Lukashenko played the role of a guarantor of justice
On February 24, President Lukashenko reprimanded and reproved high-ranking officials of the Belarusian State TV Company, the Government and the Presidential Administration for the falsification of the voting results in the finals of the national qualifying round of the “Eurovision” music contest. Following the decision of a special commission, a singer Lanskaya had to pass the first prize to a band Litesound.
A high-profile meeting with President Lukashenko on the eve of the EU Council meeting on 27 February was for the domestic consumption and aimed at two image-making purposes. Firstly, President Lukashenko appeared to the Belarusian population as the supreme defender of justice against corrupt officials. Also the President of Belarus sent a signal to the business community to be careful with their financial projects (the main sponsor of the contest was a well-known Belarusian manufacturer Shakutin).
Secondly, on the eve of potential introduction of new sanctions against Belarus by the EU, the government has strengthened its self-defense position. If on 27 February the EU Council votes for the new sanctions against Belarus, it will be used by the propaganda machine and interpreted as Brussels’ “ingratitude” to a positive “pro-European” signal of good will sent by Belarus. The whole story is also a response to the OSCE allegations and the allusion to the fact that ballot rigging is impossible in Belarus.
President Lukashenko has also used this scandal to mobilize his immediate circle. The inquiry in to the incident has been held involving the Head of the Presidential Administration Vladimir Makey and his Deputy, Alexander Radkov, Deputy Prime Minister Anatoly Tozik, staff of the State Control Committee, the Investigation Committee and Department for combating crimes in the sphere of Information Technology of the Interior Ministry. As a result of the investigation, reprimands made to the Chairman of the Belarusian State TV Channel Davydko and Minister of Culture Latushko. Makey, Radkov and Tozik were reproved. The most emotional moments of the meeting were shown in the prime time.
By punishing officials for rigging the vote, the President made it clear that any initiative of the kind will be punishable if undertaken without prior coordination. Actions of Lukashenko also indicate that he will use any opportunity to reinforce the image of a “strong authority”.
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.