Policy Documentation Center

Bayraktar, Bora

Yirik, Can

 Istanbul Kultur University 
Atakoy Campus,Bakirkoy, 34156 Istanbul-TURKEY 
T: +90 212 498 44 76 | F: +90 212 498 44 05 
www.gpotcenter.org 
 
Some Recommendations Following the Gaza Operation  
and the Israeli Elections 
 
Bora Bayraktar & Can Yirik 
March 2009 
   Defining the Problem 
    
   The crisis that started with Hamas winning 
the Palestinian Authority (PA) elections in 
January of 2006 seems to have entered a new 
stage with the start of 2009. Israel, which 
provides the occupied PA with the bulk of 
its economic resources, the US and the EU 
classifying Hamas as a terrorist organization 
and the resulting 3 year long economic siege 
and blockade, and the Israeli operation that 
started on the 27th of December and lasted 
for 22 days have all made the humanitarian 
situation in this region unbearable.  
 
   The fact that around 1300 people, 500 of 
them civilians, have died in Gaza, many 
families are left without their homes or 
workplaces, and children are left orphaned 
and in need of care has meant that the        
international community cannot ignore the 
region’s situation any longer. It is unlikely 
for the countries that have held Gaza under 
a blockade for 3 years to maintain this           
position. In order for the humanitarian 
situation in Gaza to improve, for donations 
to reach their target and for a meaningful 
peace process to be carried out, it is vital 
that the PA achieves inner peace. 
 
   On the other hand, the fact that            
right-wing parties have come out of the 
elections in Israel having increased their 
votes is cause for concern. The human and 
financial aspect of the latest Gaza            
Operation has proven that the parties    
making up the coalition government and 
the attitude towards the conflict will        
determine Israel’s relations with her allies. 
Thus, the future of the peace process will 
also be an indicator for the future of          
bilateral relations with Israel.  
 
   The latest developments in the region 
have caused tension between the Turkish 
and Israeli administrations. Turkey, which 
 
GLOBAL POLITICAL TRENDS CENTER 
GLOBAL POLITICAL TRENDS CENTER 
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cares about the stability of the region and 
has become a meeting place for parties to the 
conflict in the Middle East, needs to develop 
a policy that takes into consideration the 
struggle for power within the PA and the 
political reality that has emerged in Israel. 
 
The New American Administration 
    
   There is no doubt that the timing of the   
Israeli attacks, which took place before the 
Bush Administration’s term came to an end, 
is directly related to the change in              
administrations in the United States (US). 
The Israeli government carried out the       
operation conscious of the knowledge that 
following the Bush Administration, which 
for eight years had turned its back to the 
Palestine question, the Obama                    
Administration would not continue the 
same policies. While he has made the        
financial crisis his priority and focused his 
diplomatic efforts on relevant regulations, 
the new American President Barack Obama 
has signaled through the special envoys he 
has appointed to Iran, the Middle East and 
Afghanistan-Pakistan that he cares about 
dispersing the anti-American sentiment 
formed in the previous eight years.  
 
The President’s special envoy to the Middle 
East, George Mitchell (who is of Lebanese 
descent) headed the special commission    
established in 2000 after the Second Intifada 
broke out, and is a very knowledgeable     
figure in terms of the current developments 
in the region. The fact that the Mitchell      
Report, published in 2001, was written in a 
fair manner strengthens expectations of    
success in his new mission. In addition, that 
Mitchell gave his first official interview to an 
Arab channel, Al Arabiya, and mentioned 
the Palestinian problem is a manifestation of 
his belief that a Palestinian state needs to be 
established. 
 
   However, as stated above, it is clear today 
that the methods employed so far will not 
yield any advances in solving the Palestinian 
problem. Specifically, a new strategy is 
needed in place of isolating Hamas; in this 
sense peace within the PA is a priority. 
 
Peace Within Palestine 
 
   The politics of isolation against Hamas 
date back to the election night of January 
2006, when Hamas claimed victory. At the 
prompting of Israel and the US, Fatah       
rejected Hamas’ calls for a unity government 
following the preliminary election results. 
Later in June 2006, hours before its             
formation, the operation carried out by the 
radical factions in Hamas against Israel,   
during which Gilad Shalit was captured, 
rendered all efforts futile. 
 
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   The coup by Hamas in Gaza the following 
year severed all ties between Hamas and   
Fatah. The violent conflict between the     
parties and mutual arrests created mistrust, 
backing Israel’s “we do not have an           
addressee for peace talks” claim. This        
division has harmed the people of Palestine 
the most, as the blockade on Gaza has been 
strengthened and with the exception of basic 
humanitarian needs, inflow and outflow of 
products has almost been brought to a halt. 
 
   Hamas being in power constitutes a    
problem when it comes to ensuring the flow 
of aid sent to the region following the latest 
attack on Gaza, given that Hamas is on the 
West’s list of terrorist organizations.       
However, Hamas is a legitimate leadership 
that was voted in by the Palestinian people 
in democratic elections. If the government 
included actors from outside of Hamas, it 
would mean both that a democratically 
elected government is not ignored and that 
the West is not helping a “terrorist             
organization.” 
 
   To this end, parties in Palestine got         
together in Cairo in the last week of          
February and decided to start meetings in 
early March in order to form a unity        
government. This government is anticipated 
to stay in place until the next elections. A 
Palestinian unity government would include 
all factions of the Palestine Liberation        
Organization (PLO), as well as factions that 
are outside of the PLO, such as Hamas and 
Islamic Jihad. One of the actions of this    
government would be to regulate the     
Egypt-Gaza border. 
 
   Palestinian factions have decided on    
forming five committees, while Fatah and 
Hamas have agreed to mutually release   
prisoners, not getting involved in disputes 
in the media and other confidence-building 
measures. The committees will work on the 
formation of the government, the rebuilding 
of institutions, regulation of presidential and 
parliamentary elections, resolving security 
issues and cooperation. 
 
   There are a number of setbacks facing 
peace within Palestine. Leaving outside 
pressure from Israel aside, the questions on 
the table involve how to form the             
government and who to include in it, what 
position should Fatah and Hamas take 
within the “resistance – acceptance –          
negotiation” triangle of relations with Israel, 
how to distribute the aid, how to include 
Hamas and other factions in the PLO and 
how to establish a culture of democracy. 
 
Israeli Elections 
 
   In the wake of the elections in Israel, held 
on February 10th 2009, the question was 
whether central Kadima, which built its 
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campaign on “the two state solution” and 
defined the elections as a “chance for peace”, 
or the right-wing Likud, which did not have 
a vision for peace and talked about 
“economic peace” as a way to resolve the 
conflict would prevail. Despite Kadima   
coming first in these elections, where the   
Israeli democracy essentially tried to answer 
the question of whether it wanted a two 
state solution, right-wing parties forming 
the majority in the Knesset showed that the 
Israeli electorate is divided into two camps 
when it comes to solving the Palestinian 
problem. 
 
   Perhaps the most important outcome of 
the elections for the Israeli society and     
politics is the virtual elimination of the       
Labor Party and Meretz, which represented 
the Israeli left, from the political scene, while 
Yisrael Beiteinu, led by Avigdor Leiberman, 
former member of the Kach Party that was 
banned by the Israeli Supreme Court for its 
racist program, came third. The fact that in 
the new term Labor has eleven and Meretz 
has three seats in the 120-seat Israeli          
Parliament is the manifestation of the        
biggest defeat the Israeli left has faced since 
the 1977 elections. Lieberman’s election    
victory with its radical discourse towards 
Palestinians and Israeli Arabs, on the other 
hand, can be interpreted as the atmosphere 
of violence, which also made Hamas an    
actor in the already muddled Middle       
Eastern conflict, reflected on the Israeli      
society’s political preferences. 
 
