Dialogue between Minsk and Brussels: mutual stand-by mode

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April 22, 2016 18:12

Relations between the EU and Belarus are at the minimally acceptable level for both. The reduced interest of Minsk to the European External Action Service representatives visit meant to demonstrate that the Belarusian government had no intent to meet the EU’s political demands and re-start a dialogue in the near future.

On June 11, Head of Directorate for Europe, Mr. Romanovsky met with representatives of the European External Action Service. One of the EU delegates was Head of the Eastern Partnership Department of the European Commission Mr. Kjaer.

European officials also met with the EU ambassadors present in Belarus, Belarusian opposition politicians and civil society representatives.

The visit did not attract significant attention from the Belarusian authorities, which signals that they are generally pleased with the “truce” and do not intend to strengthen political cooperation. This trend occurred in April 2012, when the EU ambassadors returned to Belarus, overcoming the most acute phase of the diplomatic crisis.

Both sides, Minsk and Brussels, maintain their relations in a standby mode, without increasing the level of cooperation. In contrast with the February visit of Director for Eastern Europe, Southern Caucasus and Central Asia of the External Relations Directorate General of the European Commission Mr. Wiegand, who was received by Foreign Minister Martynov, representatives of EU delegation visiting Belarus on June 11-13 met with lower level Belarusian officials.

An appropriate meeting level would be at least a Deputy Foreign Minister, for instance, Mr. Kupchina, who took part in an informal Eastern Partnership Summit on June 5 in Chisinau. However Mr. Kjaer met with a Foreign Ministry directorate head. The low involvement and coverage level for the visit demonstrates that today Belarus regards Eurasian foreign policy cooperation as more important.

The most relevant factors for Eurasian cooperation are two loan programmes between Belarus and Russia. In particular, firstly, the third tranche of the EurAsEC Anti-Crisis Fund loan (USD 440 million), which, following long negotiations, was disbursed on June 15. Secondly, a more important factor is the upcoming consultations between Belarus and Russia regarding the nuclear power plant construction. It is anticipated that a general contract will be signed and a credit line will be opened by the end of June. Moreover, Belarus is expected to start negotiations with Russia about compensation to the Belarusian economy for Russia’s accession to the WTO.

Since the EU had no proposals regarding economic cooperation on a comparable scale, the Belarusian authorities continue waiting, hoping the EU will make the first step (eg, reducing or lifting sanctions).

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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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