Minsk interested in restoring limited cooperation with EU on her own terms
Official Minsk is not interested in full cooperation with the EU. The Belarusian government aspires to restore cooperation with the EU only where it excludes structural reforms and political conditionality. Cooperation with the EU will depend entirely on how Russo-Belarusian relations develop.
On February 19th, head of the European External Action Service’s division responsible for the European Union’s relations with the Eastern Partnership countries, Dirk Schubel, said in an exclusive interview with naviny.by that the EU and Belarus were preparing new frameworks for dialogue.
After the Eastern Partnership Summit, held in November 2013 in Vilnius, contacts between official Minsk and Brussels have become more frequent. EU officials have concluded that official Minsk had interest in deepening relations with the EU. However, the Belarusian Foreign Ministry refuted these allegations and expressed “amusement by comments regarding planned consultations between the Republic of Belarus and the European Union on modernisation matters”.
It is noteworthy that despite derailed economic modernisation plans, the Belarusian leadership is not ready to accept the EU’s assistance in this regard. Modernisation offered by the EU wildly differs from how president Lukashenko sees this process. He sees no need to reform the existing economic model, in particular, ahead of the 2015 presidential elections. To him, ‘modernisation’ is an industrial equipment upgrade, without any changes in ownership, management or staff.
While attempting to engage Belarus in a dialogue, the EU proposes to start with the most attractive points for cooperation, “trade and investment, which at this stage are of particular importance for both Belarus and the European Union”. However, the EU conditions cooperation with the need to include civil society representatives in this process, which is unacceptable for the Belarusian leadership.
The authorities would like to exclude civil society and the opposition from influencing the Belarus-EU relations’ agenda, especially ahead of the presidential elections in 2015. Lukashenko will not tolerate another wave of “rampant democracy” in Minsk’s centre, one that may be similar to the harshly suppressed gathering on December 19th, 2010. Recent events in Ukraine have only bolstered Lukashenko’s conviction of the need to nip any threat to his power in the bud.
Belarus’ authorities are convinced they have chosen the right strategy for negotiating with the EU. Despite the lack of any progress on the political prisoners issue or other conditions put forward by the EU, Belarus’ Prime Minister Myasnikovich was invited to the celebrations of the Eastern Partnership Summit’s fifth Anniversary, as reported by Ukrainian media.
In addition, Belarus’ low motivation to accelerate Belarusian-European relations is due to the anticipation of subsidies from Russia in the near future. The Belarusian leaders count on the Kremlin to cover all the costs associated with integration processes – soon after the Eurasian Economic Union founding documents are signed in May 2014.
The Belarusian leadership is not ready for extensive cooperation with the EU, envisaging various reforms in the coming years. The relations might develop only in some spheres, which would not affect the existing socio-economic model. Belarus aspires to increase the volume of financial assistance from the EU without going into deep reforms.
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.