   Thanks to Livni’s rejection of Netenyahu’s 
proposal to form a coalition government on 
the grounds that they have different political 
agendas, and Barak’s decision to remain in 
the Opposition, in the new term Israel will 
be governed by a coalition formed by Likud, 
Yisrael Beiteinu, and small parties with      
religious programs. Much like what the    
previous government tried to manage 
through economic embargoes and military 
operations, at the center of the policies of the 
32nd Israeli Government regarding the     
Palestinian issue will be Israel’s recognition, 
abidance by past agreements, and an end to 
violence-based politics. 
 
   In the case of Hamas not taking the above 
mentioned steps, the new Israeli                
government is likely to continue employing 
the current policies in order to keep Hamas 
from taking root and gaining strength in the 
region. Netenyahu, who lost the seat of 
prime minister in 1999, will want to use this 
opportunity by forming the strongest       
possible coalition government and, despite 
the expectations of the international         
community, expanding on the peace       
process. However, exactly how Yisrael 
Beiteinu will coexist with United Torah    
Judaism and Shas, which have drastically 
different party programs than it does, and 
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the lifespan of this coalition remain big 
question marks. These small religious 
parties are likely to threaten Netanyahu’s 
government with quitting the coalition 
should their demands be rejected. Given the 
new American administration’s willingness 
to build dialogue with states and groups 
defined as thugs by the previous 
government, the EU’s High Representative 
for the Common Foreign and Security Policy 
Javier Solana’s statement that good relations 
between Israel and the EU depend on the 
support given to the two state solution by 
the new Israeli government and the negative 
impact of the latest Gaza operation on 
Israel’s bilateral relations, it is not likely that 
the new government will harm the peace 
process. 
 
   How Netanyahu will keep such a coalition 
together and how he will manage Israel’s 
vital issues are dependent upon not just 
developments in Israeli politics, but as 
mentioned above, on peace within Palestine 
and regional politics as well. 
 
Turkish-Israeli Relations 
 
   Turkish-Israeli relations have entered a 
new phase since 2002 both due to the 
regional situation and the AKP’s foreign 
policy. The most apparent characteristic of 
Turkish foreign policy in this phase is her 
desire to eliminate the problems with her 
neighbors and playing the role of an arbiter 
in solving regional problems.  
 
   This vision has brought with it the 
reappearance of the Palestine question in 
Turkey’s Middle East policy and a diversion 
from the policy of developing relations with 
Israel independently from the Palestinian 
problem, which had been the case since the 
second half of 1990s. This diversion, 
however, did not mean improving relations 
with Arab countries at the expense of the 
relations with Israel. In our opinion, the fact 
that during the AKP rule there have been 
more than thirty diplomatic visits, including 
on the level of the president, the prime 
minister and ministers, that bilateral trade 
volume has reached 4 billion dollars and 
that military and intelligence cooperation 
remains intact are enough indicators of the 
government’s will to develop relations with 
Israel while reproaching the Arab world. 
 
   However, developments during and after 
the Gaza Operation disrupted the balance 
Turkey had been trying to establish between 
Israel and the Arab world since 2002. While 
Turkey described the operation as desultory 
and having been started with concerns for 
the upcoming elections, Israel accused 
Turkey with wrongly analyzing the situation 
and not acknowledging that Hamas is a 
terrorist organization. 
 
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   Thanks to anti-Semitic protests in Turkey, 
Prime Minister Erdoğan’s quarrel with the 
Israeli President Peres in Davos, IDF General 
Avi Mizrahi’s criticisms towards Turkey and 
the Turkish Foreign Ministry’s note of      
protest to Israel, the Turkish-Israeli relations, 
be it military, political, diplomatic or 
societal, are going through their most tense 
days since mid-1990s.  
 
   The current tension in relations threatens 
both countries due to the treaties they 
belong to, as well as conflicting with their 
regional politics. In order to keep the 
relations from deteriorating further, 
President Abdullah Gül has written a letter 
to President Peres expressing his desire to 
visit Israel, while Foreign Ministers Livni 
and Babacan came together at NATO’s 
foreign ministers meeting in Brussels to 
discuss the recent course of bilateral 
relations.  
 
   Bilateral relations are likely to improve 
with visits first on the ministerial then 
presidential levels, followed by the 
American Jewish community’s renewed    
veto on the Armenian genocide bill, which is 
to be sent to the Congress in April.  
 
For its part, Turkey can overcome the issues 
of trust between Israel and herself through 
diplomatic efforts towards peace in Palestine 
and attempts at negotiating captured Israeli 
soldier Gilad Shalit’s release.  
 
   Given Turkey’s policies in the region, the 
Palestine policy adopted by the new 
government in Israel will continue to be the 
determining factor in bilateral relations with 
her ally Turkey. On the other hand, Turkey’s 
relations with both state and non-state actors 
that directly threaten Israel’s security will 
affect the new government’s attitude 
towards Turkey, as well as the course of 
Turkish-Israeli relations in the near future. 
 
Recommendations 
 
   The necessary course of action for Turkey 
in terms of the Israeli-Palestinian conflict 
could be summarized as follows: 
 
• Using the influence over Hamas to get it to 
be cautious about its anti-Israel rhetoric 
 
• Working to ensure that Hamas refrains 
from provocative statements that will 
increase the tension 
 
•Working towards reconciliation by 
emphasizing common goals between 
Hamas, Fatah and other factions 
 
• Advising Hamas that terrorist activities 
worsen the problem 
 
•Working towards Gilad Shalit’s release 
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•Ensuring that aid is going in and reaching those in need by actively using the Turkish aid 
agencies operating in the region 
 
•Making sure the new Israeli government does not give up the two state solution 
 
•Expanding on the efforts at ending the tensions between the two countries following the 
Gaza operation and Prime Minister Erdoğan’s scolding in Davos... 
Bora Bayraktar is an experienced journalist specializing in the Middle East. He has two books 
published in Turkey: "A'raf: the Middle East from the Oslo Accords to the Al Aqsa Intifada" (Aykiri, 
2003) and "HAMAS" (Karakutu, 2007). He is currently completing his PhD in Political History of 
the Middle East and International Relations within the Middle East Studies Institute in Marmara 
University and writing his thesis on "Why the Oslo process failed". He has followed many of the 
recent developments including President Guls historic Armenia visit, international aid efforts in 
Afghanistan, the political crisis in Pakistan, various crisis points in the Israeli-Palestinian conflict, 
Hamas' 2006 election victory, Israil's Disengagement from Gaza, Arafat's funeral, the Macedonian 
civil war and various phases of the crisis in Kosovo. Palestinian leader Yasir Arafat, Israeli 
President Shimon Peres, PMs Benjamin Netenyahu and Ehud Barak and Pakistan's former PM 
Benazir Butto are among the leaders Bayraktar has interviewed. Bayraktar has participated in the 
Knight Wallace Fellowship, associated with University of Michigan, as well as CNN's Professional 
Journalism Program in Atlanta in 2002 and a journalism course by Reuters. He has worked for the 
CNN-Turk channel for 9 years, serving as a reporter, senior correspondent and head of the Foreign 
News Desk. He is currently the editor of ATV's Foreign News Desk. He writes articles for various 
newspapers and magazines. 
Can Yirik is currently completing his PhD in the Department of Middle Eastern Studies at 
Jerusalem Hebrew University. He is als a research fellow at Global Political Trends Center. 
About GPoT  
 
Global Political Trends Center (GPoT) was established as a research unit uder the auspices of 
Istanbul Kultur University in 2008. 
 
GPoT Center aims to produce innovative and distinctive policy recommendations by 
analyzing the contemporary trends in regional and international politics. 
 
