Putin’s Visit Demonstrates that Geopolitical Choice is Inevitable

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April 22, 2016 18:11

Putin’s visit to Belarus on May 30 has been presented as evidence of primary importance of post-Soviet integration for the leaders of Belarus and Russia. In the near future, cooperation between Belarus and Russia will continue to be relatively conflict free. However, Russia’s support of Belarus will not go beyond what is necessary to maintain a minimal stability. 

Within the international context, Putin’s first foreign visit to Belarus, after which he will make short visits to Berlin and Paris, is associated with his refusal to join the G8 summit in Camp David. 

The visit is also linked to Putin’s first decree as President on the measures for the implementation of foreign policy, which prioritises the relations with Belarus and integration within the EurAsEC Customs Union.

The visit was staged by the Russian side. Its format of a Lord’s visiting his land was supported by the Belarusian side. It should be stressed that while Putin was listing the topics for discussion with the Belarusian party, it looked as if the previously prepared list had little to do with the actual subject of conversation with the Belarusian side.

Meanwhile, topics prepared in advance, namely, the allocating of a long-awaited third tranche of the EurAsEC loan of USD440 million, two contracts for the loan to finance the preparatory work for the construction of the Belarusian nuclear power plant (USD204 million + USD285 million) indicate quite extensive and positive developments in the current situation.

No conflict issues such as trade of oil and petroleum products without paying customs duties to the Russian budget or delays in privatisation have been publically discussed. It is likely that they have not been seriously considered at all.

The major objectives of the visit were mostly of symbolic character: to demonstrate close ties and alliance. After a break, Putin faces difficulties in his third term of presidency.

The consequences of the pre-election boost of the economy, drop in oil prices, decline in the authority of official establishment within the Russian political account for an emergent need to focus the foreign policy on the immediate environment. In the international arena, Russia has only to be engaged in minor attacks and boycott advances of major actors’ interests.

The trend of expansion is logically replaced by the trend of defense. The value of an ally that fully guarantees observation of major Russian interests on his territory grows. For a certain time, it allows not to notice minor mischief and treat it as a payment in exchange for loyalty in controversial issues.

Lukashenko is now in a similar situation. His tasks are to keep power and strengthen his authority within the country, which does not leave him any possibilities for even a little transformation. Consequently, it increases his dependence on Russia’s economic support and deprives him of freedom to maneuver in his foreign policy.

It is evident that for some time Russia and Belarus will keep an agreement on major issues of cooperation. However, it does not rule out minor disputes over how soon Belarus will join the regulatory norms and standards of the Customs Union or over the privatisation of the Belarusian enterprises.

Russia will continue to provide a limited financial aid for the Belarusian economy sufficient to maintain social stability in the country. However, the financing can not provide for the modernization of economy, increase in wages and salaries to such a level that can be compared to Russia. Such a short leash will encourage the Belarusian leadership to seek alternative opportunities.

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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.