Political situation: the state loses ground, Lukashenko stands firm
Key trends in Belarus’ politics in 2013 were:
- state apparatus became less manageable;
- shortages in human resource shortages at top and medium management levels in the government;
- social benefits cut and quest started to replenish the state budget at people’s cost;
- dependence on Russia increased;
- attempts made to resume high-level dialogue with Brussels and Washington.
Key challenges for the current government in the medium term are:
- keeping president Lukashenko’s approval rating stable ahead of the presidential campaign;
- managing growing discontent among people caused by cuts in social benefits and unpopular measures to replenish the state budget at people’s cost;
- addressing lower management efficiency in the economy;
- growing dependence on Russia within the Eurasian integration project.
President Lukashenko has no money to buy the loyalty of voters with social benefits or pay rises. To stay in power, he would have to reinforce his strong-arm policy.
Welfare state: reduced social obligations
President Lukashenko remains the most influential politician in Belarus (IISEPS (http://www.iiseps.org/). By the year-end, he managed to regain his approval rating, reaching the pre-crisis level (42.6%). In 2014, the major challenge for the ruling group will be to keep Lukashenko’s approval rating stable before the presidential campaign kicks off in 2015. It is worth noting that the state’s resources have dwindled, making it difficult to ensure a high standard of social benefits and continuous pay rises, i.e. key factors on which the president’s approval rating rests.
The president has regained his approval rating at the cost of pay rises unsecured by economic growth, anchoring a downward trend in the state apparatus’ manageability and efficiency. For instance, mass-scale industrial modernization has failed: the government’s monitoring of 711 large enterprises showed that in 2013 circa 20% of enterprises completely failed to modernize and 37% failed the deadlines. Often the president’s orders were not carried out or were revoked due to a lack of resources. Warehouse stocks continued to pile up throughout 2013.
The head of state attempted to remedy the situation with reshuffling staff, threatening sanctions or prosecuting managers. These attempts failed, mainly due to human resource shortages in the government’s top and medium level management which limited the president’s ability to mobilize public officials. In addition, human resource shortages did not allow the president to change the Myasnikovich-led Government. It is possible that he will dismiss the government just before the presidential campaign starts, thereby shaking off recent socio-economic policy failures.
Belarus’ growing dependence on Russia is particularly visible in the military sphere. The authorities are no longer able to ensure defence security. Official Minsk had no choice but to agree to a stronger Russian military presence in Belarus. In 2013, duty Air Force fighters of Russia’s Armed Forces Western Military District were deployed in Baranovichi. A Russian air base will be set up in Lida (Grodno region, Western Belarus) in 2015.
The ruling group is not willing to reform the existing socio-economic model and seeks to preserve it, albeit in a slightly downsized version. In late 2013, budget revenues decreased, despite the cuts in social benefits and rises in tax and non-tax fees for the population. As of mid-2013, wages in the public sector stopped increasing and prices for goods and services, subsidized from the state budget, went up. Workers at large enterprises have been requested to take unpaid leave and their working hours have been reduced. In 2014, these trends will intensify.
Political elites: interests at odds
In 2014, President Lukashenko will have to address two main issues: the state’s manageability and human resource shortages. It seems that he has no option other than to formally broaden the nomenclature’s powers in decision-making.
In late 2013, president Lukashenko held a national meeting of functionaries, reminiscent of the Soviet-era Communist Party Plenum. He believed that such meetings could improve efficiency within public administration. However, this collective management body is at odds with the existing personalized system of power.
The president has no plans to change the existing institutional design in Belarus. Further development of the ‘Belaya Rus’ quango, comprised of influential Belarusian nomenclature members, has been suspended.
In 2014, the president will attempt to balance out various law-enforcement agencies. Lukashenko has already reduced the roles of the Security Council and the State Secretary within the Belarusian power hierarchy and enhanced that of the national security assistant - Viktor Lukashenko – by strengthening his informal leadership.
Inside the Belarusian opposition, centripetal tendencies crystallized, resulting in cooperation among the largest opposition groups within the framework of two coalitions: ‘The People’s Referendum’ and ‘Talaka’. In 2014, attempts to nominate a single candidate for the 2015 presidential election will lead to stronger confrontation between the coalitions.
International policy: growing dependence on Russia
Belarus’ foreign policy in 2013 was pre-determined by agreements signed within the Eurasian integration project. Belarus has become more vulnerable vis-a-vis Russia. For instance, throughout 2013 Russian oil deliveries to Belarus were signed off with delays every three months. In addition, in Q4 2013 Russia cut its oil supplies to Belarus during the ‘potash conflict’ between Belarus’ authorities and Uralkali leadership. While president Lukashenko received some information bonuses, he lost leverage to pressure the Kremlin. In addition, the ‘potash conflict’ has entailed considerable economic losses for Belarus.
In 2014, Russo-Belarusian relations will follow similar patterns. The Kremlin is interested in stability in Belarus and will continue issuing subsidies and preferences to Belarus, but it will do so in minimal portions and with delays so as not to leave Belarus room for manoeuvre. Cooperation in key areas, i.e. in oil and finances, will be fine-tuned every three months. However, Russia’s assistance will not be enough to maintain the president’s approval rating up to the 2015 presidential elections. Belarus may therefore consider privatizing one or two large enterprises in 2014. This act will be presented as a concession to the Kremlin’s pressure.
Belarus continued to seek ways to balance her dependence on Russia. With no major break-through in Asia, the Belarusian Foreign Ministry attempted to create conditions in 2013 to resolve the political conflict with the West. The Belarusian authorities are interested in improving bilateral relations with Brussels and Washington, albeit on their own terms. In 2014, the Belarusian government is prepared to relax its grip on the domestic political environment during the local elections, hence creating favourable conditions for rebooting political relations with the West.
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.