Minsk loses its position vis-à-vis Moscow

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April 22, 2016 18:41

Vladislav Baumgertner, Uralkali’s CEO is in a Moscow jail after he was extradited from Belarus where he spent almost three months under arrest.

The resolution of the ‘potash’ conflict’ did not strengthen Belarus’ position in relations with the Kremlin. While Belarus has scored some publicity benefits, it has also suffered heavy economic losses. President Lukashenko has not only reduced his leverage on the Kremlin, but has ramped up Belarus’ dependence on Russia.

Russian President Vladimir Putin pointedly was not publicly involved in the ‘potash’ conflict resolution. Nevertheless, the Belarusian authorities have considered the recommendations of Russian President Assistant Yury Ushakov and have extradited Uralkali’s CEO “before November-end”.

The ‘potash’ conflict culminated in compromises by both parties. Kerimov has sold his stake in Uralkali (or pretend to sell), and Belarus has extradited Baumgertner to Russia without official compensation, on which it had previously insisted.

Belarus won some political and publicity benefits from the conflict, but lost out in Russo-Belarusian relations. For example, Russia has reduced oil supplies to Belarusian refineries, and the next EurAsEC Anti-Crisis Fund tranche has been delayed. In addition, Belarusian industry exports to Russia have collapsed, and sales of potassium – one of the main budgetary proceeds in Belarus – will not recover soon. All this approximates the devaluation of the Belarusian ruble.

Baumgertner’s extradition has not affected Russo-Belarusian economic relations. In 2014 Belarus will continue paying Russia export duties on petrochemicals produced from Russian oil.

In addition, Belarus’ role in Russia’s foreign policy will reduce due to the suspension of Ukraine’s Euro-integration process. The Kremlin has successfully blocked the signing of the Association Agreement with the EU by Ukraine, which means Russia will redistribute resources from Belarus to a partner currently more important for Russia – Ukraine. Russian presidential advisor Sergei Glazyev said, that “we will reduce gas prices for you [Ukraine] to our domestic level, will supply duty-free oil”.

If Russia fulfills its promises, Belarus will permanently lose its influence on the Kremlin’s policy, and the possibility to receive preferences within the Eurasian integration in the planned volumes will be jeopardized. All in all, Belarus will have to allow Russia to increase its presence in the Belarusian economy.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.

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