Belarus attempts to stave off the EU sanctions’ extension
Foreign Minister Martynov’s European visits meant to stave off the potential extension of the EU sanctions before the Parliamentary elections. Simultaneously, Belarus is nevertheless not intending to fulfill the EU’s political demands and is ready to freeze the conflict as is.
On July 23-27, Belarusian Foreign Minister Sergei Martynov visited Brussels and Rome. On July 23rd he attended an Eastern Partnership ministerial meeting in Brussels. On July 25th – 27th Mr. Martynov met with OSCE PA President R. Migliori in Rome.
The main purpose of Martynov’s visit to Brussels was to prevent another extension of sanctions against the Belarusian government and business. Previously, a number of senior European officials (Wiegand, Fule) talked about such a possibility if Belarus failed to fulfill the demands to release and rehabilitate political prisoners. However, Minsk has not made any significant moves in this regard.
Most likely, Martynov’s visit meant to lower the degree of the conflict. Foreign Minister’s presence at that meeting was a minimally acceptable response for Belarus and an indication that Minsk was concerned about the likely extension of sanctions. At the same time, last week Belarusian media disseminated comments by Slovenian and Belarusian businessmen Mr. Shkrabets and Mr. Moshensky about the sanctions policy’s hopelessness.
During the meeting Martynov made it clear that Belarus was not going to fulfill the conditions put forward for the resumption of a political dialogue and, in response to criticism, accused the EU of democracy deficit. Martynov noted that Belarus was ready to participate in regional energy and transport projects within the Eastern Partnership, but only if they were bilaterally approved.
Belarusian authorities were not happy about the format of the European Dialogue for modernization with Belarus programme, namely, its development and launch without consultations with the Belarusian side. In early July this was stated by a representative of Belarus in the EU, Mr. Yeudachenka. Moreover, the government is certainly unhappy about a broad representation of the opposition forces in the programme.
Belarus’ European policy in the coming months will be determined by the election campaign and the actual parliamentary elections to be held in September. Even if these elections once again are not recognized by the West, Minsk is not genuinely interested in holding them in confrontational environment. Mr. Martynov met personally with the Chairman of the OSCE Parliamentary Assembly Mr. Migliori, who had previously agreed to send a full-fledged election observation mission to Belarus.
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.