Lukashenko is Incapable of Coherent Western Policy
On January 28th – 29th, US State Department delegation visited Minsk.
The main reason behind more frequent contacts between Belarus and the United States representatives is to seek for guarantees of the implementation of conditions put forward by the parties in the conflict. However, even if Minsk receives solid guarantees, high dependence of Belarus on Russia will not allow the ruling group to abandon its conventional pendulum geopolitics. This, in turn, sooner or later will result in a new conflict with the West.
A number of developments in the Belarus’ foreign policy during the last two weeks allow for assumptions, that Alexander Lukashenko is prepared to resolve the political conflict with the EU and the U.S. In particular, the January 21st meeting of the President with a group of American political scientists and the subsequent visit to Minsk of the State Department officials could be interpreted by analogy with the developments in August 2008, when Minsk entered talks with the U.S., released three political prisoners, and eventually received the IMF loan.
However, the level of bilateral relations is not yet indicative of sufficiently trustful relations between the Belarusian authorities and the West to resolve the current political crisis. Firstly, the disclosed information about the delegation’s composition proves this. The President’s meeting with four American political scientists did not match his status. The head of the State Department’s delegation visiting on January 28th – 29th, was Programme Coordinator of U.S. Humanitarian Assistance to Europe and Eurasia Mr. Rosenblum (in August 2008 Deputy Assistant Secretary of State J. Merkel visited Minsk).
It is very likely that the Belarusian authorities do not consider this level of negotiations as acceptable. Political prisoners are still in prison, implying that the Lukashenko regime has not yet received sufficient guarantees to compensate for such a step. We have repeatedly noted that Minsk considers the release of political prisoners a step forward in dealing with the West, and not a condition for starting negotiations and expects certain bonuses, such as the IMF loan, which is currently the most important item on the agenda.
It should be borne in mind that the level of integration in the Eurasian Economic projects has increased since 2008, which further limits the possibility of the Belarusian authorities to carry out a coherent Western policy. Belarus’ increased dependence on Russia forces the authorities to consider the Western policy only as an auxiliary tool to put pressure on the Kremlin within its “geopolitical pendulum” concept. Therefore, even if Belarus manages to mitigate or resolve the current political crisis in relations with the EU and the U.S., the next crisis is already pre-determined by the nature of the Belarusian-Russian 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.