Official Minsk shapes new agenda for relations with EU
The Belarusian authorities have demonstrated interest in improving relations with the EU. Due to stalled negotiations with the Kremlin, Minsk would like to reopen a window of opportunity for cooperation with Brussels However President Lukashenko is not ready to fully meet EU conditions – to release and rehabilitate the political prisoners.
The Belarusian delegation at the Eastern Partnership Summit, headed by Foreign Minister Vladimir Makey, expressed a wish to attend to Belarusian-European relations. Makey informed the EU about the country’s desire to start visa facilitation talks with the EU, and, as in the past, Belarus also expressed interest in developing Belarus – EU economic relations.
Meanwhile, Minsk is not striving to restore political relations. Makey emphasized that Belarusian authorities were ready to release the political prisoners, but under the condition that the prisoners appeal for clemency. This would allow president Lukashenko to save face and take the issue of rehabilitation of political prisoners off the agenda.
Bearing in mind the apparent EU failure with Ukraine and Armenia, and Azerbaijan’s U-turn towards Russia, Minsk hopes for changes in Brussels’ approach to the Eastern Partnership countries including Belarus.
But Belarus has no plans to conduct structural economic reforms in the short or medium term and therefore is not considering possibilities to receive assistance from the EU. Top-level authorities virtually have no interest in the Eastern Partnership Programme.
Belarus’ readiness to start visa facilitation talks should be interpreted as an attempt to outline the framework of a potential agenda for Belarus-EU dialogue. Makey said that he had received those guidelines directly from the president, “He [the president] acted on the premise that it would be for the benefit of Belarusian citizens, our people. And it will be taken very positively by them”.
That the Belarusian authorities expressed interest in visa facilitation talks does not necessarily imply that the problem will be resolved in the near future. Belarus’ main task is to engage Brussels in negotiations. In fact, due to growing economic imbalances, simplification of the visa regime could have a negative impact on Belarus’ currency market. In September 2013, Lukashenko expressed concerns about Belarusians traveling abroad, “three billion dollars have been taken out, they develop trade, production, and we are floundering here like fools”.
In addition, ahead of his visit to Vilnius, Makey talked about Belarus’ desire to review the agreement on visa-free border traffic with Latvia.
Belarus hopes the EU will soften its requirements and will review approaches towards Belarus, particularly following the EU failure to sign Association agreements with some post-Soviet countries. Meanwhile, visa facilitation negotiations may drag on.
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.