Lukashenka seeks compromise between supporters of market reforms and conservatives
The president is attempting to find a compromise solution to economic problems between reforms and conservation. Apparently, the government is increasingly split over future economic development policy - either liberal, or conservative. Disagreement among state managers and the lack of decisive majority prevents the authorities from committing to a particular economic policy, which leads to half-measures and inconsistent decisions relating to economic reforms.
On the sidelines of the Belarusian People’s Assembly former National Bank Head Piotr Prokopovich said that economic growth required available credit resources.
President Lukashenka risks being caught between two fires due to indecision about the final choice of economic policy in the next five years. On the one hand, the Belarusian authorities have not taken an irrevocable decision regarding the implementation of full-scale structural and market reforms. Despite some liberal elements in Lukashenka’s speech at the Assembly, the President noted that the adopted five-year plan could be revised: "Because life is very diverse, plenty of other issues may emerge. We will have to make many decisions outside of this programme, based on its provisions, of course”.
On the other hand, the president is a supporter of administrative micro-management in the economy dominated by state ownership. After the presidential campaign, President Lukashenka repeatedly emphasised his commitment to the current socio-economic model and his reluctance to reform it. However, he said he was ready for market reforms, but noted the lack of consensus in the ruling elite: "I am ready for any reform, for any plans, for any action. The question is not about me: are you, society, ready for such a radical change? Silence".
In the Belarusian society and among state managers, supporters of conservative approach and administrative management have strong positions. Despite the inconsistency of the government policy and some provisions of the adopted five-year economic development programme, some conservative managers see in it some unacceptable "neoliberal reforms based on market fundamentalism”.
That said, some half-measures and often forced decisions to reform some socio-economic spheres, do not allow the economy to recover. However, the tight monetary policy has prompted the growth of dissatisfaction in the public sector, which is nostalgic about the emission stimulation of the economy and larger state support.
In turn, amid lasting economic recession, positions of liberal-minded managers in government, the National Bank and the Administration have been increasingly criticised. For instance, former National Bank head Prokopovich criticized the approach of his former colleagues to curbing inflation and supported advocates for greater credit support for the public sector: "Today, loans should costs 15%-16%. Then it will be understood by the real economy and there will be no claims to the National Bank [from businesses, industrialists]. The faster we introduce such a system, the sooner there will be prerequisites for economic growth”.
Before the Assembly, a public discussion broke in Belarusian expert community among liberals and their opponents. For instance, in SB, the newspaper of the presidential administration, ex-presidential aide on economy Tkachev published an article sharply criticising the government’s new five-year programme. Independent analysts, supporters of market reforms, have criticized the same document for the lack of effective mechanisms to implement its objectives.
Amid the lack of a clear majority between liberals and conservatives, the president is prompted to accept a compromise solution on economic transformation.
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.