Minsk is trying to take advantage of Russo-Ukrainian conflict

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April 22, 2016 18:48

The Belarusian government is attempting to benefit from the Russo-Ukrainian conflict in the political, economic and military spheres by acting as a mediator between the Kremlin and Kiev. As mediator, President Lukashenko is gaining political weight in the region. Using their balanced position regarding Ukraine, the authorities aspire to unblock their relations with the EU and the U.S. and to alleviate pressure from Moscow.

While visiting the Baranovichi Aircraft Repair Plant, President Lukashenko said that he considered the necessity to expand Belarus’ cooperation with Ukraine in the technical and military sphere.

The Belarusian authorities are interested in the region developing sustainably and in the Russo-Ukrainian conflict de-escalation. The Belarusian economy is highly vulnerable and depends on the trade relations with the neighbouring countries. In 2013, Belarus’ trade turnover with Ukraine was the second largest after Russia, and exports to these countries were double the size of imports.

Also, Belarus’ officials fear of the Kremlin changing its approaches in relations with its allies, i.e. that the pressure, rather than the economic preferences and financial subsidies, will become the dominating way of buying loyalty. So far, Minsk has failed to finalize the abolishment of oil export duties’ return to Moscow. Meanwhile, the Belarusian leadership was prompted to cede to the Kremlin’s severe pressure regarding several important issues, inter alia, the UN vote on the Crimean resolution.

With the Kremlin’s approval, Minsk is attempting to play a mediating role in the Russo-Ukrainian conflict. President Lukashenko said, “I have not made a single step without the Russian leadership’s consent, when issues concerned Russia”. Minsk is scheduled to host talks between Russia and Ukraine (Deputy Foreign Ministers’ level), and the Belarusian Foreign Ministry has emphasised that “[we] will do everything to ensure the conditions for such a meeting.”

Meanwhile, tensions between Moscow and Kiev have opened new opportunities for Belarus, for instance, re-exporting Ukrainian military-industrial production goods to the Russian market if Russo-Ukrainian military-industrial cooperation stops. Kiev has already announced plans to halt cooperation with Russia on military production, while the latter is highly dependent on supplies from the Ukrainian defence industry. For example, the Ukrainian company “Motor Sich” is a monopolist in supplying engines for Russian military and civil aviation.

Furthermore, despite Belarus’ increased dependence on the Kremlin since the Russo-Georgian conflict in 2008, the authorities hope to return to the pendulum policy by increasing their importance in the region and mitigating the EU and the USA positions vis-à-vis the Belarusian leadership.

People in Kiev are sympathetic of President Lukashenko’s restrained position regarding the events in Ukraine. Eventually, he hopes that the new Ukrainian leadership will help him to advance his interests in Brussels, if rapprochement between Ukraine and the EU continues. It is worth noting that President Lukashenko managed to form much better relationships with Ukrainian President Yushchenko, who came to power on the wave of the “orange revolution”, than with “pro-Russian” President Yanukovych.

Belarus’ officials will contribute to de-escalation in the Russo-Ukrainian conflict by mediating and taking a balanced position in assessing the conflict. If the Kremlin introduces a commercial blockade on Ukrainian goods, Minsk will benefit from not having borders with Russia and playing the role of an intermediary for Ukrainian companies to penetrate the Russian market.

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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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