Kremlin anticipates raising cost of its support for Lukashenka during elections
Early into the election campaign in Belarus, the Kremlin has already demonstrated support for Lukashenka at political and international levels. However, the Russian leadership has signalled to the Belarusian authorities that their financial support will be very limited at the first stage and only if economic situation seriously deteriorates. Nevertheless, the Kremlin is likely to support Lukashenka regardless of ifs and buts.
Last week, the presidents of Russia and Belarus met in Ufa, where they discussed the Russo-Belarusian relations. During the meeting, the presidents focused on bilateral cooperation in trade, economy and investment, talked about deepening cultural and humanitarian contacts and cooperation within the framework of the Union State of Russia and Belarus, the Customs Union and the Eurasian Economic Union.
In the first days of the presidential campaign in Belarus, the Russian leadership has demonstrated symbolic support for President Lukashenka by stepping up the level of Belarus’ participation in international organisations. For example, at the meeting with Lukashenka, President Putin emphasised that “the issue of upgrading Belarus’ status in the Shanghai Cooperation Organization from a partner for dialogue to observer has been practically settled”.
In response, the Belarusian authorities said they were prepared to enhance their participation in the settlement of the conflict in Ukraine, which, was most likely coordinated with the Kremlin. In particular, in an interview with Russia-24 Foreign Minister Makey said, “We are ready not only to provide the base for negotiations, but also, if necessary, to become the secretariat, as we have been asked by some of our partners”.
Nevertheless, Belarus’ major interest in Russo-Belarusian relations is to receive guarantees of Russia’s support for Belarusian economy during the presidential campaign. While meeting with Putin, Lukashenka emphasised how important it was to resolve bilateral cooperation issues in financial and economic spheres in the near future. “We have long been confronted with this, you – may be not to the same extent as now, – so we need to discuss [...], what further steps we have to make to overcome the negative trends that may occur in the near future”, he said.
According to Putin’s Press Secretary Dmitry Peskov, during the bilateral meeting in Ufa, the presidents also discussed financial and credit cooperation between Minsk and Moscow, however, without detailed consideration. Meanwhile, during the Russian Government meeting, Russian Finance Minister Siluanov confirmed, that Russia was ready to provide financial support for Minsk and transfer the second tranche of the loan – a total of USD 760 million: “[the decision] will be approved today and the transfer will be made in July”.
That said, according to Siluanov, Belarus had requested additional USD 3 billion loan from Russia, allocation of which had been questioned by the Minister: “we shall continue to work on this request, taking into consideration the implementation of the previous programme, which has not been implemented in full”. So far, Belarus has not provided any official comments regarding her request. Most likely, she has warmed up the numbers in order to have some room for manoeuvre during the negotiations.
Official Minsk expects the Kremlin to ‘understand’ and to refinance previous Russian loans, which are due in 2015. In 2015, Moscow has already allocated USD 110 million loan for Belarus to repay the interest on the Russian loan issued in 2010.
Simultaneously, the Kremlin has bolstered pressure on the Belarusian authorities regarding ‘privatisation’ of attractive Belarusian assets by Russian businesses, such as Minsk Wheel Tractor Plant.
The Kremlin intends to support Lukashenka in the elections, even thought it seeks to increase the price of such support. Russia hopes to use Belarus’ economic difficulties to tighten control over the Belarusian economy and privatise the most attractive Belarusian state assets. Nevertheless, Russia is likely to provide the minimum required support for the Belarusian economy regardless of all ifs and buts.
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.