Minsk is developing relations with Asia to balance pressure from Kremlin and West

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April 22, 2016 19:14

The Belarusian authorities have revived Asian vector in their foreign policy and envisage extending trade, economic and political cooperation with Asian countries. The Belarusian leadership seeks to demonstrate that Belarus is not in international isolation in order to relieve possible pressure from the Kremlin and to free their relations with the West from political conditions. However, in the short and medium term, despite the positive dynamics in relations with Asian countries, Belarus would be unable to find a full replacement for cooperation with the Kremlin and Western capitals.

Last week, President Lukashenka held talks with President of India Pranab Mukherjee, who was on his first official visit to Belarus. 

Recently, Belarus has intensified her contacts with Asian counties (so-called ‘far-arc’ states) in order to boost trade and economic cooperation. In mid-May, Chinese president was in Belarus on the official visit, in late May, President Lukashenka paid an official visit to Islamabad, and in early June, India’s President Pranab Mukherjee was in Minsk on his first official visit.

In late 2000s, the Belarusian diplomacy developed the concept of the ‘far-arc’, which referred to the states outside the European and North-American continents. President Lukashenka has formulated the basic principle of the concept: “we need to go where they do not know us and wait for [us]”.

It is noteworthy that while planning cooperation with the ‘far-arc’, Belarusian diplomats have ignored the peculiarities in relations between the countries of the region by relying exclusively on President Lukashenka’s image as a peacemaker in Russo-Ukrainian conflict. Relations between India, Pakistan and China are rather strained; however, the Belarusian government is attempting to develop cooperation with all three of them.

Markets of India and Pakistan have a large capacity, but Belarusian-Indian trade is only USD 402.7 million per year and Belarusian-Pakistani economic and trade cooperation – only USD 40-80 million.

Belarus’ main task is to find new markets for Belarusian products, since she is rapidly losing the Russian market and has restricted access to the European. For example, the purpose of the visit of President Lukashenka to Indonesia, Singapore and the United Arab Emirates in 2013, was to search for ‘new markets’. In return, Belarus offers herself as a platform for produces from these countries to access the EEU and the EU markets.

Meanwhile, Belarus has some positive examples of cooperation with the ‘third’ countries. For example, after the visit of the Belarusian president to Indonesia in 2013, turnover between the two countries grew by almost 70%. In 2014, bilateral trade between Minsk and Jakarta was USD 215 million, and the parties plan to reach USD 1 billion by 2018.

Nevertheless, more frequent diplomatic contacts with the ‘third’ countries most often do not lead to a significant breakthrough in economic relations or a sustainable growth in trade relations. For example, large-scale trade and economic cooperation between Belarus and Venezuela has fallen sharply after the change in Venezuelan leadership, because it was based exclusively on personal contacts between presidents Lukashenka and Chavez. However, for President Lukashenka, Belarusian-Venezuelan cooperation has become a role model for successful cooperation with other regions: “the experience gained by ‘blood and sweat’ in Venezuela, should be used in other regions. We need to seek and find other ‘venezuelas’ in Asia, Africa, and even in Latin America”.

In addition, President Lukashenka’s increased international contacts are used by the state propaganda to emphasize achievements of the Belarusian leadership in the ‘historic breakthrough in political and economic spheres on the international arena’. Official Minsk is also trying to compensate for the bad relations with Western capitals by enhancing relations with the ‘third’ countries in order to demonstrate the lack of international isolation. Amid sanctions imposed by the EU and the United States on the Belarusian leadership, Belarus from time to time attempts to revive the concept of ‘far-arc’ aiming to build financial, economic and political partnerships with the countries, which do not complain about Belarus’ human rights situation.

Belarus’ enhanced contacts in Asia are unlikely to lead to a large-scale economic, trade and political cooperation, which was typical of the Belarusian-Venezuelan relations when Hugo Chavez was in power.

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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.