Lukashenko in the spotlight of a diplomatic row
While talking to journalists on 26 April, the President Lukashenko impartially spoke about the President of Ukraine Viktor Yanukovich, and also named the Chairman of the European Commission Jose Manuel Barroso with an insulting Russian word with extremely negative connotations.
The emotional reaction of the Belarusian President to an informal request to withdraw participation in an international donor conference in Kiev on April 19, attended by Mr. Barroso, had several implications for the regional policy projects involving Belarus.
Firstly, an attack on the first person in Ukraine, which along with Belarus is involved in the Parliamentary Assembly of the Eastern Partnership, will apparently freeze the expected support of the Ukrainian Delegations to their Belarusian colleagues for an indefinite period of time. Previously Belarus managed to create the inner lobby in the EURONEST of the delegations of Armenia and Azerbaijan, which were calling for the equal participation of the Belarusian MPs in the EURONEST. Then Ukraine expressed a mild desire to side with Belarus, and now the political climate for such support has seriously deteriorated.
Secondly, the statement of Lukashenko is a marker of the bilateral relations between Belarus and Ukraine. In particular, Belarusian and Ukrainian experts believe, the dramatic deterioration of the diplomatic relations may impede the state border demarcation process, important for Ukraine, successful completion of which is impossible without the support from Belarus. This process needs to be completed for the Ukraine could fully participate in a number of integration projects with the EU.
Finally, thirdly, the Belarusian president made his statement on the day a meeting between presidents Medvedev and Yanukovich was held in the city of Chernobyl, dedicated to the 25th anniversary of the Chernobyl tragedy. President Lukashenko planned to participate in the aforementioned events, but then stayed in Belarus. The Belarusian president’s ignoring of the high-level meetings speaks about a serious crisis of his international legitimacy. During his 4th presidential term as of 26 April, he had not paid any international visits. Indeed, the cutback on legitimacy was one of the reasons for the unexpected departure of Lukashenko to Turkmenistan on 27 April.
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.