Belarus officials say restoring relations with EU is important, but not pressing
Lithuanian Foreign Minister Linas Linkevičius is scheduled to meet with Belarusian President Lukashenko in late October to hand him an invitation to the Eastern Partnership Summit in Vilnius.
Belarus is interested in restoring Belarus-EU relations to compensate for growing pressure from the Kremlin. Nevertheless, deeper integration with the EU within the Eastern Partnership Programme is not Belarus’ foreign policy priority. In the short and mid-term, Belarus’ actions will be governed by Eurasian Integration agreements with Russia and Kazakhstan.
It was once a rule of thumb that as Russia increased its pressure on Belarus, the latter would increase its diplomatic efforts in Western policy. And by doing so, Belarusian leadership would mitigate claims from Russia or maintain the level of Russian subsidies.
However, recently Belarus has been unable to use the ‘European integration’ factor in order to blackmail Russia. Back in 2010 Belarus made its choice in favour of Eurasian Integration by signing official documents to establish the Eurasian Union.
Since 2011, several attempts have been made by the E.U. to normalize Belarus-EU relations. In H2 2011, the Polish EU Presidency advocated the renewal of a dialogue between Minsk and Brussels. However, Belarus did not yield to pressure and refused to fulfill the basic EU requirement, i.e. the release of political prisoners. Yet in 2008 Belarus had met this requirement, which was enough to resume Belarus-EU relations. In addition, back in September 2011, Belarusian diplomats made a demarche by refusing to participate in the Warsaw Eastern Partnership Summit, deliberately straining Polish-Belarusian relations.
The Lithuanian EU Presidency has also not seen significant changes in Belarusian-European relations, although Lithuanian leaders’ policy vis-à-vis Belarus has been more cautious. In general, E.U. efforts have left room for manoeuvre and for Lukashenko to save face.
However, at a press conference last week with Russian journalists, Lukashenko said that Belarus was not negotiating with the European Union ‘because no one wants to talk to us anyway’.
The Belarusian president is unable to resume his ‘pendulum’ policy between the East and the West, which he successfully implemented throughout 2008-2010. Strengthening economic and political ties with Russia have limited Belarus’ opportunities to play on Russo-European contradictions.
Belarus’ interest in the Eastern Partnership Programme has weakened while integration within the Eurasian Union has strengthened. Belarus will continue to ignore the basic EU requirements for the normalization of relations. Even if the Belarusian delegation takes part in the Vilnius Summit, there will be no significant breakthroughs in Belarus-EU relations.
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.