Lukashenkos election platform: do not freak out during crisis
During his time-consuming press conference, President Lukashenko sought to portray himself as a strong leader who controlled the political situation and was the sole guarantor of the political stability in the country. The president underscored the permanence of his position on the key issues - supporting the existing socioeconomic model, pursuing the Eurasian integration, normalizing relations with the European Union, adhering to the balanced position towards Ukraine, and preserving both, the political regime and the harsh environment for the political opposition.
On January 29th, President Lukashenko held a press conference for Belarusian and international media. The press conference set a new record – it lasted seven hours. The state-run media noted that the event was framed as an „open dialogue with the media‟. However, Lukashenko’s speech did not contain any new ideas, which could signal changes in Belarus’ socio-economic and political regime. The president believes, he can only retain his power if the current socioeconomic model is preserved. Such a model enables him to react to crippling recession with administrative measures. Since a while ago, independent social scientists have been noting the demand for changes in the Belarusian society and the Belarusian authorities are well aware of this. Nevertheless, president Lukashenko assured there were no plans to change the socioeconomic model despite society’s wishes: “I will not change it as long as I am the president. We have found this path, and we have to follow it and not freak out, especially during a crisis”.
Simultaneously, the authorities continue to review their social contract with the population, albeit not willing to carry out structural economic reforms. The president has once again reiterated that one should not wait for a pay rise. He also spoke against so-called ‘social parasites’: “Everyone should work for the state‟s benefit”. The authorities do not offer any improvements to the people’s well-being however suggest leaning on a strong leader amid security threats in the region. While speaking at the press conference, Lukashenko touched upon the events in Ukraine numerous times and underscored that such events would be impossible in Belarus under his rule. The president also spoke about the Eurasian integration, which seemed less attractive amid recession in Russia and Russo-Belarusian ‘trade wars’. Lukashenko underscored, “Belarus might leave the Eurasian Economic Union should the agreements are not adhered to”. However, it is hard to believe that the Belarusian authorities are seriously thinking about quitting the Union. Most likely, this phrase was designed to strengthen Belarus’ positions in case of another spiral of tension with the Kremlin.
President Lukashenko assured that he wanted to normalise the relations with the West. However, official Minsk was not ready to take even symbolic steps and to fulfill the only requirement by the West – to release remaining political prisoners. The president is unlikely to change his attitude towards his political opponents and is not willing to enter a dialogue with society. For example, during the 2009 thaw in Belarus-EU relations, and Advisory Council was set up under the Presidential Administration auspices. The Council included economists, media chief editors, heads of business associations, and some opposition members. Recently, the president spoke against any advisory boards: “We will not create any boards, especially political boards”.
All in all, the authorities aim at preserving the existing political and socioeconomic model and will respond to crisis manifestations with ad hoc administrative measures.
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.