVKeskus, Victoria Panova, Gatis Pelnēns, Diāna Potjomkina, Andris Sprūds, Karmo Tüür, Tartu) helped to enrich the study with a comparative perspective. The Soros Raivo Vare, Vadim Volovoj, Liudas Zdanavičius, Arvils Zeltiņš. Foundation – Latvia has been the main financial contributor to this project. The English language editor: Talis Saule Archdeacon Estonian part of the study has been covered by the Open Estonia Foundation. Cover design and layout: Toms Deģis © Centre for East European Policy Studies, Latvian Institute of International Affairs, Centre for Geopolitical Studies, Academic Center for Baltic and Russian Studies (ABVKeskus), 2012 © Authors of the articles, 2012 © SIA Apgāds Mantojums (printing), 2012 ISBN: 978-9934-8292-1-5 TABLE OF CONTENTS INTRODUCTION BUSINESS INTERESTS BETWEEN LATVIA AND BELARUS: Andris Sprūds . 7 LOOKING BEYOND THE OBVIOUS Didzis Kļaviņš . .145 THE ECONOMIC DIMENSION OF BILATERAL RELATIONSHIPS BETWEEN LATVIA, THE POLITICAL IMPLICATIONS OF RUSSIA AND BELARUS – PAST AND PRESENT LATVIA’S ECONOMIC RELATIONS WITH Andrejs Jakobsons. 11 RUSSIA AND BELARUS Gatis Pelnēns, Diāna Potjomkina . 179 FOREIGN ECONOMIC POLICY OF THE RUSSIAN FEDERATION: THE CONSTRAINTS AND LITHUANIAN ECONOMIC RELATIONS WITH OPPORTUNITIES OF THE BALTIC DIMENSION RUSSIA AND BELARUS Victoria Panova . 35 Liudas Zdanavičius, Vadim Volovoj. .205 LUKASHENKONOMY: BELARUS’S PERILOUS ‘THIRD WAY’ ESTONIA – RUSSIA – BELARUS: BETWEEN RUSSIA AND THE WEST THE POLITICAL IMPLICATIONS OF ECONOMIC RELATIONS Edijs Bošs. 65 Karmo Tüür, Raivo Vare. .249 STATE INSTITUTIONS, INTERDEPENDENCE AND CONCLUSIONS: PERCEPTIONS IN LATVIA’S ECONOMIC RELATIONS WITH ADVANCING BEYOND A CONSTRUCTIVE FREEZE OR THE RUSSIAN FEDERATION AND BELARUS ECONOMIC “PRAGMATISM” Kārlis Bukovskis. 93 Andris Sprūds . 285 BUSINESS INTERESTS IN THE LATVIA-RUSSIA ECONOMIC NOTES ON AUTHORS RELATIONSHIP . 303 Arvils Zeltiņš . 115 INTRODUCTION Andris Sprūds Economic trends and interests have always been closely linked with political choices. The countries of East Central Europe have not been an exception, especially within the context of the global financial downturn. The global economic recession has hit the EU’s new members and new neighbors hard. Countries in the region have faced considerable economic, financial, social, and political challenges. The economies of the three Baltic countries, Russia, and Belarus, all of which previously enjoyed substantial growth, revealed their structural imbalances and their exposure to fluctuations in external financial and commodity markets. As a result, the economic recession eventually contributed to raising awareness and determination in those countries (to varying degrees) to stabilize, strengthen and modernize national economies, attract investment and search for favorable outside markets and partners. Economic interests moved visibly upward on the list of priorities for Latvia, Lithuania, Estonia, Russia, and Belarus. Economic challenges have also had an impact on domestic and foreign policy choices. They had implications for the nature of bilateral relationships among the countries of East Central Europe. Many in Latvia and the other Baltic countries have seen more active economic engagement with their eastern neighbors, such as Russia and Belarus, as an imperative direction for external economic activity. As a result, the economic interests and engagement have been incrementally and more closely intertwined with the political dynamic and political strategies. At the same time, relations with Russia and Belarus have been far from effortless and uncomplicated, and undoubtedly a political and security component will also remain formative in the future. Hence, the economic crisis may open some windows of political and economic opportunities, but may also reinforce misperceptions and eventually create new risks. The major objective of this publication is to examine how the transforming economic rationale in policies of the Baltic countries has influenced both economic and political relations with other countries in the neighborhood, namely Russia and Belarus. Some important and valuable research contributions to economy related issues surrounding Baltic relations with Russia have been made by a number of previous research endeavors.1 However, this research 1 See, for instance, Nils Muiznieks (ed.), Latvian-Russian Relations: