Kremlin strengthens "privatization" pressure on Minsk
Belarus attempts to delay privatization of her large state-owned assets in favour of Russian business, aspiring to buy some time with keeping Russo-Belarusian relations tense. The Belarusian government uses this tactics by playing on contradicting interests of large influential groups in President Putin and Prime Minister Medvedev’s teams. However, Belarus’ growing dependence on the Kremlin significantly limits her abilities to manoeuvre and eventually she will be prompted to hand over state assets to Russian counterparts.
On July 15th, President Lukashenko met with Russia’s Deputy Prime Minister Arkady Dvorkovich.
Belarusian official media reported that Russia’s Deputy Prime Minister Dvorkovich visited Minsk primarily to discuss Eurasian integration issues. Interestingly, Dvorkovich’s visit to Minsk had not been announced in advance and took place after a telephone conversation between President Lukashenko and Prime Minister Medvedev “following the request from the latter”.
During the meeting Deputy Prime Minister Dvorkovich "conveyed greetings" from President Putin to President Lukashenko. It should be noted that only two weeks earlier Lukashenko and Putin met in Minsk, and that right after the meeting Belarus received a USD 2 billion loan from the Russian VTB Bank. These funds have prevented Belarus’ international reserves from falling below the level of USD 4.4 billion, or 1.1 months worth of imports – a critical marker for the national currency’s stability.
Deputy Prime Minister and member of the Russian Government’s Presidium, Dvorkovich is an important figure Dmitry Medvedev’s team. He oversees real economy, including fuel and energy complex. He carried out several successful privatization projects in Russia. In February 2013, after Dvorkovich’s visit to Minsk Belarus named five major Belarusian companies for privatisation in favour of Russian capital. Russians are interested in purchasing the following assets: MAZ, "Integral", Minsk Wheel Tractor Plant (MWTP), “Pelenga”, and "Grodno Azot”. In May 2014, during the World Ice Hockey Championships, Dvorkovich visited Belarus privately and looked at attractive assets in Belarusian state property.
During the most recent meeting with Dvorkovich, Belarus’ Prime Minister Mikhail Myasnikovich said, “I know, that today during a meeting with Belarus’ President they discussed the following steps in the major integration projects. The Government, in turn, will do everything in order to meet the deadlines”. However, Belarus had failed the ‘deadlines’ before (the most recent was in late 2013) and was able to crumb the Kremlin’s ‘integration’ plans of transferring Belarusian assets to Russian companies.
It is likely, that the Belarus’ officials in their traditional manner attempt to play on Russia’s internal contradictions. Last week, Belneftekhim Head, a Russian citizen Ivan Zhilin was suddenly arrested – regardless of the concern’s good performance in the last six months. In addition, in May this year, Prime Minister Medvedev announced redistribution of power in the Russian Government. Partially, Dvorkovich might be stripped of his powers in favour of Deputy Prime Minister Khloponin (most likely those associated with fuel and energy complex). However, this is unlikely to affect significantly the Belarusian-Russian relations as regards “integration” projects.
Belarus’ growing dependence on foreign aid (mainly from Russia) is likely to prompt officials in Minsk to yield to the Kremlin’s pressure regarding privatization of some large state assets before late 2014.
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.