Amid growing devaluation expectations Belarusian authorities strengthen power forces

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April 22, 2016 19:23

The Belarusian authorities aspire to keep people’s protest activity under control by strengthening power policy components and creating appropriate background for the election campaign. In addition, the authorities hope to preserve the loyalty of voters by speculating about the conflict in Ukraine and by emphasising the external threats to Belarus’ internal stability. Meanwhile, popular discontent with the devaluation of the national currency and falling living standards is unlikely to lead to open protests or protest voting.

Belarusians have been expecting devaluation since December 2014, and the majority links possible depreciation of the Belarusian rouble with the political campaign.

Since early 2015, the Belarusian rouble has devalued by 40%. Independent Belarusian analysts say that rouble will continue to devalue. Belarusian officials avoid using the term ‘devaluation’ in the media and usually refer to rouble’s ‘volatility’. Bearing in mind that in recent years, the national currency has been devalued several times, the Belarusian authorities are attempting to keep this issue low profile and to avoid tension in society ahead of the election day. Nevertheless, despite the lack of panic among the Belarusian population, the demand for foreign currency from the population has sharply increased.

As people’s living standards are declining the Belarusian authorities are strengthening the power block. For instance, they are reviewing the presidential directive ‘Measures to strengthen public safety and discipline’. In addition, President Lukashenka has approved the regulation on the commission to combat extremism and counter-terrorism. Such commission will be established in all Belarusian regions. Any citizen activity especially by young people, which falls outside the frameworks set for the opposition, meets a harsh response by the authorities. For instance, in May 2015, the Belarusian security services searched and arrested several young people for drawing political graffiti on buildings.

Meanwhile, the most recent devaluation in late 2014 – early 2015 has not resulted in open public protests. Amid the conflict in Ukraine, the Belarusian society has reduced the level of their expectations from the authorities regarding the growth of the living standards. Even in 2011 during the harsh monetary and financial crisis and almost three-fold devaluation of the national currency, the authorities swiftly managed to localise open discontent of the population. Back then, by using force, the special services efficiently neutralised online activity, which led to ‘silent’ protests all over the country.

If socio-economic environment deteriorates and social tension grows among electorate due to the national currency depreciation, the authorities are likely to step up measures against their opponents, inter alia, with ‘preventive detention’ of opposition and youth activists. Some time ago, Interior Minister Ivan Shunevich confirmed that the law enforcement agencies were ready to act in order to prevent protest moods in society: “I guarantee that we are ready for an adequate response to any challenge, any threat. We are ready to minimize any harmful effects. I will say even more: today we are prepared to act a little earlier, if there is a need for this, so as not to push the situation to a critical stage".

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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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