Besides the trust in the banking sector, the world crisis will also affect Serbia’s economic growth, which will next year most likely amount to about four percent. This was the main message of Serbian Prime Minister Mirko Cvetkovic from the round table with representatives of the Government, organized by the Ekonomist magazine.

„Having in mind that for the last several years in a row Serbia has had growth rates of about seven percent of GDP, we consider this a recession,“ Cvetkovic said.

One of the answers to the crisis, on which other ministers will insist as well, will have to be a more restrictive fiscal policy, especially when it comes to unproductive public consumption. Although the budget will be intensively discussed in about a month, for the time being it is known that the budget deficit in 2009 should be lower than two percent, while the public consumption should not exceed 44 percent of GDP. Prime Minister announced that the 2009 budget would include assets intended for urgent interventions for the banking system, which would be used „if the situation demanded that“.

Although Cvetkovic didn’t mention precise proposals for this purpose, it could be heard at the Round Table that the Government should think about an increase in liquidity of the entire real and financial sector.

“Banks are already noticing liquidity problems of some companies, and chances for indebting will be even narrower, since there would be no trans-border credits, while central banks’ credit lines would be considerably poorer. Limited and expensive credits will slow down the economic activity,“ concluded Vladimir Čupić, President of Hypo Alpe Adria Bank Executive Board, asking how to lead a restrictive monetary policy without undermining the economic activity.

However, the answer of Governor of the National Bank of Serbia Radovan Jelasic is that the Serbian central bank, unlike European banks that wanted to revive the economic activity through reducing the reference interest rate, will not do such a thing, since it might lead to a further increase in the interest rate and a decrease in the economic activity at the same time. The turbulences in the international financial market will also affect the domestic currency value, which has depreciated by 5.8 percent since the beginning of the year, as well as the role of the domestic currency in the banking sector.

This means that there will be cheaper dinar loans only if the inflation and inflatory expectations are lower, which on the other hand affects a decrease in the reference interest rate. Governor Jelašić announced that NBS would have to continue leading a restrictive policy, since the inflation hadn’t been defeated yet. In his opinion, the key for a struggle against inflation and current balance of payments deficit is in hands of fiscal authorities, since monetary measures have already been sufficiently tightened, and serious reforms of public enteprises could hardly be expected.

However, Jelašić warns that the first drafts of next year’s budget seem pesimistic. A considerable part of the budget inflows has been brough into question, since the privatization funds have been spent, and there is a question whether new privatizations will occur. At the same time, VAT collection will be lower. On the side of expenditures, the increased public consumption might press out necessary investments in the private sector, which is dangerous, Governor Jelasic thinks.

Arrangement with the IMF

Each month Serbia needs 600 to 800 million Euros for covering the current payments deficit, and the main sources of this money are foreign investments and loans, said State Secretary at the Ministry of Finance Janko Guzijan. According to Guzijan, in the case there are problems with covering current payments deficit, Serbia might ask the International Monetary Fund (IMF) for help. However, he underlined that this scenario was quite unlikely to occur.

The upcoming negotiations with the IMF mission, as announced, will not be dedicated to a financial arrangement, but to the budget of Serbia for 2009 and contracting of a new, non-financial arrangement. Among the Round Table participants in the audience it could be heard that it would be better if Serbia concluded a credit arrangement with the IMF before the country got into troubles.

Guzijan said that the Law on Income Tax was under preparation, and that the law stipulated an increase in the non-taxed part of income from the current 5,000 to 8,000 dinars. According to his words, the Ministry of Finance is not for extreme reduction of the public consumption, since it would additionally slow down the economic activity. “Our standpoint is that taxes shouldn’t be increased,“ Guzijan said.

Projects

In the upcoming period the Government will focus on infrastructural projects, as well as completion of privatization. They intend to invest 1.6 billion Euros in construction of roads on Corridor 10 in the upcoming two and a half years. „Corridor 4, which goes through Romania, will be completed in three years, and it will draw away a great deal of freight transport. That’s why it is important to complete the works on Corridor 10 prior to that,“ explained Minister of Infrastructure Milutin Mrkonjic, adding that in the upcoming period main tasks were completion of the by-way around Belgrade, the section Horgos-Novi Sad and roads in the south of Serbia.

Mrkonjić said that 1.1 billion Euros were needed in the upcoming four years for modernization and completion of hubs in Belgrade, Nis and Novi Sad. Borislav Radosavljević, General Manager of OMV Serbia, said that only along Corridor 10 the company had paid 50 million Euros of taxes and fees and opened a lot of new jobs.

Tenders for the Mining-Smelting Basin Bor and selection of a privatization consultant for Galenika will be announced these days. According to Minister of Economy and Regional Development Mladjan Dinkic, ten tenders for sale of socially-owned enteprises will be announced till the end of the year, and they also intend to announce 209 auctions. „We will try to find strategic partners for some socially-owned enterprises, and those that fail to find a buyer will have to go to bankruptcy,“ Dinkic said.

Tenders for strategic partners for completion of construction of the thermal power plants Kolubara B and „Nikola Tesla“ B3 should be announced till the end of the year. 750 million Euros should be invested in Kolubara B, while 900 million Euros are needed for „Nikola Tesla“. We are also considering a possibility for announcing a tender for restructuring and expansion of facilities in the 400-megawatt thermal power - heating plant Novi Sad, worth 160 million Euros – Minister of Energy Petar Skundric said.

Škundrić announced that a joint venture with the Republic of Srpska, which would deal with construction of the hydro-power plant Buk Bijela on Drina, would be established until the end of the year. Minister also said that the state should remain the major or at least dominant owner in the electric power system. „The Power Company of Serbia is worthier than everything we have privatized so far, and with other investments and the market price of electricity its capital value might be twice higher,“ he says.

In order to create more favorable investment ambient, tenders for wireless telecommunications and Internet technologies – WiMax and CDMAT, will be announced till December 31 at latest. Jasna Matić, Minister of Telecommunications, said that a tender for introducing electronic governments had been announced recently. She announced staging of a public discussion on the telecommunications development strategy dynamics over the upcoming 30 days.

Economy

Ministers of the Serbian Government are aware of the fact that due to the liquidity crisis it won’t be easy to attract foreign investments. However, as a blessing in disguise they underline that in the time when a lot of world industrial giants are considering a decrease in expenses and displacement of factories, Serbia might be a destination for new investments.. “FIAT has arrived and we are negotiating with Swedish Ikea,“ Dinkic says, pointing out that stimulating measures for attracting Greenfield investments have already been taken.

Slobodan Vučićević, President of the Serbian Association of Managers, said that at this moment Serbia wouldn’t know how to appropriately spend 20 billion Euros even if the country obtained the money from the EU, since it had no trained staff for such projects. „Since the future of Europe and the USA is related to education, Serbia should also invest its available assets in the same thing in the time of the crisis,“ Vučićević concluded.

On the other hand, Vuko Dragašević, Executive Director of Atlas Group, commenting on the necessity of direct foreign investments, concluded that it was also necessary to reduce the barriers in order to support Serbian exporting companies, since Serbia’s exports amounted to only a billion Euros, 65 percent of which went to the Republic of Srpska. Dragašević asked ministers whether the Government planned some steps in that direction in order to support Serbian enteprises. However, ministers didn’t mention whether domestic companies, especially export-oriented ones, could expect support in the aggravated crediting conditions and decreasing foreign demand.