Belarus attempts to sell parliamentary elections to the West
Makey’s appointment as Foreign Minister means that Belarus will try to ’sell’ a liberalization illusion to the West in exchange for loans from international financial institutions. Makey and Prokopovich will be selling this illusion until there is a new beneficial framework for cooperation with Russia.
Staff reshuffle on August 20th, should, first of all, be interpreted as a measure to improve the search for foreign funding in the context of pre- and post-elections pressure on the Belarusian economy in general and on Belarusian ruble in particular. The Belarusian authorities have clearly lost their hope for the restoration of an adequate foreign currency income from Russia (about USD 2.5 billion in six months).
This implies, Belarus needs to consider either a large sale of state property (which is fairly complicated), or get new loans, or agree on refinancing of previous loans from international organizations (the IMF in particular). The recent staff reshuffle fits the bureaucratic system’s logic, i.e. that the local internal rearrangement should result in the anticipated external changes.
It is noteworthy that Makey’s dismissal as Presidential Administration Head has been long awaited. In fact, Makey failed as Head of Administration and after the December 19th events had lost President’s confidence significantly and, therefore, his weight in the administration. His resignation was deliberately coincided with the start of the active part of the election campaign - to indicate the possibility of changes in the Western policy, and to send a signal to the nomenclature about minor adjustments in the game’s rules.
In a wider perspective, the replacement of Sergei Tkachev as Presidential Aide on economy with Peter Prokopovich, as well as shifting Makey from the Presidential Administration to the Foreign Ministry aimed to update the authorities’ symbolic façade in order to facilitate negotiations with the IMF.
All this is meant as a fast and effective solution: to ‘sell’ the parliamentary elections with a view to resume negotiations with the IMF. At the same time, the authorities do not anticipate the recognition of the legitimacy of the Belarusian Parliament, for them the recognition of “progress” and “some democratization” in the electoral process in Belarus would be enough.
President Lukashenko had seriously restricted the room for maneuver in the upcoming negotiations. While introducing Makey and tasking him with normalizing the relations with the EU, he said, “We are ready to study hard and to learn everything new and advanced, and not only from them, but we want to do it without urges, threats or blackmail. Our people’s psychology is that you cannot make them jump through several development stages and turn out in “a happy democratic future”. These words need no further comments.
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.