Lukashenko bargains over Russian air base deployment in Belarus
On August 20th, President Lukashenko held a meeting about prospects for Belarus’ Armed Forces development.
Belarus’ ruling group is divided over the Russian military air base deployment issue. The President is committed not to take responsibility in this matter and is interested in procrastinating negotiations with Russia, hoping to win economic preferences instead.
During the meeting concerning military cooperation with Russia, the President instructed the Defense Ministry “to proceed to the practical implementation of the reached agreements with Russia about aviation and air defense systems in the light of recent meetings with Russia’s Defense Minister and agreements with Russian President Putin”.
Some Belarusian media have prematurely interpreted this statement as President’s carte blanche for Russian air base deployment in Belarus. In reality, Lukashenko’s statement is intentionally ambiguous: it saves confusion over the air base deployment and leaves room for maneuver for the ruling group to continue bargaining with the Kremlin about the interrelated issues of economic and military-technical cooperation.
In fact, the spectrum of military-technical issues discussed with Russian Defense Minister Sergei Shoigu and with President Putin was not limited solely to the Russian air base. Basically, the package of agreements, in addition to air base deployment, includes preferential terms for modern fighters, air defense systems and other arms supply to Belarusian armed forces, as well as other not disclosed agreements. Therefore, what arrangements Lukashenko had in mind by his statement is difficult to understand.
In any case, the Belarusian president considers the airbase deployment issue too “valuable” to end the protracted negotiations. It is also likely that within the ruling group, there is no consensus about the air base issue. On the one hand, the military elite are generally supportive of the intensification of cooperation with Russia, since it gives them additional leverage to increase spending on the Belarusian army. On the other hand, political leadership is interested in “selling” its agreement to deploy the air base with the maximum advantage. This explains President Lukashenko’s avoidance to confirm the airbase deployment, moreover, in April he publicly refuted this information.
Tensions in the economic relations between Belarus and Russia (the BPC breakup), as well as the approaching negotiations about the quarterly oil supplies to Belarus (in mid September), reduce chances for a positive decision about the Russian air base deployment. Most likely, negotiations will continue and Belarus will put forward counterclaims, albeit not formally associated with the military-technical issues. Conventionally, such issues relate to Russian energy supply to Belarus and trade preferences on the Russian market.
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.