Official Minsk not willing to back Kremlin in Ukraine economic blockade

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April 22, 2016 18:52

Official Minsk is ready to resist the Kremlin from dragging Belarus into a trade war with Ukraine, if Belarus’ economic interests are at threat. If Moscow unilaterally imposes duties on imports from Ukraine, Belarus aspires to gain benefits from the common customs space with Russia by re-exporting Ukrainian goods to Russia. Meanwhile, the Belarusian government, without coordinating with Moscow, has introduced restrictions on importing some goods from Ukraine – as protective measures aiming to limit imports to Belarus.

Neither Belarus, nor Kazakhstan has supported Russia when the latter proposed to introduce duties on imports from Ukraine.

At the Eurasian Economic Union’s Board meeting in Sochi, Russia proposed Belarus and Kazakhstan to introduce jointly import duties on Ukrainian goods – due to Ukraine signing the economic chapter of the Association Agreement with the EU. However, official Minsk, upheld by Kazakhstan, spoke strongly against this decision. In addition, Belarus’ Foreign Ministry Spokesman Mironchik underscored that Ukraine signing the Association Agreement with the EU was “the sovereign right of a sovereign state”.

Until now, Belarus’ stance regarding the Russo-Ukrainian conflict was limited to statements about support for the new Kiev authorities and Ukraine’s territorial integrity. However, the Belarusian authorities have never dared to act independently regarding the most sensitive issues for Moscow. For example, Belarus supported Russia’s position during the UN vote on Ukraine’s territorial integrity and de facto upheld the annexation of Crimea by Russia. In addition, during the Russo-Ukrainian escalation, the Belarusian authorities allowed an increase in Russian military presence in Belarus.

The Belarusian leadership, however, is avoiding getting involved in the Kremlin’s economic pressure on Kiev, as it might destabilise the economic situation in Belarus and hinder the ongoing thaw in relations between Belarus and the EU. The USD 2 billion loan from Russia is also not enough to compensate for possible losses from a trade war with Kiev. Belarus’ Foreign Minister Makei emphasised the importance of Belarusian-Ukrainian economic relations: “Ukraine is our second most important trade partner in the former Soviet Union, after Russia. In previous years, the turnover with Ukraine was USD 8 billion, with trade surplus. "

Belarus’ representative in the EEC, Sergei Rumas said that “due to the lack of consensus [regarding import duties], Russia, according to the EEU regulations has the right to introduce these duties unilaterally”. If the Kremlin unilaterally introduces import duties on Ukraine, Belarus might gain benefits from the common customs space by re-exporting Ukrainian goods to Russia.

Meanwhile, Belarus has introduced restrictions on imports of some Ukrainian goods without coordinating these actions with Moscow. These measures comply with the current government policy aiming to reduce imports to Belarus. For instance, Belarus has introduced certification on beer and confectionery made in Ukraine, which prompted Ukrainian confectioners and brewers to suspend deliveries to Belarus.

Belarus will continue to stand up for an independent economic policy with regard to Ukraine – in particular, if her economic interests are at stake – but will mitigate her stance with rhetoric about allied support for Russia. Meanwhile, the Belarusian authorities might adopt restrictive measures against imports from Ukraine in order to carry out their import substitution policy. 

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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.