Crisis of President Lukashenko’s legitimacy put on hold

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April 22, 2016 17:45

On 27 May President Lukashenko held a meeting to discuss the current situation on the consumer and foreign exchange markets. The meeting was attended by the top officials of the country: representatives of the Government, the National Bank, the Presidential Administration, the management of the largest state-owned banks.

Comment 

The Belarusian political elite are waiting for the President’s actions to overcome the financial crisis. 

President Lukashenko senses that his domestic legitimacy is in danger and has to react within the frameworks of the failed talks with Russian leaders on 19 May and Kazakhstan on 24-26 May. The absence of positive information regarding the outcomes of these negotiations, indeed, reduces the credibility of the Head of State. Moreover, a number of statements made last week by Russian Prime Minister Putin and Finance Minister Kudrin concerning the conditions of issuing a stabilization loan to Belarus present the situation as if Russia is dictating to the Belarusian leadership what to do to obtain the credit and to overcome the crisis. 

Following these media reports, Lukashenko had to justify himself vis-?-vis his subordinates and to convince them that he still controlled the economic situation and protected the interests of the Belarusian management. During the meeting the Belarusian President has repeatedly said that Belarus would not start the “collapsing” sale of assets. 

The meeting was the first public statement by Lukashenko after the Summit held in Minsk on 19 May. Its emotional intensity proves the political stakes are high, at least until the next meeting of the Board of the Anti-Crisis Fund of the Eurasian Economic Community on 4 June, meant to decide on the allocation of the first transfer for Belarus. It is fairly safe to assume that the Belarusian elite will continue keeping the pause until that date.

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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.

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