Annual address of Lukashenka: no changes until elections
April 29th, President Lukashenka spoke to the Belarusian Parliament and the people. His main messages included – no changes in social and domestic policies until the elections, alliance with Russia, and the delay in economic reforms until the post-election period. According to Lukashenka, Belarusian voters are willing to sacrifice their well-being in exchange for Belarus’ non-involvement in the regional crisis.
1. Lukashenka’s key message: amid swiftly changing world, Belarus remains an island of peace, tranquillity and order. This means, there would be no fundamental changes in Belarus’ domestic, foreign, economic and other policies. The president has repeatedly voiced this thesis before, however, now he has attached additional weight to it. “Well, who could have imagined that bombs would explode in our neighbouring Ukraine? That we would stand on the brink of a major war in Europe and that the degree of tension between the superpowers would reach the Cold War levels?” the president asked rhetorically. Those who drafted Lukashenka’s speech in 2015 assumed, that Belarusian citizens would agree to have lower incomes in exchange for stability and security. Lukashenka has not really made any pre-election statements; however, his key message during the upcoming elections is likely to be that thanks to him Belarus remains an island of tranquillity in the ocean of critical instability.
2. Foreign policy. At this stage, the key task for Belarus’ foreign policy is to prevent Russia’s interference in her domestic affairs and in particular, during the presidential campaign. “We have everything under control”, - the president sent a clear message to Russia and her leaders, with whom Belarus was in the “inseparable strategic alliance”. In addition, Lukashenka attempted to convince the Kremlin that Belarus would refrain from ‘swaying’ to the West, would not carry out a “wild nationalistic policy” and would stay in the wake of Russia’s policy. Nevertheless, he underscored the importance of Belarus’ independence and sovereignty. The president did not really elaborate on dialogue with the West, perhaps, in order to give some integrity to his highly controversial foreign policy message.
3. Domestic politics. In Lukashenko’s viewpoint, the Belarusian political system, what he called ‘a direct democracy’, has proven successful. This means, the system would remain unchanged. He also suggested that government representatives should not abandon talks with the opposition, including its extremist members. “We absolutely do not need a confrontation within the country, so you should talk to everybody”, the president said. This message was a likely follow-up on several meetings between MPs and the “People’s Referendum” representatives, which took place last year. In the past, Lukashenka had suggested a ‘dialogue’ with the position only after the election victory, and had never followed up on this.
4. Socio-economic policy. There would be no reforms in the pre-election period. Lukashenka said that the state budget remained socially oriented in 2015 (“which is an important factor for ensuring harmony in society and the stability in the state”). The president also made some proposals and recommendations to the government in order to address the key issues during the crisis, such as developing small and medium-sized businesses, reducing tax burden on businesses, improving management of state assets, improving legal culture in economy, and improving Belarus’ investment image. None of these was new and had already been mentioned in his previous addresses.
5. Lukashenka focused on target audiences, which match Russian ones. Perhaps, due to the fact, that the government believes it has full control over the domestic situation, which does not require additional efforts to ensure the loyalty of voters, and that the most unstable factor is Russia, the speechwriters have slightly adjusted the final recipients of the presidential address. With his speech, the president mainly addressed the non-demanding marginal, who is oriented toward the ‘Russian world’ as a super idea for "traditional values", is experiencing strong social envy and is satisfied not only by the growth of own well-being, but rather when well-being is lost by others. In other words, recipients of the presidential speech have been brought in line with the average Russian voter as described by opinion polls in Russia. Yet it is difficult to judge how successful this adjustment will be.
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.