By Andrei Makhovsky
MINSK, Sept 28 (Reuters) - Belarus's plan to raise public sector wages by a third ahead of presidential elections has no economic basis and contravenes its agreement with the International Monetary Fund, an IMF representative told Reuters.
"In the framework of the (IMF) programme, a certain increase in wages and pension was expected. But such a significant hike, undoubtedly, does not meet our agreements," said Natalya Kolyadina, IMF representative in Belarus.
On Monday President Alexander Lukashenko, who is running for his fourth term, announced that in addition to the increase in public sector wages, the minimum wage would rise by 55 percent to around $500 as of Nov. 1.
The rises, the country's largest pay hikes in recent years, would cost an additional 7 trillion Belarussian roubles ($2.3 billion) and double the size of the expected budget deficit to 3 percent of gross domestic product (GDP) this year.
"We do not see an economic basis for such a significant increase in wages," Kolyadina said. "The government will need to generate revenues to fund the additional spending."
The IMF supported Belarus with a $3.5 billion package during the global economic crisis, with the last tranche deposited in April. In May, Lukashenko said his recovering economy did not need additional funds from the IMF.
The IMF expects the Belarus economy to grow 7.5 to 10 percent in 2010 after stagnating last year, but earlier this month the Fund said it was anxious that Lukashenko was not moving forward with the earlier promised fiscal, banking and structural reforms.
COSTLY POPULIST MEASURE?
Lukashenko, 55, is expected to have little trouble winning the Dec. 19 election, but the heavily state-dominated economy may suffer in the process, analysts say.
For Lukashenko's opponents the rise in salaries is an obvious populist move.
"The hike absolutely has a pre-election character," said Alexandr Fedut, a political analyst and a campaigner for Vladimir Neklyaev, the leader of the Say the Truth movement and one of 19 registered presidential candidates.
"After two-three months, the Belarussian economy and the Belarussian budget will not be able to support the load any more." A traditionally close ally of Moscow, Lukashenko has used billions of dollars of Russian money to prop up heavy industry and social spending to operate the economy in a Soviet style.
But a rift between the two neighbours is widening, the Kremlin is progressively cutting its trade, energy and other subsidies, and analysts say Lukashenko's budget may shrink by a third, leaving the export-focused economy more vulnerable to external demand for its products.
For Moscow, the small country of 10 million remains, nonetheless, strategically located as a transit territory connecting its market with the European Union. (Additional reporting by Denis Dyomkin; Writing in Moscow by Lidia Kelly; editing by Tim Pearce)