Minsk is no longer willing to conflict with the West
On April 5, following a telephone conversation with Russian President Vladimir Putin, President Alexander Lukashenko held a meeting on foreign policy and made several important statements.
During the meeting, President Lukashenko made a number of serious allegations, which could be regarded as a significant concession against the background of the hard-line of the conflict between Minsk and Brussels. Firstly, Lukashenko promised to consider pardon petitions from prisoners Bondarenko and Sannikov in the near future. Secondly, he said that the parliamentary campaign should be held in compliance with the OSCE commitments.
The last but not the least, Lukashenko has de facto acknowledged that Russia had played a key role in determining the frameworks of the Belarusian-European conflict. Lukashenko said that the conflict between Belarus and the EU had a negative impact on Russo-Belarusian relations and concluded, that “we should not overload our close partners with problems in relations with Western Europe”. It is likely that this issue was discussed during a telephone conversation with Vladimir Putin, who managed to influence the position of Lukashenko.
The seriousness of the intentions of Minsk to restore relations with the EU is supported by the involvement in the President’s statement of two senior officials - the Minister of Foreign Affairs Sergei Martynov and Head of the Presidential Administration Vladimir Makey, – who are fundamentally in favor of normalizing relations with the West. Both officials were the main coordinators of the Belarusian-European dialogue in 2008-2010.
One should anticipate that the process of normalizing of relations will be furnished by Minsk with a number of conditions in order to mark time and allow the authorities to “save face”. In particular, Mr. Makey has already indicated that the political prisoners could be released – not immediately, but within a month. At the same time, the process of normalization is complicated by the Belarusian law enforcement agencies, which have gained significant influence after the elections in 2010 and are not interested in de-escalation of the conflict with the EU.
Aforementioned statements by President Lukashenko and his counterparts imply that senior management has recognized the dangers of the unilateral foreign policy for Belarus and wants to re-enlist the support of the West - as a necessary alibi and a lever in trade conflicts with Russia. Most likely, the decisive argument, which influenced Lukashenko’s position, was the escalation of the conflict between Russian and Belarusian airlines within the Common Economic Space.
Failure of Minsk to comply with its commitments on rules of equal economic relations within the CES (conflict of air carriers), as well as long-term persistence in non-compliance with EU requirements (release of political prisoners) indicate that the Belarusian authorities’ main tactics is maneuvering between the two major political and economic players, EU and Russia, which allows them to comply with only some requirements of either. However, after the CES accession, the space for such maneuver has narrowed and it will be extremely difficult for Minsk to return to a more successful foreign policy of 2009-2010.
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.