Belarus’ authorities step up cooperation with Russian regions
Traditionally, the Belarusian authorities use Russia’s regional elite’s sympathy towards President Lukashenko to lobby their interests in the Kremlin. President Lukashenko has close ties with the heads of Russian provinces, which helps him to ensure their loyalty, regardless of the state of affairs with the Kremlin. The Belarusian government attempts to hedge against the risk of tensions between Russia and Belarus ahead of the 2015 presidential campaign by increasing its contacts with Russian provinces.
On June 5th, President Lukashenko met with the Speaker of Federation Council (upper house of the Russian federal parliament) Valentina Matvienko and Russia’s regional heads.
The First Forum of Belarusian and Russian Provinces, held in Minsk on June 5th, was devoted to cooperation on agriculture between Belarusian and Russian regions. The Speaker of the Russia’s Federation Council, Valentina Matvienko and more than 200 representatives of 19 Russian provinces attended the Forum. The Forum was not attended by representatives of Kazakh regions, despite the Eurasian Economic Community founding treaty, signed by Belarus, Russia and Kazakhstan in late May.
Interestingly, the Belarusian authorities succeeded in establishing favourable economic cooperation with Russian regions. Despite periodic trade wars initiated by Moscow, Russian provinces are interested in Belarusian producers and businesses increasing their presence. For example, Smolensk province head, Mr. Ostrozhski requested “assistance in farming cross-border lands by Belarusian specialists”. In addition, Russia lists more than 1,000 organizations with Belarusian capital and 58 co-productions of Belarusian equipment.
At the Forum, President Lukashenko talked about the difficulties he encountered during the EaEU’s creation and blamed them on Moscow: “we have declared that the union will be formed without any exemptions and limitations. At least, in economic terms, it should have been one state. But when we got down to the issues, it appeared that some problems have become massive. Well, it’s no secret – primarily for the Russian Federation. Therefore, on some issues, we even made steps back from the Customs Union”.
Ahead of the presidential elections in Belarus in 2010, the Kremlin initiated an information war against President Lukashenko. As a result, President Lukashenko was prompted to make several significant concessions and signed the documents to create a single economic space with Russia without any significant moves by Moscow towards Belarus. Belarus’ president emphasised the importance of close ties with Russian regions in order to build relations with the Kremlin: “In our relations with Russia, we had difficult times, and if there was no cooperation with Russian regions we would have serious difficulties today”.
Also, President Lukashenko talked about the need to de-escalate the Russo-Ukrainian conflict: “The new president was elected in Ukraine. I think we will work with the new president, with the new government, because our people live there, people like us - kind, hard working - but who found themselves in this situation. Of course, we can forget about them, but people will suffer even more”.
In the lead-up to the 2015 presidential elections, the Belarusian authorities seek to increase the level of contacts with the Russian regions. The Belarusian president hopes that close ties with the Russian regional elite will mitigate the Kremlin’s pressure during the election campaign.
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.