Minsk will continue security ‘trade’ during "West-2017" drill
Minsk trading security with the West is an established trend. Last but not least, because the Belarusian authorities have no other "commodity" for sale. The ‘West-2017” Russo-Belarusian military drill is likely to be used in such a bargaining.
Over the past week, Belarus’ neighbours expressed concern due to the forthcoming Belarusian-Russian military drill. On August 22nd, 2017, Polish Deputy Defence Minister Michal Dworczyk voiced suspicions that more forces and means than stated by Minsk would be used in the drill. Earlier, Ukrainian Defence Minister Stepan Poltorak said that the "West-2017" drill posed a security threat to his country. Lithuania expressed concerns that due to the "West-2017", the Russian military presence in Belarus would expand and Russian troops would not be withdrawn from Belarus.
Meanwhile, the Belarusian authorities have demonstrated the awareness of their responsibility in the light of the security crisis in the region. Through international fora, Belarus is providing up to date information about the upcoming military drill with Russia to all interested parties. She has invited observers from European countries and international organizations, and announced the intention to promptly inform about the course of the drill.
The Belarusian authorities aim to use the “West-2017” military drill to demonstrate their transparency, good will and readiness to meet the expectations of Western countries and Ukraine, to some limits, however. The boundaries would depend on what the neighbouring states and the West could offer to Minsk. Simultaneously, it should be understood that, given the importance of regional security issues to Russia, Minsk’s flexibility would not be unlimited. Once there would come a point when demands and expectations of the West and Ukraine exceeded Belarus’ capabilities. This means, that security issues cannot (and would not be) the only agenda item in Belarus' relations with the West. The Belarusian authorities need to expand the topics for a dialogue with the European Union and the United States.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.