After the release of Sannikov and Bondarenko, Lukashenko is waiting for EU’s next steps
As anticipated, Belarus is not intending to comply with the EU requirements immediately and entirely and offers a step by step approach, gradually fulfilling the EU conditions in exchange for some concessions by Belarus. The main reason behind it is the desire of Belarus to revert to the traditional foreign policy of balancing between Russia and the West.
President Lukashenko eased his attitude on negotiations with the West considerably. The main sign is that he has postponed for an indefinite period his annual address to the Parliament and the nation. Lukashenko ordered to revise his address, including the foreign policy section, to make it more moderate.
Thus, the President’s Administration received a carte blanche to resume relations with the EU. Head of Lukashenko Administration, Mr. Makey, speaking on the national television on April 17 confirmed, that Belarus was ready to engage in a dialogue with the EU at all levels. His statement about the unacceptability of putting pressure on Minsk was apparently addressed to the domestic audience and meant to compensate for the President’s “weakness”, i.e. the release of two political prisoners the day before.
On April 20, Minsk city authorities granted a petition of the organizers of Chernobyl Way to stage an annual march and a rally in central Minsk on April 26. The application was granted regardless of being filed by the non-registered “Belarusian Christian Democracy” party, which supports the expansion of EU sanctions and plans to boycott the parliamentary elections.
All these positive signals Minsk addressed to the participants of the EU Foreign Ministers meeting on April 23, where Belarusian issue would be discussed. Statements made by the Belarusian leaders imply that they expect the Ministerial Council decision to refrain from further expansion of sanctions and come up with some kind of conciliatory resolution. This would give a reason for European ambassadors to return in Minsk.
The most likely explanation of the drastic mitigation in the attitude is the Minsk’s desire to secure an alibi in the foreign relations with Russia. The authorities came out as losers in the air carriers’ conflict and now seek for opportunities to resume the old policy of balancing between Russia and the West, which would allow for selective approach to fulfilling the requirements of both sides.
However, after 2011 the space for maneuvering has significantly narrowed. Therefore it should be anticipated that Minsk will not comply entirely with all the requirements put forward by the EU and will restrict to the minimum acceptable status quo. For instance, Belarus will restore relations on the diplomatic level and will resume a symbolic dialogue on “safe” issues (migration, construction of nuclear power plants, and moratorium on the death penalty).
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.