Lukashenko's response to teddybear stunt: delayed and disproportionate

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April 22, 2016 18:15

The punishment of heads of key law enforcement agencies was not an adequate response to the border protection problems recently found. Justification of the President’s decision is questionable, as it lowers the loyalty of the security forces and increases the risks to national security.

On July 31st, President Lukashenko sacked the head of the State Border Committee, Air Force and Air Defense Forces Commander for improper performance of his official duties regarding national security of Belarus. The Minister of Defense and Chief of General Staff received public warnings. State Secretary of the Security Council and the Chairman of the KGB were reprimanded.

Inspection of the July 4th incident, when a light airplane freely flew over the Lithuanian-Belarusian border to Minsk and back revealed serious vulnerability of the Belarusian state border. Two main conclusions could be drawn from the available official information.

Firstly, violation of Belarusian airspace is co-defined by the defense troops and by the border guards on duty. Secondly, there is a weak link in coordination between the border guards and the military, i.e. the way information about the airspace border violation is passed on from the state Border Committee to the Air Defense Forces.

Official statements by representatives of both the Ministry of Defense and the State Border Committee say that on July 4th a light airplane was successfully detected by both agencies. However, for some reason it has not been identified as a perpetrator of the Belarusian airspace. Therefore, appropriate actions to arrest the plane were not carried out.

We assume that actions of the leadership of the State Border Committee and of the Air Defense Forces in this situation were absolutely correct. However, factual careful ‘silencing’ of the existence of a ‘weak link’ in state’s border protection by the government, as well as harsh decisions about resignation and punishment of the security forces management confirm our previous assessments.

Namely, that perhaps the weak link in coordination between Belarusian Air Defense and the State Border Committee persists intentionally and could be used to organize secure aircraft raids across the border. It should be noted that there is no direct evidence of this.

In this light, the personnel decision is unfair, or at least rather questionable. It has already caused a surge of discontent among the Ministry of Defense and the State Border Committee officers, to which the President had to respond publicly. Today the crucial issue is whether the President will pay off this discontent.

In the best case scenario, the decision will be mitigated by shifting the attention to the international side of the incident. In the worst case, border guards and the military may resort to the tactics of an ‘Italian strike’, which will increase risks to national security at the Belarus’ Western border.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.

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