Kremlin attempts to devalue Minsk efforts in demonstrating military sovereignty to NATO
Amid enhanced contacts between Minsk and western capitals, the visit of Russian Defence Minister Sergei Shoigu to Minsk has demonstrated the inevitably close military cooperation between Belarus and Russia in response to the increased NATO presence in the Baltic States and Poland. Shoigu’s statements have devalued the Belarusian Foreign Ministry’s attempts in promoting Minsk’s neutrality and autonomy in the foreign and military policy, its non-hostile attitude towards NATO and the desire to step up cooperation with NATO. Nevertheless, the Belarusian authorities will continue attempts to disassociate themselves from the aggressive anti-NATO rhetoric, the confrontation with Western capitals, and will attempt to avoid being involved in the Russian containment policy targeting the North Atlantic alliance.
Last week, Minsk hosted a meeting of the joint board of the Russian and Belarusian Defence Ministries with the participation of Russian Defence Minister Sergei Shoigu.
Strengthening of the Belarusian defence potential is against the Kremlin’s interests, it would rather expand the Russian military presence in Belarus. President Lukashenka has repeatedly appealed to the Russian authorities with a request to provide new military equipment for the Belarusian air force, the Kremlin, however, supplied only obsolete weapons, albeit on preferential terms (for example, S-300SP). The Kremlin's reluctance to arm Minsk with modern technology has prompted the Belarusian government to creating the MLRS Polonaise in cooperation with China.
The Belarusian authorities are resisting the Kremlin’s pressure to place Russian military bases in Belarus, albeit they preserve close military cooperation with Russia. The Belarusian authorities are likely to include the MLRS Polonaise in the Union State common defence system, which the Kremlin is aiming to use in the deterrence policy against the North Atlantic alliance. Meanwhile, the Kremlin has strengthened the military presence at the Belarusian border and aims to create additional divisions in the Russian Western Military District, which could imply the mutual distrust between the allies.
Unlike the Kremlin, Minsk aims to tone down the NATO rhetoric and has emphasised that the modernisation of the Belarusian air defence was not in response to NATO’s progress towards Belarusian borders. The Belarusian authorities seek to consolidate the normalisation trend in relations with the United States and the European Union established after the 2015 presidential election.
On the one hand, Minsk would like to disassociate from the military standout between the Kremlin and NATO, but on the other hand, the Belarusian authorities would be promoted to step up military coordination with Moscow.
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.