Belarusian-Lithuanian relations on verge of crisis

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June 05, 2017 12:37
Image: belsat.eu

Minsk regards the behaviour of the Lithuanian authorities as unfriendly and aimed at blocking Belarus’ dialogue with the EU and NATO. Statements by Lithuanian politicians, which questioned Belarus’ sovereignty in security issues have irritated the Belarusian authorities. Minsk may react not only with harsh statements but also with concrete actions.

The latest statements by Lithuanian Foreign Minister Linas Linkevičius are unlikely to please Minsk. Belarusian-Lithuanian relations, which are hardly splendid, risk cooling even further.

Belarusian-Lithuanian relations are rather thorny. On the one hand, both states have scaly humanitarian, economic and infrastructure ties. Being neighbours, they cooperate on many issues, including in the security field. On the other hand, public statements by Lithuanian politicians which question Belarus’ sovereignty and their non-public activities aimed at complicating relations between Minsk and NATO, the EU and Ukraine cause an increasingly poorly hidden irritation in Minsk. Lithuania’s statements about the huge number of Russian troops, which would arrive in Belarus to participate in the West-2017 exercise, or about the full integration of the Belarusian and Russian special services have been perceived in Minsk as attempts to manipulate the opinion of Western elites in order to present the Belarusian authorities as dependent ones.

Yet another irritating factor is the Nuclear Power plant construction in Ostrovets. Lukashenka regards this project not only as having economic sense, but also as an image-making project. Its implementation has gone too far and cannot be stopped. Meanwhile, Vilnius de facto demands to stop the construction.

In the past year, the Belarusian leadership was extremely tense. Lukashenka undertook initiatives and made public statements which conflicted with the interests of the ruling regime and the state. The possibility exists that the Belarusian leadership may respond too harshly to yet another attack from Vilnius, which could lead to an acute crisis in Belarusian-Lithuanian relations. In turn, this could deteriorate already difficult relations among Belarus and the EU, NATO and the US. Perhaps, this could please some Lithuanian politicians, but the greatest joy from such developments would be in the Kremlin.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.

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