 
*The opinions and conclusion expressed herein are those of the individual author and does not necessarily 
reflect the views of GPoT or Istanbul Kultur University. 


Some recommendations following the Gaza Operation and the Israeli elections

Citizenship in the Middle East: challenges and prospects and the role of the Middle East Citizenship Assembly (MECA)

  
 
1 
 
 
The International Institute for Middle-East and Balkan Studies (IFIMES) in 
Ljubljana, Slovenia, regularly analyses events in the Middle East and the Balkans. 
Ambassador Dr. Jožef Kunič, member of the IFIMES International Institute and 
President of the Slovenian Association for International Relations (SDMO) has 
presented his view of the professionalization of Slovenian diplomacy. His article 
entitled “PROFESSIONAL DIPLOMACY: YES OR NO?” is here published in its 
entirety. 
 
 
 
Dr. Jožef KUNIČ  
- Member of the IFIMES International Institute 
- President of the Slovenian Association for International Relations (SDMO)  
 
 
PROFESSIONAL DIPLOMACY: YES OR NO? 
 
 
Already in mid 1990s the diplomats of the independent state of Slovenia undertook 
the activities aimed at professionalization of Slovenian diplomacy. After the 
consultation with the then President of the National Assembly Janez Podobnik, a 
number of professional diplomats assumed the leading positions in Slovenian 
embassies.  However, that was only the beginning of long-lasting efforts. Slovenian 
diplomacy and even its highest positions were still staffed by people coming from the 
fields that were not much related to diplomacy, and they were often appointed for 
only one term of office. There have been about 70 such members of embassy staff 
appointed for only one term of office who then quit this profession, which is a very 
high number for Slovenia. Career diplomats were justifiably dissatisfied with the 
situation. Eventually, the law was amended last year to stipulate that the ambassador 
may only be a person who is a diplomat, which means that he/she has to be employed 
at the Ministry of Foreign Affairs and have at least seven years of practical experience 
at that Ministry.   
 
 
  
 
2 
A CLOSED SYSTEM 
 
The regime seems to be exemplary at first glance. It prevents the employment of staff 
set by politics either as a reward or a way to find a job for them or even in order to 
keep them away for a certain period of time. The diplomats employed at the Ministry 
of Foreign Affairs of the Republic of Slovenia (MZZ) like to repeat those reasons. But 
in practice this represents a closed system. Recently a disproportionally large number 
of employees from MZZ have been promoted to the level of minister plenipotentiary, 
which is a diplomatic title and a precondition for appointment to an embassy 
position. Although many of them are high quality staff members, this does not apply 
to all of them. Slovenia may not afford to prevent those who have proven through 
their work to be top experts and professionals in the field of diplomacy and foreign 
policy from applying for an embassy position. Since the new act entered into force the 
applications for embassy positions may only be made internally and those who are 
not employed at MZZ can not run for office despite their obvious and practically 
proven qualifications  
 
The decision has therefore been made to amend the Foreign Affairs Act in order to 
change the present system and the draft amended act has been submitted for 
approval to the National Assembly.  
 
It is not surprising that the Trade Union representing MZZ supports the present 
system. The interest of the employees to have better opportunities for assuming those 
high positions seems to be more important than the interest for more professionalism 
and expertism in diplomacy. 
 
Should that be the case, it is not the professionalism that is at stake, but the 
protection of own interests, since the law stipulates that a diplomat is the person 
employed at MZZ. Of course, the Trade Union is only carrying out its mission: to 
protect the employees. It is the politics, i.e. the government and the parliament that 
should pursue to goal of professionalism and expertism. Unlike the Trade Union 
which justifiably protects the interests of its members, the politics should strive for 
the solution that would be in the interest of Slovenia. 
 
It is not a coincidence that professionalism and expertism are defined as the guiding 
principle in the coalition agreement. While reading the draft texts of the coalition 
agreement one can not imagine that the highest functions in organisations such as 
the UN, OSCE, EU, the President's Office as well as universities and associations are 
not regarded as professional and expert positions. 
 
AMENDMENT OF THE ACT 
 
The closed nature of the system for selecting the candidates to the leading diplomatic 
positions was the main reason for amending the present act. While amendments 
  
 
3 
should also improve some other issues, the key issue is professionalization of 
diplomacy. The act undoubtedly pursues good goals and in the long term the 
proposed solution will contribute to the professionalization of diplomacy. However, 
further consideration should be given to transitional provisions, since the proposed 
solution preserves the present closed system for at least another one year. 
 
During the discussions on the amendments the idea was formed to have 10 % of 
politically appointed ambassadors, which means up to 5 ambassadors in real terms. 
This figure has also been included in the draft submitted for approval. This so called 
“political staff” should fulfil the same conditions as the non-politically appointed 
employees of MZZ. The demand to meet the same conditions is fully appropriate, 
since nobody should be appointed to such positions unless he/she is a professional or 
expert in the field. However, everyone who has proven qualified for such position on 
the basis of their previous diplomatic experience and long years of professional work 
in the field of foreign affairs should be enabled, and in some cases even invited, to 
apply for the embassy positions.  Such statutory provision would be of benefit for the 
professionalism, successfulness and reputation of Slovenian diplomacy.  In 2009 the 
leading positions in Slovenian diplomacy have been occupied by eight so-called non-
career ambassadors and in 2010 their number will be reduced to five, so the idea to 
employ 10% of experts and former diplomats who are not MZZ employees can only be 
implemented in 2011. Thus the aim of the draft amendment will not be achieved for 
another two years which puts the rationality of such amendment under question.  
 
 
THE SENATE INSTEAD OF POLITICAL APPOINTMENT 
 
This might lead to the idea that there are some diplomacies in the world which have 
politically appointed ambassadors who are not professionals or experts. This is true, 
but there are certain reasons for such appointments. Many politicians, as well as 
businessmen, scientists and others deserved a reward for their work or other 
activities. In some cases they are rewarded by the ambassador position, although it is 
clear that the function is actually run by another person in the embassy. Of course 
such rewarding system would not be appropriate for Slovenia which has relatively 
small embassies. 
 
On the other hand there are diplomacies which want to use politicians with rich 
experience and good personal connections, not for operational activities but as 
deliberating and wise persons. In some countries the senate serves that purpose, 
therefore they need no political ambassadors. Perhaps Slovenia should consider 
organising the National Council as an institution in which former presidents of the 
state, prime ministers, presidents of parliamentary parties, mayors of large cities, 
foreign ministers etc. would meet. Their experiences are invaluable and instead of 
being appointed to embassy positions they could participate in the above institution 
and thus bring benefit to the state of Slovenia. This would probably release the 
  
 
4 
pressure on embassy positions and increase the importance of the National Council, 
supported by rich personal connections and experiences. 
 
Nevertheless, Slovenia should enable everyone who have actually (and not only 
formally) proven though their work that they are experienced professionals and 
experts to apply for embassy positions. President of the state or minister of foreign 
affairs (in line with the procedure laid down in the amended act) should then decide 
which of the candidates are the most appropriate for the function. However, if 
“political percentages” are to be introduced, 10% would be a too small figure for the 
first two years of implementation of the amended act, bearing in mind the 
professionalism, expertism and work experience requirements. The figure may be 
increased, of course in so far as each “political” candidate fulfils the same conditions 
as the candidate with the “appropriate background”. Alternatively, the increase may 
only apply for a transitional period of three or five years. In Slovenia there are well 
over five (or 10%) experienced professionals who have proven to have better qualities 
than some persons appointed to embassy positions pursuant to the act. It should be 
noted that the percentage is not the commitment to be fulfilled by the Ministry of 
Foreign Affairs but only the ceiling which it may reach in its proposals.   
 
