Lukashenko keeps trying formatting the “Teddy bear drop” as an international conspiracy
Attempts by the Belarusian authorities to make the “Teddy bear drop” look like an international conspiracy rather than a failure in the air-defense system, have not had the desired effect yet. The EU reaction was a fairly restrained one. It implies, that Belarus is yet to ‘provide an adequate response to the ‘teddy bear affairs’’.
On August 8th, Belarusian Foreign Ministry recalled its embassy in Sweden and requested the Swedish diplomatic mission staff to leave Minsk. On August 10, the KGB sent an official notice to Swedish nationals who took part in the ‘Teddy bear drop’, requesting them to come to Belarus for questioning saying their rights would be guaranteed. The KGB hinted that if the Swedes come to the “crime scene”, it could have a positive impact on the fate of those arrested on charges linked to the incident: a Belarusian student and a realtor, who were accused of “aiding and abetting” illegal border crossing.
The actions of the Belarusian authorities have caused a serious international outcry (for example, Swedish Foreign Minister informally said that “Lukashenko is behaving like a bandit”), but so far it all has not resulted in a full scale international conflict. The main reason behind this is a fairly restrained reaction by the European Union.
Resolution adopted by the Committee for Political and Security issued at a special EU meeting on August 10th, indicates, that Brussels is likely to fall for Belarus’ provocations and to extend the sanctions, but only after the parliamentary elections, depending on the way they would be carried out.
Attempts by the Belarusian authorities to make the “Teddy bear drop” look like an international conspiracy rather than a failure in the air-defense system, have not had the desired effect yet due to a fairly restrained reaction by the European Union. Moreover, avoidance of the EU to immediately extend the sanctions stripped Belarus of “trump” arguments for mobilizing allied assistance from 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.