Lukashenko addressed his major foreign counterparts
On April 19th, President Lukashenko made his Annual address to the Parliament and the people of Belarus.
President’s two major messages were requests to preserve the state property and to normalize the relations with the European Union. Carrying out these requests would guarantee stability in Belarus, i.e. preservation of power by Lukashenko.
President’s address was rather conventional – he had already made major policy statements in March, during the Council of Ministers meeting. In addition, in the Belarusian political system, the Parliament is de facto an authority which coordinates president’s policies, so Lukashenko sees no need in making policy statements or reporting about his work to the Parliament.
In this respect, Lukashenko’s statements, addressed to international guests – diplomatic corps of Russia, EU and the US – should be regarded as the most significant. For instance, Lukashenko has repeatedly appealed to Russian Ambassador Alexander Surikov and made a frank statement about the European Union and the United States.
Message, addressed to Russia, implied that the President would not support “structural reforms”, i.e. sales of strategic state-owned enterprises to foreign investors. Instead, Lukashenko offered cooperation in terms of investment with the preservation of different ownership forms. Namely, Lukashenko straight forward called the ongoing negotiations with Russian partners about MAZ and Wheel Tractor Plant meaningless ‘small talks’.
In President’s logic, the best example of cooperation between the state and foreign investor was a Swiss-Belarusian joint venture producing electric trains. The authorized fund of the venture was made of 60% cash deposit by the Stadtler and 40% in kind contribution by JSC Belkommunmash, the production is organized in the leased Belkommunmash spaces, and the entire project, including tax benefits, is regulated by a special Presidential Decree No 322 of July 20th, 2012.
Referring to the EU and the U.S., the President was restrained and constructive, which implies, the resumption of a dialogue trend will be preserved. In particular, Lukashenko said that Belarus wants to have “normal and good relations” with the West and called upon the EU and the U.S. to abandon the sanctions. Lukashenko regards regional security issues as a platform for a new dialogue (transit of energy resources, fighting cross-border crimes and illegal migration).
Simultaneously, Lukashenko emphasized that the Eurasian integration project remained a priority for Belarus, and that he would not abandon this foreign policy line. Such Lukashenko’s approach is known as a ‘pendulum’ policy, which is often used by the President as the most suitable and proven tool to help keeping him at power. The upcoming presidential elections in 2015 force Lukashenko to resort to this tool once again.
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.