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Serbia Hurries to Make up for ‘Lost” Economic Year

30 05 2007  Belgrade is in a hurry to overcome the legacy of six wasted months of political wrangling, which dented the country’s economic prospects and slowed investment.

By Milan Obradovic in Belgrade

After months of political feuding that took the country to the brink of political meltdown, Serbia is now facing a difficult task. It must balance ambitious plans aimed at reducing unemployment and attracting foreign investment with IMF worries about the expense.

At a press conference on Wednesday, new Finance Minister Vladimir Cvetkovic said Vojislav Kostunica’s Cabinet would prepare a budget for 2007 with a surplus in accordance with recommendations made by the International Monetary Fund earlier this year.
 
The adoption of a 2007 budget was delayed by months of talks over the formation of a new government.
 
In a letter sent in April, the IMF said Serbia should apply tough macroeconomic policies, including a budget surplus.
 
It also said Serbia, which is still recovering from the isolation and wars of the 1990s, should overhaul the economy by increasing Central Bank independence and improving the transparency of state institutions. It warned the government that Serbia could slip back into economic turmoil without reform.
 
Serbia came only inches from that fate as political feuding delayed the formation of a new government under Vojislav Kostunica to within half an hour of a May 15 deadline, and it is still not home and dry.
 
“When it comes to investments, this year is lost,” Biljana Stepanovic, editor of the Belgrade-based Bankar magazine, told Balkan Insight.
 
Serbia badly needs foreign money. Although it officially presented 2006 as a year with a surplus in the state coffers, the IMF warned that the budget balance weakened substantially from a surplus of ¾ of a percent of GDP in 2005 to a deficit of 1 1/2 percent of GDP in 2006.
 
The discrepancy was hidden in an elaborate system of accounting that recorded revenues from privatising assets such as the registration licence of the Mobilkom cell phone provider as direct income, economists say.
 
A low budget deficit, or even better, a surplus, are seen as crucial to maintaining stable prices and keeping inflation in the targeted 4-to-8 percent band, economists say.
 
At Belgrade’s annual conference of bankers on Tuesday, Central Bank Governor Radovan Jelasic said the Bank’s Monetary Board would soon be discussing setting an “even lower” target for next year’s core inflation.
 
Meanwhile, the government plans more sell-offs to raise cash. Mladjan Dinkic, Minister of the Economy and Regional Development, said recently the Cabinet was preparing plans to complete sales of the remaining state assets.
 
He said the government would speed up sell-offs and prepare bankruptcy procedures for state-run firms that cannot find buyers. The government would also prepare comprehensive welfare and layoff plans for employees of liquidated companies.
 
“This will not be completed this year,” he warned, regretting the six months lost in political wrangling. He said Serbia needed to attract 3.5 billion euros in investment in 2008.
 
Serbia still has several major state-run assets to sell. These include the EPS electricity producer and retailer, the state-run Telekom Srbije and the NIS oil firm, the country’s sole oil producer and its major retailer.
 
The Bor Copper Mining and Smelting complex will also be offered because the government cancelled its 400-million euro sale to Romania’s Cuprom.
 
The government also wants to sell Serbia’s air carrier, JAT airlines. Recent media reports suggested that Russia’s Aeroflot might be a potential buyer.
 
However, political problems with Europe are still complicating Serbia’s economic plans.
 
An unwillingness to get tough with war crime suspects has blocked the signature of a Stabilisation and Association Agreement with the European Union, which would be a first step towards membership of the wealthy trading bloc.
 
Brussels suspended SAA talks last year over the government’s failure to apprehend and extradite the Bosnian Serb warlord General Ratko Mladic to the UN war crimes court in The Hague.
 
Political moderates are furious about the economic price Serbia has had to pay for the Mladic affair.
 
“Serbia is not having (economic) problems because it had 6 or 8 per cent inflation last year but because it failed to extradite Mladic,” said Bozidar Djelic, Deputy Prime Minister for European Integrations.
 
He also warned that the “speed and level of [economic] development will be directly linked to [Serbia’s] cooperation with the Hague tribunal.”
 
Economists are also worried that tensions over the breakaway province of Kosovo, which looks set to gain independence this year, could have an impact on the establishment of firm relations with international financial bodies and on Serbia’s aspirations to join the EU.
 
“We are making progress, but there are circles that want to make all these issues interlinked and that can create trouble,” Djelic said.
 
Milan Obradovic is a journalist with Belgrade’s B9 2 TV. Balkan Insight is BIRN`s online publication.