The authorities tightened the rules for officials and business
Trials and investigations against high-ranking officials and businessmen during the election campaign period will have a pacifying effect on business and will strengthen internal discipline in nomenklatura. The developments show that neither business, nor officials have effective tools to resist the Belarusian authorities.
On September 6th, former Deputy Chairman of the Vitebsk Oblast Executive Committee Leonid Kovalev was sentenced to 7 years’ imprisonment in a maximum security prison with confiscation of property. On September 7th businessman Yuri Dankov was charged with covering up prostitution. On September 10th, the trial against the former head of the Council of the Republic Secretariat, Gleb Bedritsky, charged with corruption, will begin.
The aforementioned events are a random coincidence, but objectively speaking, the authorities are interested in tightening the rules before the elections, not only for the opposition, but also for the officials, to put their loyalty through a test. Therefore these three cases meant to send signals to at least two social groups: officials and businessmen.
In particular, the former deputy chairman of the Vitebsk Oblast Executive Committee Mr. Kovalev was convicted for large scale bribery while organizing mass entertainment in Vitebsk. The punishment for such a high ranking official has another dimension. In 2005-2008, Mr. Kovalev headed the Belarusian Republican Youth Union therefore the authorities will have an additional argument to strengthen control over the organization if necessary, as it is highly active during the election campaign.
The trial against the former head of the Secretariat of the National Assembly’s upper chamber Mr. Bedritsky will have a disciplinary effect not only on the future members and the staff of the Council of the Republic, but also on the Parliament as a whole. If after these elections some kind of political reform is initiated in Belarus (as Lukashenko previously hinted), the revealed corruption in the Parliament will allow the President to manage new deputies more effectively.
Finally, the arrest of a well known businessman Yuri Dankov, owner of the largest and oldest entertainment complex Dankoff Club in Minsk – irrelevant whether he is guilty or not – will be interpreted by other businessmen as a warning against excessively independent behavior (Mr. Dankov is known for his critical statements about the authorities). Moreover, Mr. Dankov’s arrest – he has long been a deputy of the Minsk City Council and even nominated for the presidency – will have a chilling effect on the former deputies who planned business careers after the elections.
All the three examples also demonstrate that the defendants in these cases have no effective tools to counter the authorities and to protect their interests. In particular, Mr. Bedritsky has written a request to the President asking for release, and Mr. Dankov has stoically accepted the beginning of the investigation and was not trying to start a public campaign in self-defense before the arrest. On the other hand, this is a traditional behavior of Belarusian officials and businessmen.
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.