To conclude, the politics should adopt the legal regulation which would bring benefit 
to Slovenian diplomacy and the state of Slovenia without introducing a certain 
percentage of non-experts in our diplomacy. It should enable truly experienced 
experts to apply for the highest diplomatic functions.     
    
Ljubljana, October 20, 2009                                    
                                                             
                                                                     International Institute for Middle-East 
                          and Balkan Studies (IFIMES) – Ljubljana 
 
                                                                      Directors: 
                Bakhtyar Aljaf                                                                
                           Zijad Bećirović, M.Sc. 
 
 
                                                    


English

Professional diplomacy: yes or no?

 
April 2009 1 
BELARUSIAN MONTHLY 
ECONOMIC REVIEW 
• Realization of the ‘multi-vector’ foreign policy. 
• Increased reduction of the working time. 
• Increasing trade deficit and efforts of new borrowings. 
• Increase of banks’ refinancing. 
Politics: Realization of the ‘multi-vector’ foreign policy 
Two meetings between Belarusian and Russian Presidents 
A. Lukashenka and D. Medvedev took place in March. Official 
approval of Belarus as a member country of the EU’s “Eastern 
Partnership” and absence of progress in the issue of recogni-
tion of Abkhazia and South Osetia from the Belarusian side 
led to some tensions in the relationships between the parties. 
In March, Russia denied a Belarusian request for the loan of 
RUB 100 bn. Furthermore, Russia granted only the half of the 
second tranche of the loan that had been agreed, which 
amounted to USD 500 m instead of the previously scheduled 
amount of USD 1 bn. Moreover, during one of the meetings 
the issue of the payments for Russian gas was discussed. Ac-
cording to the Russian mass media in the 1st quarter of 2009 
Belarus paid the price of last year of USD 128 per tcm. De-
spite Presidents stating that they agreed on these issues, the 
final decision has not been made yet. Alongside, in the begin-
ning of April, a couple of unfavorable tendencies in relation-
ships with the EU took place. For instance, the planned visit of 
the European Commissioner B. Ferrero-Walnder was can-
celled. Thus, the external environment pushes Belarus to the 
choice of the dominant vector of development. 
Real sector: Increased reduction of the working time 
In Jan-Feb, GDP grew by 2.3% yoy (according to the estima-
tions, in February its growth was about 0.4% yoy), while the 
industrial production decreased by 2.3% yoy (by 4.3% yoy in 
February). Deceleration of growth was determined by the 
drop of the external demand for Belarusian goods. Deteriora-
tion of the economic situation has already resulted in prob-
lems at the labor market. In Jan-Feb the reduction of the 
working time amounted to 907,000 of man-hours, which is 
equivalent to the daily non-working of 22,700 employees. 
Actually, this means an increase of hidden unemployment. In 
Jan-Feb, the quantity of the officially registered unemployed 
grew by 5,700 people up to 42,400 and less than half of them 
get unemployment support. While the problem of unemploy-
ment is going to sharpen, the current policy of social protec-
tion of unemployed people may require reconsideration. 
According to a government Regulation, enterprises were al-
lowed missing depreciation charges till January 1st, 2010. This 
step will allow decreasing the costs in the accounting and corre-
spondingly to increase the profitability of the enterprises, how-
ever it will lead to higher actual depletion of the capital stock. 
Structural trends: Increasing trade deficit and efforts 
of new borrowings 
In trade with Russia a number of specific problems have ap-
peared, because of the desire of both sides to support domes-
tic producers through protectionist measures. The Prime-
minister of Belarus, S. Sidorskiy stated a couple of times that 
Russia delays the decisions needed for a free access of the 
Belarusian goods at the Russian market including the system 
of the government procurements. In its turn, the Russian side 
requires from Belarus to cancel the ban for advanced pay-
ments on imports, which limits the possibilities of the supply 
of Russian goods at the Belarusian market. In the end of  
 
 
 
No. 4 (79) 
April 2009 
 
 
 
 
 
 
 
 
Population: 9.67 m 
Industry / GDP: 28.1% 
Agriculture / GDP: 8.4% 
Investment / GDP: 27.9% 
Export destination: Russia 32%, EU 44% 
Import origin: Russia 60%, EU 22% 
 
 
 
 
 
 
 
 
 
 
Real GDP growth 
5.8
4.7 5.0
6.8
11.4
9.4 9.9
8.2
10.0
0.0
0
1
2
3
4
5
6
7
8
9
10
11
12
00 01 02 03 04 05 06 07 08 09
% yoy
Source: Ministry of Statistics and Analysis. Forecast 
for 2008: IPM Research Center. 
 
 
 
 
 
 
 
 
 
 
IPM Research Center 
 
German Economic Team 
in Belarus  
 
50Б Zakharova St., Minsk 220088, Belarus 
Tel./fax (+375 17) 210 0105 
E-mail: bmer@research.by 
Internet http://research.by/ 
 
 
© IPM Research Center, 2009 
 
Belarusian Monthly Economic Review №4 (79) 
 
 
 
April 2009 2 
March, the NBB cancelled this ban, but just in few days nullified 
the latter decision. Alongside, A. Lukashenka made rigid state-
ments in regard to the positions of the Russian side and ap-
pealed to look for new markets for the Belarusian products. 
The situation that was close to the beginning of a “trade war” 
was mitigated after the Russian Minister of economic develop-
ment signed an order on access of the products of 11 Belaru-
sian enterprises to the Russian system of state procurements. 
Thus Belarus still tries to solve the trade problems mainly 
through administrative stimulation of exports. A huge trade 
deficit tends to be considered by authorities as the temporary 
one, but not a structural problem of the economy and hence 
they keep on attracting funds for covering this deficit. In April, 
there was a statement about the appeal to IBRD for a loan of 
USD 125 m. Further, NBB informed about application for Swap-
deal with a central bank of one of the European countries. 
However, in new economic conditions maintaining a trade defi-
cit for a long time seems to be unrealistic and the active in-
crease of borrowings may lead to the problem of debt burden. 
Foreign trade: A dramatic drop of exports to Russia 
In January, the merchandise trade deficit amounted to USD 
416.1 m, having increased by 2.2 times yoy. Exports de-
creased by 45.4% yoy, while imports by 32.8% yoy. The big-
gest decrease took place in trade with Russia – exports de-
creased by 50.1% yoy, while imports by 42.3% yoy – mainly 
because of the reduction of the physical volume, for exports it 
decreased by 41.0% yoy and for imports by 23.5% yoy. For 
instance, from 1582 trucks produced in January only 170 
were sold, including 92 trucks supplied to Russia. The physical 
volume of exports to the Russian market for truck tractors 
amounted to 6.6% from the level of January 2008, for trac-
tors – 43.6%, for TV sets – 6.2%, for metal-working equip-
ment – 17.5%, for fridges – 61.9%, for trucks – 12.1%.  
In trade with non-CIS countries exports in January decreased 
by 38.8% yoy, while imports by 6.0% yoy. Physical volume of 
exports dropped by 13.7% yoy, while average prices dropped 
by 29.1% yoy. The most substantial decrease was recorded in 
supply of potash fertilizers, which is one of the core export 
goods. In January, physical volumes of it amounted only to 
15.1% from the level of January 2008, while the value of ex-
ports to 34.3%. The exports of ferrous metals and oil prod-
ucts dropped substantially as well (71.5% and 60% of the 
January 2008 level). Physical volumes of export of these 
goods grew, but there was a huge price decrease. Despite the 
negative trends, there was a surplus in trade with non-CIS 
countries; however it dropped by 70% yoy. Moreover, it tends 
to cover less part of the deficit of trade with Russia and the 
corresponding coefficient decreased from 67.5% in January 
2008 down to 30.0% in January 2009. 
Public finance: Decrease of the consolidated revenues 
Consolidated revenues in January amounted to 52.6% of GDP, 
which is 5.8 percentage points less than a year before. The 
reduction of revenues was caused by a drop of the revenues 
from export duties and VAT by 3.9 and 2.1 percentage points 
from GDP correspondingly, which is consequent to the decrease 
of the imports value. Consolidated expenditures amounted to 
40.5% of GDP, which is by 5.9 percentage points more than in 
January 2008. The main items that provided this growth were 
expenditures for national economy, housing and utilities infra-
structure and social policies. Finally the budget surplus 
amounted 12.3% of GDP (23.8% of GDP in January 2008). 
Prime-minister S. Sidorskiy announced the revised indicators 
of the budget plan, which have been approved to be non-   
GDP and Industrial Output 
-3
0
3
6
9
12
15
Ja
n
.0
8
Fe
b.
0
8
M
ar
.0
8
A
pr
.0
8
M
a
y.
0
8
Ju
n.
08
Ju
l.0
8
A
ug
.0
8
S
ep
.0
8
O
ct
.0
8
N
ov
.0
8
D
e
c.
08
Ja
n.
0
9
F
eb
.0
9
real GDP growth
real industrial output growth
% yoy cum.
Source: National Statistical Committee. 
 
