Public, i.e. state finances are in bad shape.
Their condition is so bad that these days state officials are competing in badmouthing them. As is customary, the first one to admit that the state safe is facing bankruptcy was the minister of finance, when he announced that right after the holidays the state will no longer be able to service its obligations (and to attend to its budget beneficiaries) if in the meantime it does not sell part of its “family silver”, that is to say, some state owned companies, such as JAT or The Petroleum Industry of Serbia (NIS).
Added to all those statements came the announcement by the Ministry of Finance that the applications for subsidized home loans, as the money in this year’s budget required for subsidizing home loans in the first six months.
Unfortunately, it will become clear that was not the only case of “drunken” spending of taxpayers’ money and that the Government had been spending excessively, and the money leaked away as if King Solomon’s treasure was discovered beneath the building in 11 Nemanja Street.
That it all went downhill and that there is a threat of it going to hell could be seen in the last days of May, when the National Bank of Serbia’s Monetary Board decided to increase the reference interest rate from 15.25 percent to 15.75 percent with the explanation that “the current degree of monetary policy restrictiveness is not high enough to keep the base inflation in the projected range of three to six percent.”
What is it that the monetary government is so afraid of?
“The possibilities of fiscal expansion and raising the public sector pay, because of the requirements set out in the Constitution.” (Monetary Board’s conclusion on May 29 2008)
There was not a single month this year that the National Bank did not stand guard for the homeland trying to defend it from the aggressive and belligerent – state.
The last final modification of the reference interest rate was on April 24, when it was raised 0.75 percentage points, to 15.25 percent, because of, as they said, high inflatory expectations, public sector pay rise and political instability.
Governor of the National Bank of Serbia Radovan Jelasic claims that there is zero chance for the decrease in the reference interest rate, but he is not ruling out the possibility of its further increase.
Even laymen realized that Serbia’s cashbox is suffering from a serious case of anemia when governor Jelasic announced that the National Bank of Serbia will not grant a loan to the State of Serbia to improve the “blood picture” of its budget: “Why would we give the money to someone who does not understand that if you spend more money from the state budget it automatically means inflation. Why would we be giving to those who spent too much so that they could spend some more, just because we are constantly playing games here, and we say – now there are elections, now there are no elections.”
That was a serious allegation against Prime Minister Vojislav Kostunica and his cabinet ministers.
Bozidaj Djelic and State Secretary for the Economy and Privatization Luka Andric tried to lessen the size of the catastrophe. Djelic consternated the public with a statement saying that the government held informal discussions about the budget on June 5. If anyone had any illusions whether the second government of Kostunica had been nationally responsible, from that day on he had enough arguments to see what sort of “politicians” led Serbia in the past year.
Djelic warned that Serbia needs three to four billion euro of investments each year to maintain the current level of public finance, and for the current holes in the budget he blamed the “political situation” because of which IMT, RTB Bor and Lasta were not sold and the concession for the Horgos-Pozega highway was not closed. And Andric painted a gloomy picture of Serbian finances in the near future – “there will be no large budget influx from the remaining privatizations, so we need to find a new source of income,” he said. When asked whether the announced privatization of JAT can help saving the budget, Andric said that tender notice is expected by summer and that the privatization should be completed by the end of the year, but that “it is not clear what the budget yield made from the sale will be.”
Serbia, however, cannot wait for the end of the year, because right now the situation in the country can be described by the proverb – time and tide waits for no man. Serbia has only 100 million euros left on its bank account in the National Bank, although last year it had 1.3 billion euros from selling Mobtel. The government acted irresponsibly and wastefully and ended up being broke.
That is why governor Jelasic says that the country will have to lend money either from the domestic market or from abroad or to sell something as fast as possible, because the budget is constituted in such a way that it cannot hold without proceeds from privatization. If it does not get the loan anywhere and if it is forced to sell the “family silver” then it will have to sell it without asking the price. It well known that some profiteers are already circling round The Petroleum Industry of Serbia offering 400 million euros, which is below any reasonable limit. Should NIS be sold to the Russian Gazprom for this meager sum, every citizen of Serbia will rightly be able to accuse Vojislav Kostunica that he intentionally destroyed Serbian finances and that way forced the state to sell off the petroleum company to stitch together the budget’s gaping holes.
How did Kostunica & friends squander 1.3 billion euros?
Before answering that, it should be said that the budget was poorly made to start with, and that those who claimed that the coalition was making an exclusively social (and not developmental) budget, by which it was showing intention to rule by demagoguery and not by reforms.
Guvernor Jelasic suggests that the money was spent on elections that is to say on promises made in the election campaign. The campaign was referendal, so neither side hesitated to spend (other people’s, the state’s) money. Trade deals were made left, right and center, voters’ sympathies were bought by raising the wages of public sector employees, teachers, nurses, officers, by building hundreds of small bridges or by paving ten meters of some alley. Only a few Serbs in Kosovo were not lacking billions of dinars, the rest of them (Kosovo Serbs) were given “bones”. And the Kosovo Serbs in Serbia were receiving the usual monthly income, as if they were going to work each morning to their workplaces in Pristina or Gnjilane. The Prime Minister’s memorably announced when he visited the Patriarchate that there will be as much money for the Serbian Orthodox Church as it needed.
Everyone knew what would happen and they all “played dumb” when Radovan Jelasic cried out that the increase in budget wages will be the downfall of state finances. No one lifted a finger to stop the direct bribery of public sector employees. And as it always happens in economy, in the end (this time very quickly) the check arrived for collection. The bill will have to be paid by all citizens of Serbia through a so called inflation tax.
Inflation in Serbia is rising by the day. “The inflation rate in a country is a much more important indicator of the conditions in a country than 100 commercials aired on CNN. When you say what your inflation rate is, you said it all – who you are, what you are and what your fiscal policy is like,” says governor Jelasic.
President of the Serbian Association of Economists Dragan Djuricin concluded at the economist counseling held in Nis in May that “Serbia’s economy is out of tune” and that the economic discomfort index (the sum of unemployment and inflation) has reached 32 percent, and that the tolerable index is 10 percent. Incidentally, Djuricin claims that Serbia needs at least 3.5 billion euro in investments a year, only to survive, and not to relax.
Stojan Stamenkovic warns about the possibility of financial crisis if the influx of investments and credits should not suffice for covering the deficit in the current balance of payments, which is the way it has been financed up to now. “The assessment is that Serbia will fall short by approximately one billion dollars in covering the deficit in the current balance of payments,” claims Stamenkovic, with the assurance that we need a thorough reform of the public sector for arranging a well-ordered macroeconomic policy.
The prime minister who leaves a country on the edge of bankruptcy has no shame to occupy himself with the legal analysis of the Stabilization and Association Agreement with the European Union. And he claims that that paper should be burned, destroyed, annulled and forever banished from Serbia. “Only that way we will keep our nation’s dignity,” says the man who in only four months ruined the state finances. Ant they cannot be recovered without the influx of money from new investments, which will not come if Kostunica swallows the Agreement.
Translated by Ivica Pavlovic