Lukashenko rotates staff to ‘zero out’ economic policy failures
President Alexander Lukashenko issued a strict disciplinary warning to the Presidential Administration Head Andrei Kobyakov and dismissed Presidential Administration Deputy Head Andrei Tur. He also dismissed Boris Batura from his office at Minsk Oblast Executive Committee and appointed him to direct Borisovdrev.
Lukashenko has shifted the blame for failed economic policies onto executives. He wants to open a ‘new page’ in economic policies ahead of the 2015 election campaign and therefore reshuffles staff in his administration. While he uses harsh rhetoric about criminally prosecuting executives in order to improve his approval rating, he will not necessarily go ahead with his threats.
Due to the difficult economic situation, president Lukashenko is seeking ways to motivate state officials. Modernization projects have failed and money has been spent inefficiently. There is no external funding, and administrative methods for managing the economy have not brought positive results. In 2013, the GDP grew by circa 1 %, exports fell by 20 % and industrial production fell by 15%. Belarus has no resources to restore its previous rate of economic development.
The Belarusian authorities are not ready to reform the existing socio- economic model. After the IMF mission left, the country’s economic development plans for 2014 were readjusted with more optimistic figures. President Lukashenko resumed his traditional practices in economic management: staff reshuffles and threats of criminal prosecution in order to ‘increase’ the efficiency of industrial modernization. His approach will bring certain short-term results, but in the long-term will not solve all the problems in public management.
The president’s staff policy is based on constant rotation of managers at all levels of government. Thus he prevents sustainable regional clans or relations from being formed, and restricts the authority and influence of officials from growing. In addition, the president’s tough rhetoric in relation to the officials evokes positive emotions in the electorate, who are happy to be given a scapegoat.
President Lukashenko has launched serious staff shifts, which may affect the government’s composition, including the presidential administration management. As soon as the presidential campaign kicks off, Lukashenko will shift the blame for economic policy failures onto state officials.
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.