 
 
 
 
 
 
 
Contribution to Industrial Output Growth 
Growth 
January–February 2009 
% Contribution* 
Industry, total -4.7 -4.7 
Electric power -11.2 -1.1 
Fuel 4.0 0.6 
Ferrous metallurgy -1.4 -0.1 
Chemical and petro-
chemical industry 
27.6 1.8 
Machinery and  
metalworking 
-20.1 -4.8 
Logging, woodworking, 
pulp and paper 
-21.3 -0.8 
Building materials -15.9 -0.6 
Light -16.0 -0.6 
Food 2.8 0.4 
Other 3.1 0.4 
Note. * - data is given in percentage points. 
Source: National Statistical Committee. 
 
 
 
 
 
 
 
 
Merchandise Trade 
1000
1500
2000
2500
3000
3500
4000
4500
Ja
n.
0
8
F
eb
.0
8
M
ar
.0
8
A
pr
.0
8
M
ay
.0
8
Ju
n
.0
8
Ju
l.
0
8
A
u
g
.0
8
S
e
p
.0
8
O
ct
.0
8
N
ov
.0
8
D
e
c.
08
Ja
n.
09
-900
-750
-600
-450
-300
-150
0
150
balance (right axis)
exports
imports
USD m
Source: National Statistical Committee. 
Belarusian Monthly Economic Review №4 (79) 
 
 
 
April 2009 3 
deficit according to the IMF requirements. Its revenues and 
expenditures were reduced by BYR 11.1 and 13.9 trn corre-
spondingly and amount to BYR 62.8 trn (in 2008 revenues 
amounted to BYR 65.7 trn and expenditures BYR 63.8 trn). 
According to the Prime-minister, social expenditures will not 
be touched, which means that it will be done by means of de-
creasing the financing of the economy branches. 
Monetary policy: Increase of banks’ refinancing 
In February, net foreign assets of the monetary authorities 
grew by 15.3% mom (by USD 433.5 m). Mainly this was due 
to the scheduled payment for the shares of Beltransgas by 
Gazprom (USD 625 m) and advanced payment for gas transit 
(about USD 250 m was paid during Feb-Mar). However, NBB 
proceeded increasing refinancing of banks, which grew by 
10.0% mom and by 60.1% since the beginning of the year. It 
should be mentioned that the condition of limitation of banks 
refinancing growth rate by 12% yoy is among the IMF re-
quirements for Belarus and hence it should be restricted in 
coming months. Finally, base money grew in February by 
11.3% mom, while in annual terms it grew by 0.4% yoy  
(-9.3% yoy in January). 
While NBB’s interest rates were at a rather high level, it tried to 
provide additional liquidity for banks through decreasing the 
reserve requirements (for ruble households’ deposits it was 
reduced down to 1% (from 1.5%) and later in March down to 
0). These measures by the NBB enabled banks to maintain 
high growth rate on granting loans, and outstanding loans grew 
in February by 3.7% mom, while in annual terms it amounted 
to 66.9% yoy (64.1% yoy in January). In this situation, inter-
est rates by banks were kept almost unchanged, but however 
they were still at very high levels in nominal terms. Despite 
high interest rates in national currency economic agents kept 
on decreasing demand on it. Cash in circulation was still de-
creasing (by 0.4% mom) after huge drop in previous months. 
Moreover, deposits in national currency were still decreasing 
(by 3.6% mom), while there was a substantial growth of de-
posits in foreign currency (by 12.9%). Finally, ruble money 
decreased in February by 3.0% mom, while broad money grew 
by 4.3% mom. In annual terms their growth rate were 5.9 and 
34.6% yoy correspondingly (11.3 and 32.0% yoy in January). 
Consumer prices in February grew by 1.2% mom and in an-
nual terms inflation amounted to 15.7% yoy (15.1% yoy 
January). The Belarusian ruble depreciated to the US dollar in 
February by 3.9% and appreciated by 0.7% in March, being 
within the target corridor to the NBB currency basket. As of 
March 31, its exchange rate was 2837 USD/BYR. 
Banking sector: Discussion about attracting investors 
to state banks 
Under the conditions of the global crisis the problem of low capi-
talization of the Belarusian banking system and restricted ac-
cess to foreign borrowings sharpened. Through this NBB makes 
efforts to attract foreign investors to large state banks. The 
chair of the NBB supervision department, S. Dubkov, stated 
that NBB supports this idea and informed about negotiations on 
selling a controlling stake of BPS-bank that is the third largest 
state bank, to Russian Sberbank. It should be emphasized that 
during the crisis Russian Sberbank began to realize the strategy 
of purchasing rather big banks in CIS countries, so it is likely to 
become one of the largest regional banking groups. However, 
the final decision will have to be made by the government, 
which is the owner of this bank. But in current conditions it is 
likely to be interested in inflow of the foreign capital and hence 
the probability of this deal to be accomplished is rather high.
 
Consolidated Budget 
30
40
50
60
70
80
90
Ja
n
.0
8
Fe
b
.0
8
M
ar
.0
8
A
pr
.0
8
M
a
y.
08
Ju
n
.0
8
Ju
l.
0
8
A
u
g
.0
8
S
ep
.0
8
O
ct
.0
8
N
ov
.0
8
D
e
c.
0
8
Ja
n
.0
9
-40
-30
-20
-10
0
10
20
balance (right axis)
revenues
expenditures
% of GDP
Source: calculations based on the National Statistical 
Committee data. 
 
 
 
 
 
 
 
 
Monetary Base and СPI 
-10
0
10
20
30
40
50
60
70
Ja
n
.0
8
F
eb
.0
8
M
a
r.
0
8
A
pr
.0
8
M
a
y.
0
8
Ju
n
.0
8
Ju
l.
0
8
A
u
g
.0
8
S
ep
.0
8
O
ct
.0
8
N
o
v.
0
8
D
ec
.0
8
Ja
n
.0
9
Fe
b
.0
9
2
4
6
8
10
12
14
16
18
CPI (right axis) monetary base
% yoy eop % yoy
 
Source: calculations based on the National Statistical 
Committee and the NBB data. 
 
 
 
 
 
 
 
Refinancing rate 
8
9
10
11
12
13
14
15
Ja
n
.0
8
Fe
b
.0
8
M
ar
.0
8
A
p
r.
0
8
M
ay
.0
8
Ju
n
.0
8
Ju
l.
0
8
A
u
g
.0
8
S
ep
.0
8
O
ct
.0
8
N
o
v.
0
8
D
ec
.0
8
Ja
n
.0
9
Fe
b
.0
9
-6
-5
-4
-3
-2
-1
0
real (right axis) nominal
% per annum
Source: calculations based on National Statistical 
Committee and the NBB data. 
 
