Why Vladimir Makey cancelled his New York visit
On May 13th -14th, Belarus’ Deputy Foreign Minister Valentin Rybakov took part in a high-level meeting of the United Nations General Assembly. Earlier it had been reported that this meeting would be attended by Foreign Minister Vladimir Makey.
Belarus’ reduced representation at the UN meeting was due to a sharp deterioration in Belarusian-Russian relations and on a larger scale, because of the Russo-American conflict over the expulsion of a U.S. diplomat. No explanations were provided publicly, which implies there is little coordination between Belarus’ Foreign Ministry and the Presidential Administration.
The decision to replace Minister Makey with his Deputy Rubakov ran contrary to previous agreements. On May 3rd, Belarus’ Foreign Ministry Press Service reported a meeting between Makey and the UN Resident-representative in Minsk Samarasinghe. During the meeting the parties discussed the meeting agenda between Makey and the UN Secretary General in New York. Makey could visit New York within the UN framework, regardless of the US visa sanctions against him.
Makey’s decision not to go to New York is most likely associated with the deterioration in Russo-Belarusian relations, namely the deployment of the Russian air base. This conflict has manifested itself acutely after the scandalous informal meeting failure between Presidents Lukashenko and Putin in Sochi on May 10th. In addition, following U.S. Secretary of State Kerry’s visit to Moscow, Russo-American relations have sharply deteriorated in connection with the expulsion of a U.S. diplomat accused of spying.
This negative political context does not create favourable conditions for Belarus’ pro-active position in the West and the more so, in the United States, since Makey’s visit to the UN would have had broader agenda in couloirs meetings with U.S. representatives to talk about potential dialogue resumption, as well as the most important issue – cooperation with the IMF.
Potentially, Belarus’ leaders considered previous provocation (denial of the arrangements for the Russian air base deployment) was enough. They decided not to worsen their relations with the Kremlin and reduced Belarus’ representation level at the UN meeting. The acute phase of political relations between Minsk and Moscow was implied by the visit of Rosneft Head Igor Sechin to Minsk on May 16th, who passed ‘greetings from Putin’ to Lukashenko. Oil supplies in 2013 were discussed during the meeting.
So far it is difficult to say whether Minsk was successful in selling its strategy to Moscow. Indirectly, the success might be confirmed by a statement by the EurAsEC Anti-Crisis Fund Manager on May 15th that the allocation of the sixth tranche to Belarus would not depend on Belarus’ fulfillment of its privatization obligation (which Belarus had not fulfilled anyway). The Fund’s representative also did not rule out that Belarus could embark on a new credit programme.
In addition, on May 15th the Belarusian Foreign Ministry did not accept the invitation for Makey to take part in the Ministerial Meeting of the Eastern Partnership held in Krakow on May 17th. Belarus was represented at the meeting by Deputy Foreign Minister Kupchina. This decision could have been explained by EU visa sanctions against Makey which have not been dropped : Belarus considered that it was not appropriate for the Belarusian Foreign Minister to participate in the meeting, ‘ as a matter of exception’.
In any case, Makey’s failed visit to New York and to Krakow at the invitation of the Polish authorities are damaging the reputations of both Belarus and Minister Makey. Belarusian state media said nothing about the reasons behind these decisions, which firstly implies their urgent nature and secondly demonstrates the low level of coordination between the Foreign Ministry and the Presidential Administration on foreign policy issues.
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.