Serbia Today Interview Miroslav Prokopijevic

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INTERVIEW OF THE WEEK
Interview July 21, 2009
Miroslav Prokopijevic,
Director of the Free Market Center

“Decades are necessary for the recovery of the Serbian Economy”

By Radojka Nikolic
Editor in Chief
Magazine Biznis, Belgrade

If the reforms of the business surrounding and the state are not carried out, the Serbian economy will stagnate and fall more and more behind not only the developed countries, but also behind the majority of the neighbouring countries.

Serbian economy in 2009 is hardly a little more reformed compared to the “old regime” from the period before the October changes in 2005. The Serbian economy is in 2009, for the first time after the year 2005 facing a drop in GDP, and the external economic crisis has only laid bare and highlighted the weaknesses that had existed before as well.

This is how Miroslav Prokopijević, the Director of the Free Market Centre described the state of the Serbian economy in 2009. In the interview for Magazin Biznis Prokopijević speaks about the economic crisis profile in Serbia and the world, about the weaknesses of the Serbian economy and the adverse consequences to be expected from some of the government measures.

Could not many economic problems have been avoided? Where does the problem lay- is there no sufficient economic knowledge or political will, or is something else in question?

- In principle anything can be avoided because it is known which actions lead to certain consequences. Therefore, at the level of theory, it is clear, but in practice it is hard to resist some challenges. For example, it is well known that if you do not want reforms you will have long term development stagnation. However, reforms are avoided because they are economically painful and reduce the political popularity of those conducting them in the short term. Privatization or donation revenue could have been used for the restitution and reformation of the state and especially the pension system, but they went into higher pays and pensions. The dinar could have had a realistic currency exchange rate for the leading currencies, because then there would have been no risk from a big abrupt devaluation. However, if its value had been real, the market value of our national income last year would not have been 36 billion euros, but a little above 20 billion euros. Of course, the pays and pensions would have been lower. Therefore, our income had been raised to an unrealistically high level but the unrealistic value of the dinar. The state could have paid the bills to the goods and services firms, but it did not do this, and therefore it is the key factor of insolvency. The money has gone and is still going to NIP (National Investment Plan), the Development Fund, Kosovo, loans for the economy and alleged workplaces and to many harmful and unnecessary programs, but they do not go to the suppliers towards whom the state is in debt.

What are the main obstacles due to which there has been such a long “transition pace” or Serbia?

- Serbia had not wanted faster, deeper and more consistent reforms but which the question of its political and economic status would have been solved long term. Instead, there had been some reforms in certain sectors (banks, securities, privatization), but the system had not fundamentally changed. It has not come to reforms because the majority of the politicians and the voters were against them. Regarding that the politicians could have assumed responsibility and said: “We realize that the majority of the voters are against reforms but if we accept that, we will only stagnate. For that reason we must conduct the changes that are a long term solution to our problems.” However, it did not happen, the authorities respected the will of the majority and let themselves be lead by demagogy and politics, and on the personal level to getting rich through corruption and shady dealings. That can no longer be reformed quickly and therefore we will be living for a long time with the current problems. Decades will be necessary to gradually reform the state and the business surrounding or to significantly reduce the level of corruption.

How do you estimate the moves and measures taken by the Serbian Government representatives during the crisis- from the end of last year until now?

- Those measures followed after a large number of official estimations which were untrue and often contradictory. Of course, the measures could not have been either better or higher quality either. The government is conducting a countercyclical policy by various incentives the National Bank of Serbia is conducting a pro cyclical policy, which is mutually incompatible. The state is wasting money on subsidies, liquidity among other things, instead of covering at least part of the debt towards the economy with that money, since due to the default of bills payment the state is the main creator of insolvency. By the encouragement for buying Punto the poor Serbian tax payers subsidize the rich Italian owners of Fiat. However, the most harmful is the employment program for employing 10,000 persons. In order to collect the resources for that program, money has to be taken from the firms that are still functioning, due to which their business expenses will rise and they will have to lay off workers. In that way those who earned their wages on the market will become jobless. But you will not be able to see them in the media, where only the few of those who had become employed will be shown. The wages for those 10,000 people will be paid from the budget and they will mostly lose their jobs after a year. During that time, they will only have the illusion of being employed, instead of looking for real employment. In this way, the final effect will be that after a year there will be around 20,000 more unemployed solely owing to this program. That is pure loss, as well as the loss of money that will be squandered on it.

What is your message- what should be done in these economic conditions in which Serbia is now?

-Basically, Serbia is not doing what it should in this crisis, which is state and business surrounding reforms, and is doing what it should not be, which is a reinforcement of state involvement into market flows, a greater redistribution, a re-nationalization of firms, etc. Therefore, the loss is double.

Perhaps some have hopes that the investments will be returned even without the reforms, as it was before 2008. That, however, cannot happen. Before 2008. there was a lot of money to be obtained on more favourable terms, primarily due to such a monetary policy of the USA. There had been both donations and privatization revenues in Serbia. Once this crisis is over it will be difficult to obtain money on more favourable terms again, there will be no donations or revenues from privatization which will have finished by then, at least when profitable firms are in question. Therefore, the rules of the game must be significantly advanced if we want economic growth and a decent life standard. Simply, Serbia as a business surrounding should be more competitive in relation to its rivals so that there are more substantial investments here. If the business surrounding and state reforms are not conducted, Serbia will be a stagnating economy which will fall more and more behind not only the developed countries but also the majority of neighbours - Miroslav Prokopijević said in the interview for Magazin Biznis.