Introduction of Russian ruble: authorities test reactions of society and power elite
On February 29 and March 2 Chairperson of the Council of the Republic of the House of Representatives Mr. Rubinov, published an article in a newspaper “SB-Belarus Segodnia”, calling for the introduction of the single currency (Russian ruble) in the Union State of Belarus and Russia.
The fact that the issue of introduction of the Russian ruble, raised by Mr. Rubinov coincided with the exacerbation of the political relations between Minsk and Brussels allows us to regard these events as linked to one another and as a continuation of the anti-European campaign by the state media. It is likely that such campaign is aimed to provoke the EU to impose economic sanctions against Belarusian enterprises.
In case of the introduction of economic sanctions against the Belarusian authorities, the latter will receive an additional argument about the origin of the economic problems in the country, simultaneously, positions of the pro-Western elite in the presidential administration will become weaker (i.e. the group centered around the Head of the Administration Mr. Makey, who was the chief architect of the Belarus-EU dialogue in 2008-2010.).
Therefore, the statement of Mr. Rubinov on the key issue for economic development could be perceived as an attempt to pre-empt further development of the Belarusian-Russian integration, while integration with Europe is at a deadlock. Mr. Rubinov draws a direct link between the imposition of economic sanctions and the weakening of the Belarusian ruble, rising import prices and inflation.
As an insurance policy against the economic crisis in Belarus in the future, Mr. Rubinov suggests to introduce the Russian ruble, firstly, within the Union State of Belarus and Russia. He believes this will solve the problem of dangerous fluctuations of the national currency.
The statement of a 72-year-old Academic Rubinov should be reckoned primarily as his personal point of view, and partly as the position of the former team of the Presidential Administration (Mr. Rubinov headed the PA before 2008, when his First Deputy Vladimir Makey took over).
It should not be disregarded that Mr. Rubinov and some of his former colleagues could seek for revenge to the team of Mr. Makey, whose position today is very weak.
However, the age and the reputation of Mr. Rubinov as “a man who sticks to his word” implies that the statement was not a direct broadcast of the views of the top leadership concerning the Russian ruble. For instance, in August 2011 Mr. Rubinov spoke up in favor of the transformation of the “Belaya Rus” quango into a political party, but a few months later he easily took his words back and said he saw no grounds for serious reform of the political system of Belarus.
Most likely, the purpose of this publication was to probe the views and opinions of the elite and the population on this issue. For instance, the article of Mr. Rubinov published on the online version of the newspaper “SB” has already gathered a number of negative comments about the introduction of the common currency.
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.