Domestic and International Dimensions (Rīga: Latvia University, 2006); Zaneta Ozolina (ed.). Latvian and EU Relations with Russia: the Differing Agendas. In Latvia-Russia-X ▶ 7 project intends to expand and elaborate on a number of additional research issues from partner countries has been considered an imperative precondition for and perspectives. First, an emphasis on Latvia notwithstanding, a comparative ensuring a diversity of views and recommendations with a genuinely comparative perspective of three Baltic countries is provided. The Baltic countries are strategic perspective. It was also a deliberate intention to bring in authors from a younger partners but may be economic rivals, especially within the neighborhood. Second generation of the research community in order to integrate a somewhat fresher and similarly, patterns and issues with the two eastern economic partners – Russia breath into the rather hefty and politically sensitive subject of relations among and Belarus – are compared. Russia has continuously been treated as a policy and neighbors in East Central Europe. The Latvian Institute of International Affairs research priority while the Belarusian direction has been rather underdeveloped. and the Centre for East European Policy Studies cooperated closely to address This research project intends to fix this problem and integrate a Belarusian the research challenges and take full advantage of the opportunities of the joint aspect into a wider regional and bilateral assessment. The effort becomes even research project. The Soros Foundation in Latvia was instrumental in supporting more acute in the context of an ongoing EU debate over economic and political the current research endeavor and in bringing it to a fruitful result. Last but relations with the “last European dictatorship”. Third, the authors make efforts to not least, this publication would be irrelevant without a reader attentive to the balance both economic and political challenges and interests. Hence, the articles subject and interested in understanding the constraints and opportunities for lend considerable weight to the political economy. It is intended to look beyond productive and balanced political and economic engagement among neighbors the official data and economic trends, and to identify and analyze crosscutting in the strategically important region of East Central Europe. themes: the existing formal legal frameworks and consulting bodies, regional cooperation, investments and particular business groups, as well as the business and political culture and mutual perceptions. The book is structured into nine chapters. Each chapter is intended to contribute to the overall objective of understanding the trends, character, formal and informal frameworks, and implications of Latvia’s economic interaction with Russia and Belarus. The Estonian and Lithuanian chapters follow suit in a more condensed way, while providing the specific and general trends of their interaction with their eastern neighbors. The Estonian and Lithuanian perspectives allow assessing and discerning both commonalities and divergences among the three Baltic countries. This provides an important comparative perspective for all three Baltic countries. Although the general structure is streamlined and the major aspects are set, the authors remain free to contribute their own idiosyncratic emphases, assessments, and recommendations. This diversity of approaches has essentially been perceived as an important element in reflecting the plurality of opinions in the policy and research community and the multifaceted nature of interaction between the three Baltic countries, on the one side, and Russia and Belarus, on the other. The successful fruition of the current research project was enabled by a number of joint efforts. Above all, an international body of researchers have contributed to achieving the objectives of the research project. The involvement of authors (Riga: Strategic Analysis Commission, 2008); Andris Spruds and Toms Rostoks (eds.), Energy: Pulling the Baltic Sea Region Together or Apart? (Riga: Zinatne, 2009); Nils Muiznieks, Latvian-Russian Relations: Dynamics since Latvia’s Accession to the EU and NATO (Riga: University of Latvia Press, 2011). 8 9 THE ECONOMIC DIMENSION OF BILATERAL RELATIONSHIPS BETWEEN LATVIA, RUSSIA AND BELARUS – PAST AND PRESENT Andrejs