Minsk Retains its Internal Policy

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April 22, 2016 18:10

On 8 September, the Chairman of Belarus’ Central Election Commission, Yarmoshina, said that reforming the election legislation was undesirable. Last week, a number of high-ranking officials stated that it was unacceptable to sell Belarus’ national assets. 

The current task for the Belarusian authorities is to maintain the status quo. It is not expected that they will fulfill the political demands both of the West (such as the release of political prisoners and democratic reforms) and of Russia (the privatization of enterprises under the loan program of the EurAsEC).

Last week, Yarmoshina said that there were no plans to transform the standing majority electoral system into a proportional one. Later on, two of the three First Deputy Prime Ministers, Vladimir Semashko and Sergei Rumas, stated that privatizing major Belarusian companies (Belaruskali and BelAZ) would be a crime against the Belarusian people and was not acceptable. 

Such “tough rhetoric” is explained by Minsk’s unwillingness to fulfill the demands of the Kremlin and the West to carry out reforms. At the same time, such demands increase the unanimity within the governmental bodies on the most worrying issue: the privatization of the Belarusian enterprises within the frameworks of agreement on cooperation with the EurAsEC Anti-Crisis Fund. The issue will be discussed during Putin’s visit to Minsk on 31 May. 

As it has already been indicated, the Belarusian authorities have no long-term strategy.

However, there was significant growth in Belarusian foreign trade in the first quarter of 2012 due to favourable terms for trade in oil and oil products with Russia. Minsk wants to derive a maximum short-term benefit from this situation as well as to put off making economic and political concessions. It increasingly uses extremely adventurous but highly lucrative smuggling schemes to re-export Russian oil products without paying export taxes to Russia.

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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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