Die Tageszeitung has an article (in German) about the economic situation of Serbia. Some observations:
- since the start of the economic crisis Serbia has wasted 1 billion euro to defend the dinar
- in the same period 1 billion euro has fled the country to Western banks
- About 60,000 firms with 1.3 million employees are nearly bankrupt. One reason is the Serbian state that is late with paying it bills and owns now 720 million euro to Serbian companies.
- This year 120,000 people could lose their jobs. Unemployment is at the moment 23.7%.
- Since the beginning of the year Serbia's export has fallen with 37.5% and its import with 24%. So its trade balance has worsened - and it was already bad.
- At the end of last year the dinar dropped about 25%. But since then it hasn't moved.
- Serbia is now asking for at least 3 billion dollar more mainly from the IMF.
It looks like Serbia's government is still the prisoner of the irresponsible election promises that it made. Ukraine had to drop its currency by 50% on orders of the IMF. Does Serbia's government really hope that the IMF will keep financing its leaky pockets?
Come on, Tadic, stop being a coward! Buy a Churchill biography and learn that being a leader sometimes means that you have to promise your people "blood, sweat and tears"! The situation will keep getting worse until Serbia adapts itself. The "growth" financed by foreign transfers simply wasn't sustainable. The longer you delay it the worse the situation will get. I can only hope that the IMF will make tough conditions.
This doesn't mean that I am an economic neoliberal. Serbia should never have allowed that its citizens borrowed so much in foreign currencies in the first place. And one of the ways to achieve that would have by allowing less foreign control of the banks. In the present situation I am very worried about Tadic's determination to unilaterally implement the SAA. Serbian business has enough to adapt itself to without this additional burden. Serbia's government is making some efforts to stimulate the exports (at least acknowledging the problem), but until now it has little to show for the effort.
At the head of the FAZ article and in its last paragraph it is suggested that the US might IMF aid to Serbia conditional on a change in its Kosovo policy. It would be a stupid move: IMF is about finance. Using it so rudely as a tool of US foreign policy would seriously antagonize other countries. It would signal that Obama's foreign policy is even more unilateral than Bush's.
Postscript 26 march: according to this article IMF has given Serbia 3 bln Euro. The deal still needs approval of the IMF board - expected at the beginning of may and forces. Serbia has committed to 1.0 billion euros worth of spending cuts, equivalent to three percent of GDP. About the conditions the NY Times article says "The economy minister, Mladjan Dinkic, said on Wednesday in an interview with the daily Vecernje Novosti that the measures would fall mostly on the public sector, which employs 550,000 workers, versus 1.6 million in private sector.
“We will reduce funds for cities and local administrations,” Mr. Dinkic told the newspaper. “There will be no new jobs, and those who retire will not be replaced with new staff. The position of state servants will be equalized to the position of employees in the private sector. Various privileges used by public servants will be abolished. No bonuses will be allowed. We will not allow the purchase of new cars. We decided to cut costs as much as possible.”". The IHT is shorter "the IMF calls for drastic cuts in public spending, a freeze in wages, pensions and hiring in the state sector, and the introduction of an additional 6 percent tax on salaries and pensions to cope with the budget deficit.".
Is this good news? Not really. While I do believe that Serbia should reduce its social spending as it is at an unsustainable level, I think it is not very wise to reduce the overall amount of government spending in a time of crisis. I would prefer to see Serbia spending more on helping its business sector to overcome the damage of both the crisis and the devaluation.