Minsk strives to become economic and political "bridge" between Russia and EU
Belarusian officials would like to use their negotiating potential to coordinate Russia’s economic and political interests with the European Union. Amid potential tension between Russian and the EU in the next couple of years, the Belarusian authorities hope to strengthen their position as a mediator in the talks between the Kremlin and Western capitals. As Minsk’s role in the region increases, Belarus aspires to receive economic benefits and financial support for the Belarusian economy from Eurasian and international financial institutions.
Belarusian Foreign Minister Makey met with his German counterpart Frank-Walter Steinmeier in Berlin last week. During the meeting, the ministers discussed Belarus’ prospects within the Eurasian integration process among other issues.
In the past five years, the Belarusian authorities have been promoting the idea of "integration of integrations" or economic convergence between the Eurasian Economic Union and the European Union. In recent months, the Belarusian Foreign Ministry has stepped up its efforts and regularly promotes this idea during bilateral meetings with its Western counterparts, as well as on various international fora.
It is worth noting that after the presidential campaign in Belarus, while meeting in Moscow at the joint board meeting of Foreign Ministries of Russia and Belarus, Foreign Ministers Makey and Lavrov have agreed on a common action programme on the international arena for the two countries. One of the main topics for discussion between the foreign ministries was interaction between the two major integration associations – the EEU and the EU.
Given the confrontation between the Kremlin and the West, Minsk has assumed a task to represent common interests of the EEU countries vis-a-vis the European Union on the international arena (very likely with Russia’s consent). In addition, the Belarusian Foreign Ministry is attempting to be the Russia’s advocate in mitigating the sanctions pressure, restoring her international position and relieving tension in Russo-European relations.
For example, Belarus, who presides in the EEU, has submitted a draft resolution to provide the EEU with observer status at the UN General Assembly. In addition, Belarus is actively promoting the idea of economic convergence between the EEU and the EU. While doing so, Belarus emphasises the EEU market attractiveness with a population of over 183 million and says she could be the entry point to this market. That said, Chairman of the German-Belarusian Economic Club, Hovsep Voskanyan, has already expressed interest of some German companies to enter the Eurasian market through Belarus.
Belarus believes that thanks to her role of a mediator between the Kremlin and the West, her chances to receive financial assistance from the IMF and from the EurAsEC Anti-Crisis Fund have increased. The Belarusian authorities really hope to receive loans with total worth circa USD 3 billion before the year-end or in early 2016.
The Minsk officials have repeatedly used their exclusive alliance with Moscow in order to boost their status in the region and promote their own economic interests, provided, that relations with the Kremlin and other capitals in the former Soviet Union could deteriorate. For instance, amid the Russo-Georgian conflict in 2008, diplomatic and economic relations between Minsk and Tbilisi have improved; as well, after the Russian annexation of Crimea and crisis in Russo-Ukrainian relations in 2014, contacts between Minsk and Kiev have increased. In both cases, Belarus has acted as a contact point and preserved good relations with both conflicting parties. In addition, all conflicting parties were also interested in preserving interpersonal and economic relations and using Minsk’s transit capacities and mediation services.
In the coming months in all possible foreign policy dimensions and international fora.
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.