Belarusian Monthly Economic Review №4 (79) 
 
 
 
April 2009 4 
Economic Trends  Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 
Dec 
08 
Jan 
09 
Feb 
09 
GDP growth % yoy 8.4 8.9 8.4 7.3 10.9 10.1 11.2 7.5    
GDP growth % yoy cum. 8.4 8.6 8.4 8.2 10.9 10.4 10.7 10.0 10.0 4.2 2.3 
Industrial Production % yoy cum. 5.9 7.7 8.2 8.5 14.7 13.0 13.1 10.8 10.8 1.2 -2.3 
Agricultural Production % yoy cum. 4.4 5.2 5.6 4.1 6.8 5.4 6.9 8.9 8.9 8.4 6.2 
CPI % yoy eop 8.1 7.2 9.0 12.1 13.2 16.0 16.3 13.3 13.3 15.1 15.7 
PPI % yoy eop 11.6 13.6 16.8 17.1 13.5 16.2 18.5 14.2 14.2 19.9 21.4 
Merchandise export (USD)* % yoy 6.3 23.3 18.5 44.4 69.2 56.0 44.9 -11.6 -29.8 -45.4 -- 
Merchandise import (USD)* % yoy 20.8 23.7 23.8 42.4 56.5 55.3 53.1 -1.5 -12.2 -32.8 -- 
Merchandise trade balance 
(NBB data) 
USD m cum. –836 -1563 -2304 -3858 -647 -2049 -3835 -6104 -6104 -432 -1037 
Current account USD m cum. –641 -1152 -1652 -2944 -433 -1411 -2920 -5049 -5049 -- -- 
Current account % GDP cum –7.0 -5.8 -5.1 -6.6 -3.6 -5.5 -6.6 -8.0 -8.0 -- -- 
International reserves USD m eop 1565 2344 2155 4182 4746 4618 4120 3061 3061 2929 3327 
Monetary base % yoy eop 22 29 25 38 59 54 48 12 12 -9.3 0.4 
Lending rate** % p.a. aop 14 11 12 12 11 10 11 14 15 18 19 
Exchange rate 
(official) 
USD aop 2141 2145 2147 2152 2148 2136 2114 2147 2190 2668 2807 
Exchange rate 
(official) 
EUR aop 2805 2890 2948 3115 3215 3339 3183 2827 2935 3544 3595 
* Growth rates in value terms (source: Ministry of Statistics and Analysis). 
** Nominal rate of commercial banks for new loans for legal entities in national currency. 
Sources: Ministry of Statistics and Analysis, NBB. 
 
Key Economic Indicators 2002 2003 2004 2005 2006 2007 2008 
Nominal GDP* BYR trn 26.613 36.565 49.991 65.067 79.231 97.165 128.828 
Nominal GDP** USD bn 14.5 17.7 23.1 30.2 36.9 45.2 60.3 
GDP Growth % yoy 5.0 7.0 11.4 9.4 9.9 8.6 10.0 
Industrial production % yoy 4.5 7.1 15.9 10.5 11.3 8.5 10.8 
Agricultural production % yoy 0.7 6.6 12.6 1.7 6.1 4.1 8.9 
CPI % yoy aop 42.6 28.4 18.1 10.3 7.0 8.4 14.8 
CPI % yoy eop 34.8 25.4 14.4 8.0 6.6 12.1 13.3 
PPI % yoy aop 41.4 37.5 24.1 12.1 8.3 16.2 15.6 
PPI % yoy eop 42.7 28.1 18.8 10.0 8.5 17.1 14.2 
Exports (gs, USD) % yoy 9.8 24.4 35.7 15.8 21.8 24.3 35.5 
Imports (gs, USD) % yoy 9.0 25.1 40.3 3.0 33.0 27.9 37.6 
Current account USD m –311 –424 –1206 510 –1512 -2944 -5049 
Current account % GDP –2.1 –2.4 –5.2 1.7 –4.1 -6.6 -8.0 
FDI (net) USD m 453 170 163 303 351 1770 2143 
International reserves USD m 457 474 770 1297 1383 4182 3467 
Fiscal balance % GDP –0.2 –1.6 0.0 –0.6 2.2 0.6 0.9 
Domestic public debt % GDP eop 5.4 5.5 5.7 5.8 6.5 6.4 6.7 
External debt (total) % GDP eop 27.0 23.7 21.4 17.9 18.6 28.4 24.6 
Monetary base % yoy eop 32 50 42 74 20 38 12 
Exchange rate (official)* USD aop 1784 2075 2160 2154 2145 2146 2136 
Exchange rate (official)* USD eop 1920 2156 2170 2152 2140 2150 2200 
Exchange rate (official)* EUR aop 1690 2353 2684 2681 2692 2937 3135 
Exchange rate (official)* EUR eop 1989 2695 2956 2550 2817 3167 3077 
Sources: National Statistical Committee, Ministry of Finance, NBB, IPM Research Center. 
 
Notes: 
aop average of period gs goods and services 
avg average trn trillion 
bn Billion NBB National Bank of Belarus 
cum. cumulative p.a. per annum 
eop end of period yoy year-on-year 
m million ytd year-to-date 
 


Belarusian Monthly Economic Review, \u21164(79), April 2009

The baseline inflation and GDP projection of the Inflation Report, May (per cent) 
 2009 2010 2011 
Consumer price 
inflation 
4.5 4.3 1.9 
Economic growth -6.7 -0.9 3.4 
 
Inflation projection fan chart 
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
06
:Q
1
06
:Q
2
06
:Q
3
06
:Q
4
07
:Q
1
07
:Q
2
07
:Q
3
07
:Q
4
08
:Q
1
08
:Q
2
08
:Q
3
08
:Q
4
09
:Q
1
09
:Q
2
09
:Q
3
09
:Q
4
10
:Q
1
10
:Q
2
10
:Q
3
10
:Q
4
11
:Q
1
11
:Q
2
11
:Q
3
11
:Q
4
Per cent
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
Per cent
 
 
GDP projection fan chart 
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
06
:Q
1
06
:Q
2
06
:Q
3
06
:Q
4
07
:Q
1
07
:Q
2
07
:Q
3
07
:Q
4
08
:Q
1
08
:Q
2
08
:Q
3
08
:Q
4
09
:Q
1
09
:Q
2
09
:Q
3
09
:Q
4
10
:Q
1
10
:Q
2
10
:Q
3
10
:Q
4
11
:Q
1
11
:Q
2
11
:Q
3
11
:Q
4
Per cent
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Per cent
 


Projections for inflation and growth in the May 2009 issue of the Quarterly Report on Inflation

