Lukashenko controls Russo-Belarusian cooperation issues
On May 21st, Belarus and Russia Prime Ministers Myasnikovich and Medvedev met in Moscow.
The Prime Ministers’ meeting results confirmed assessment that President Lukashenko was still in control of privatization in Belarus. Therefore, the most controversial issues of the Belarusian-Russian cooperation will be addressed at the meeting between presidents Lukashenka and Putin in Astana in late May at the CES Summit.
The meeting between Myasnikovich and Medvedev had negative results. The parties failed to agree on the most contentious bilateral relations issues: privatization and oil trade. Earlier, the two countries’ Deputy Prime Ministers Semashko and Dvorkovich also failed in reaching the final agreement. Thus, the issue of oil supply volume to Belarus in Q3 and Q4 2013 remains unresolved (must be signed by mid-June).
In Russo-Belarusian relations, Prime Minister Myasnikovich is only a ‘technical’ figure with no independent influence. He managed to strengthen his positions during the 2011 crisis, but later failed to preserve his political capital. Therefore, no breakthroughs should be anticipated during Medvedev’s visit to Minsk on May 31st to participate in the Council of CIS Heads of Government meeting, since these issues are not resolved at the Prime Minister’s level.
President Lukashenko is the key political figure in Belarus’ foreign policy and Belarusian-Russian relations in particular. Lukashenko’s nearest opportunity to meet with Putin will be in late May at the Supreme Eurasian Economic Council meeting of the Common Economic Space member states.
Noteworthy, the two planned meetings between Lukashenko and Putin failed to take place, one in Sochi on May 10th during the amateur hockey tournament, and the second at the informal CSTO summit on May 28th in Bishkek. The first meeting was disrupted after the controversial disqualification of the Belarusian President’s hockey team, and the second (on May 28th) will not take place due to the revised Summit’s agenda, which will focus on the Central Asian security issues. Thus, Belarus and Armenia will not participate in the Summit.
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.