Electrical engineering in Slovakia in 2008. An industry analysis

1Drop of population will lead 
to further financial troubles in Dubai
Risk Warning
12th February, 2009
The population of the emirate of Dubai is expected to drop by between 14 % and 28 % by the end 
of 2009. 
This will be instigated by an abrupt reduction in construction activity in the emirate resulting in 
tens of thousands of lay-os in the predominantly expatriate population. 
The anticipated drop of population will likely lead to further nancial diculties for Dubai and 
may necessitate greater assistance from Abu Dhabi.
The drop in the population is expected to worsen in the third quarter of 2009 and result in further 
aggravating the economic situation. 
Massive government spending will likely result in stabilization in the population. However, the 
assistance of Abu Dhabi may be necessary to realize this. Despite the short and medium term        
diculties, the long-term prospects for Dubai as a regional hub remain optimistic.
Key ndings:
Political Capital estimates that the percentage of the population working directly in the construction 
and construction-related industries and those directly dependent on them (i.e. family) to be 39% of 
the current total Dubai population.
Current estimates suggest that the level of construction activity in Dubai will drop by at least 60% 
from the end of 2008. This is likely to be reected in a similar drop in the number of employees     
working in the industry. 
Unless drastic measures are taken before June 2009 to increase spending to an amount equivalent to 
halt the construction activity, the population drop is likely to accelerate further in the summer months.
Population changes and construction activity in 2009
There are no reliable gures on the number of residency permit cancellations in Dubai. However, 
estimates of an average of 1,500 - 2,000 residency cancellations per day since the start of 2009 are 
reinforced by reported scenes at the residency cancellation counters of the immigration                        
department. There are also reports that due to thousands of laid o construction labourers from 
India unable to return home, the Indian government is chartering ights to repatriate them.               
Repatriation chartered ights are reported to be leaving from RAK airport. 
Residency permit cancellations and construction workers repatriation
Political Capital      Risk Forecast Division        London     Budapest     Soa     Beijing     Dubai       www.politicalcapital.hu 
Contact:  Mr Krisztian Szabados,  Director     Tel: +36 1 437 6787     E-mail:  szabados@politicalcapital.hu
2Figure1: Population of Dubai since 2005 along with Political Capital population estimates for 2009
Drop of population will lead 
to further financial troubles in Dubai
Risk Warning
12th February, 2009
Predicted population trend changes in 2009
1.
2.
3.
4.
Political Capital      Risk Forecast Division        London     Budapest     Soa     Beijing     Dubai       www.politicalcapital.hu 
Contact:  Mr Krisztian Szabados,  Director     Tel: +36 1 437 6787     E-mail:  szabados@politicalcapital.hu
 0
0.5
1.0
1.5
2.0
2005 2006 2007 2008 2009
(max ) 
2009
(min)
Local
Expatriate
Dubai total population in millions  (2009, Political Capital estimates)
The change of the population is expected to go through dierent phases as follows:
Based on ocial gures on the population numbers and its make-up and the latest information on 
the status of the Dubai economy in general and the construction industry in particular, we                 
estimate that the total population of Dubai will drop between 14 % and 28 %. This estimate takes 
into account the expected layos in the non-construction and real-estate sectors.
Figure 1 shows the population of Dubai since 2005 along with the maximum and minimum 
predicted population by the end of 2009.
The rst quarter of 2009 is already experiencing the rst batch of layos. A steady drop is 
expected to continue through the rst quarter of 2009;
The second quarter of 2009 is likely to see a less severe population drop. This is partly due to a 
predicted lower rate of increasing layos and partly due to those who have already been laid o 
to remain in Dubai through to the third quarter. The latter case applies to those with school 
children;
The third quarter of every year is traditionally the time of year when residents return to their 
native countries for the summer holidays, after the end of the summer year. It is also the time 
when most contracts (housing and employment) are due for renewal. At the end of the school 
year, parents working in the construction industry are more likely to send their children back to 
their native countries for the following school year. Those parents who have already been laid 
o and opted to remain until the end of the school year, will likely leave Dubai for good, while 
many of those who have retained their jobs will likely prefer to avoid risking committing       
themselves and their families to starting a new year and may opt to only remain themselves in 
Dubai while keep their families home. As a result, the third quarter of 2009 will likely see the 
steepest drop in the population of Dubai;
The fourth quarter may see a slight recovery in the overall population, but this will only be due 
to construction industry employees arriving for temporary assignments without their families.
3Figure 2: Make-up of the Dubai GDP (2006 estimate)
Manufacturing
Real estate
Transport & Communication
Construction
Oil
5%
12%
10%
12%
13%
Drop of population will lead 
to further financial troubles in Dubai
Risk Warning
12th February, 2009
Consequences
Political Capital      Risk Forecast Division        London     Budapest     Soa     Beijing     Dubai       www.politicalcapital.hu 
Contact:  Mr Krisztian Szabados,  Director     Tel: +36 1 437 6787     E-mail:  szabados@politicalcapital.hu
In most countries, layos translate into higher levels of unemployment. Dubai is one place where 
layos translate into a drop in the population. Although there are no exact gures on the              
contribution of the construction industry to the Dubai economy, it is accepted that the back-bone 
of the economy is the construction and real-estate industries. The economy has been largely 
driven by speculation in the property market reinforced with anticipated population increase. 
Figure 2 shows an estimate of the make-up of the Dubai economy. 
The reported drop in the value properties in Dubai has initially been due to illiquidity in the              
nancial institutions and the resulting clearing away of speculators. Those factors have resulted in 
an abrupt stoppage of construction activity, leading to the predicted population drop. This       
population drop will now create a further problem for the real-estate industry as for the rst time 
in many years, the supply in residential and commercial properties will exceed demand.
The Dubai authorities are compelled to introduce massive spending in order to attract population 
numbers again, as outlined in the 2009 budget. However, current evidence suggests that there are 
diculties in the completion of Dubai government-aliated construction projects. This leads to 
the conclusion that in order for Dubai to regain the condence that has been shaken by the recent 
crisis, Abu Dhabi may need to step in and oer more thorough support. Failure to do so will likely 
result in continuing economic diculties well into 2010. 
Despite the dicult short and medium term outlook for Dubai, the infrastructure that has already 
been put in place makes it one of the region’s main future hubs. We therefore estimate that in the 
long-term, the prospects for Dubai will be better, albeit dierent to pre-2009.
Risk Forecast Division
Ghanem Nuseibeh
Senior Analyst
Krisztián Szabados
CEO
szabados@politicalcapital.hu
4
Drop of population will lead 
to further financial troubles in Dubai
Risk Warning
12th February, 2009
Eect on Abu Dhabi
Political Capital      Risk Forecast Division        London     Budapest     Soa     Beijing     Dubai       www.politicalcapital.hu 
Contact:  Mr Krisztian Szabados,  Director     Tel: +36 1 437 6787     E-mail:  szabados@politicalcapital.hu
The nancial diculties facing Dubai will be interconnected with relations with and events in Abu 
Dhabi. As Dubai faces diculties in its real-estate and construction sector, Abu Dhabi will have 
increasing inuence on the way Dubai moves. The nancial institutions providing funding for the 
real-estate and construction sectors are becoming more federalized, with ever-increasing               
dependance on Abu Dhabi. In addition, Dubai-based developers will look for nancial assistance 
from Abu Dhabi. In return for its de-facto bail-out, Abu Dhabi will likely hope to have greater say 
in the running of Dubai, through the strengthening of federal mechanisms in which Abu Dhabi has 
the greatest inuence. Abu Dhabi will therefore increase its hold on the the way the rest of the UAE 
moves. This will likely contribute to the overall position the UAE, potentially making it a more 
important and inuential regional player. However, this will ultimately depend on the way     
Dubai-Abu Dhabi relations develop.


Drop of population will lead to further financial troubles in Dubai

Summary Vision of Transnistria problem

Residential housing loans, second half-year 2008 (Statistical reflections)

Belarusian-Russian Diplomacy: Anger, Threats and Irritation 
Julija Narkeviciute, Florian Chapalain, Eastern Europe Studies Centre 
Recent conflict between Belarus and Russia over the ban of Belarusian dairy products exported to 
Russia is clearly more than just a technical or economic dispute. In fact, Russia either does not have 
disputes with former USSR states or has exclusively politicized or military ones aimed at showing the 
insubordinate its dependence on Russia. Thus the present ‘economic discrimination‘ imposed on Belarus 
would not be so surprising if not the unprecedented rhetoric of both sides proving that neither side intends 
to give up. One can understand why Russia is waiting for an apology: it has never been the other way 
round. The question is, what gives A. Lukashenka so much self confidence in the face of harsh economic 
conditions and complete dependency on Russian energy resources. 
Some might think that the reason of such self assurance are Belarus’ improving relations with the 
West, the launch of the Eastern Partnership (EaP) and A. Lukashenka’s hopes that Belarus can resort by 
leaning to the EU. Indeed, the EaP caused an ambiguous reaction in Russia. Moscow showed discontent 
and worries about the EaP, considering it as the new Trojan horse of the EU, but still officially continued 
to support  Belarus’  wish to take part  in the new program. Its concerns about the new program were 
repeatedly voiced by Sergei Lavrov, Russian Minister of Foreign Affairs, who declared in April: “We 
have listened to the statements from Brussels saying this is not a question of expanding the sphere of 
influence and that it is not a process which is directed at Russia. We would very much like to believe 
this”1. At the same time, Moscow was inciting the EU to invite Belarus to join the partnership. Sergei 
Prikhodko, presidential aide stated: “We are happy that realistic attitudes towards Belarus have gained the 
upper hand in Brussels”2. 
Economic argument might be one explanation of such ambiguous position. Belarus has been a 
burden for Russia since the collapse of USSR, any financial help coming from the West would lighten the 
weight on Russian shoulders. In July 2002, talking about reshaping economic agreements with Belarus, 
Putin stated that “there can be no attempts  to restore  the USSR at the expense of Russia’s economic 
interests”3 emphasizing Moscow’s inability to see any real  interest  in tightening economic links with 
Belarus. However, this argument should be discussed considering the low amount of funds planned to be 
1 Russia voices new concern over EU Eastern Partnership, http://www.eurobusiness.com/news-eu/1240927321.84, [04.28.2009]. 
2 Lukashenko says Belarus committed to cooperation with EU-2, http://en.rian.ru/world/20090417/121185810.html, [04.17.2009]. 
3 Kommersant, 14 June 2002, In Current Digest of  the Post-Soviet Press, 54, 24, 2002, p.2. 
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injected in Belarus by the EU, roughly 21 millions of euro, nothing compared to the Russian economic 
implication in the country. According to the official data of the Ministry of Foreign Affairs of the Republic 
Of Belarus, 30.4% of the foreign direct investments, accounting for $1.160.8 million, were coming from 
the Russian Federation in 2007. Not to forget the $2 billion loan (3/4 of it has already been transferred, the 
last 500 million tranche has been delayed due to yet another dispute over the loan’s currency: Lukashenka 
prefers dollars whereas Russia seeks to commit Belarus to return the loan in Russian roubles). In short, 
Brussels’ announced help seems petty, Moscow has certainly no reason to be worried to lose its economic 
grip  on Belarus,  Belarus in  its  turn has no reason to believe EU can offer something comparable  to 
Russia’s support. 
Moreover, what might have appeared as a reason for Russia to be annoyed, can be considered as 
developments to its own advantage. Indeed, participation of Belarus in the Eastern Partnership initiative 
meant that Belarus will not recognize the independence of South Ossetia and Abkhazia. The visit of the 
delegation lead by Head of the Presidential Administration of Belarus Uladzimier Makiej in Sukhumi on 
May 12-13 and the commitment of Belarus to establish future economic, social, cultural and humanitarian 
contacts with two breakaway states scattered the last possibility of their recognition by Belarus. 
However, by joining the partnership, Belarus and its government are recognized as the official 
interlocutor  of  European  institutions.  That  can  be  seen  as  favourable  to  Russia  since  weakening 
opposition’s  movements  will  thus  prevent the  -  extremely  low  -  risk  of  ‘coloured  revolution‘  and 
guarantee that the ruling regime in Minsk will not be too hostile to Russia, and will not drift away from its 
sphere of influence overnight. Then a bunch of issues are expected to rise in the near future if the EU 
wants the partnership to be a success: “The EaP anticipates a free trade zone, but before this can take 
place, its members must be members of the World Trade Organization (WTO). Belarus is not a member of 
the WTO and has no immediate prospects of acceptance”4. Closely linked to the free trade zone issue, 
visas will  be problematic  as well.  The EaP customs control policy is  to clash with actual  agreement 
between Belarus and Russia. It stipulates that controls will eventually be transferred to the outside borders 
of the whole enlarged community whereas  Belarus  and Russia  formerly agreed  on abolishing border 
between them, and to draw their union’s limit in the west, on the edge of the EU. Furthermore, if the EaP 
could in theory lead Belarus to get involved in European energy security and defence initiatives too, it 
already has such relationships in place with Russia. Thus, because Russia’s ‘good-will’ will be essential 
4 David Marples, Belarus and the Dilemmas of Eastern Partnership, http://www.jamestown.org/single/?
no_cache=1&tx_ttnews[swords]=8fd5893941d69d0be3f378576261ae3e&tx_ttnews[any_of_the_words]=belarus&tx_ttnews[
tt_news]=34917&tx_ttnews[backPid]=7&cHash=a34166934c, [04.29.2009]. 
2
for the implementation and any future improvements of the EaP, Russia will surely acquire new political 
leverage in negotiations with the EU. Instead of observing the partnership from the outside, Moscow will 
have its Trojan horse in the organisation and might have to step in the program in the long run. Moreover, 
the absence of Presidents of the biggest EU countries also suggests the slight interest raised by the project 
among its main funders. Nicolas Sarkozy, Gordon Brown and Louis Rodriguez Zapatero were notably 
absent from the conference. All of these elements may lead Russia to believe the EaP won’t be more than 
a new kind of GUAM organization or Organization of the Black Sea Economic Cooperation, a talk shop 
unable of major achievements.
Therefore the EaP can not be considered neither as the single explanation of Russia’s anger nor the 
reason of A. Lukashenka’s self confidence. More probable explanation of Russia’s irritation would be its 
failed expectations to force integration processes of the Union state project in the face of the economic 
crisis and worsening economic and financial situation in Belarus. The disagreements between Russia and 
Belarus and disruptions in the creation of the common state began when V. Putin came to power in Russia 
determined to accelerate the unification processes. Since then the relations between to states were quite 
strained.  In  2004  there  was  a  gas  dispute  that  drew relatively  little  attention  from the  international 
community. The dispute was followed by a more notorious energy conflict in 2006. Then a number of 
upstarts and controversies related to the energy delivery and prices, “economic blockades”, disagreements 
over a number of issues in the process of the Union state’s creation (over Constitution, common currency). 
Belarus’ reluctance to recognize separatist  states in South Caucasus,  disinclination for a closer Union 
under  Russia’s  supremacy,  annoying  A.  Lukashenka’s  rhetoric  towards  high  Russian  officials, 
protectionist economic policies towards Russian import in Belarus (on tobacco, fish, alcohol and other 
products) and Belarus’ flirt with the West (the EaP initiative; recently European Council has given Belarus 
the status of a special guest), were the combination of factors that triggered recent annoyance. 
A. Lukashenka’s firm position may be explained by the fact that there is no pro-Russian politician 
in  Belarus  who  could  pose  a  serious  challenge  to  A.  Lukashenka.  Thus  the  speculations  about  A. 
Lukashenka’s post being at stake during this conflict are merely a bluff. However, Russia can otherwise 
punish Belarus: the hints about the possible ‘energy war’ are already flying. It was not difficult for A. 
Lukashenka to see that coming. But supposedly A. Lukashenka has made a great insight: Russia will 
anyway provide Belarus with energy resources, be they cheaper or not. Being insolvent Belarus will let its 
debt rise and Russia will have no other chance but to render a credit or delay the payments. Having that in 
mind the matter of fact can only be the price that Russia will set. And Belarusians are not beginners in the 
3
negotiations  with  Russia  on  this  issue.  What  can  Russian  threaten  Belarus  that  Belarus  has  not  yet 
experienced and pulled through? Apparently knowing that gives the President of Belarus so much courage. 
4
