Macroeconomic Policies and Regimes in transition , the experience of Serbia

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UNCTAD Training course on key issues on the international economic agenda, Belgrade, 18-21 September 2006

Macroeconomic Policies and Regimes in transition, the experience of Serbia

Prof. Danica Popović Faculty of Economics and [email protected]

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Mind the gap ...

GMP in FR Yugoslavia, 1960-1996

0

5

10

15

20

25

30

1960 1965 1970 1975 1980 1985 1990 1995

years

billi

on U

SD recovery

stagflation

collapse

6.6% ann.gr.

Exports and Imports GNFS

-4-3-2-10123456

1965 1970 1975 1980 1985 1990 1995

godinem

lrd. $

imports

exports

resource gap

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Real GDP Percentage Change Index (1989 = Base), 1989-2004

40

60

80

100

120

140 PolandEUSloveniaHungarySlovakCzech RRomaniaCroatiaBulgariaRussiaSerbia

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In five years of transition, Serbian economic policy passed through five

cycles:

reform cycle 2000-mid 2003; abandoning reform in mid-2003 and shifting the focus on

issues (to be subsequently given up) of harmonization with the Montenegrin economy, with partial reversal of its own initial foreign trade liberalization;

coming into power of a new government (in early 2004),followed by almost nine months of systematic populist steps; and

a positive breakthrough and announcements of good reform steps (2005), which resulted from interventions by the IM F, WB and the EU announcement of the initiation of the SAA process as of October 2005.

Coming back to populistic policies and national investment plan

Time consistency …

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Overall results

a rising balance of payments deficit of more than 10 percent of GDP,

a continuously increasing unemployment rate, which now stands at 32 percent.

After four years of transition, GDP is estimated at around US$ 3,500 in per capita terms (around US$ 5,200 in PPP terms),

while slightly less than 11 percent of people in Serbia still live below the poverty line.

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PRIVATE AND SOCIAL SECTORIn mid-2005 Serbia

is, explicitly or implicitly,still subsidizing 75 large

socially owned loss-makingcompanies, which employaround 150,000 workers.

In addition, the government is adamantly keeping

control over publicenterprises and public

utilities (600,000 employees), which gives

a totalof around 40 percent of registered

labor.

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Transition is all about structural changes

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Transition in the 90ties? Statistical tests indicate that the structure of

employment by sector has not changed significantly, and thus labor is neither “moving” to propulsive sectors, nor leaving those declining ones.

The Lillien measure (calculated as a standard deviation of annual sectoral employment growth rates) for the first four years of transition in Serbia amounts to 3.9 percent.

Lillien coefficient for the Czech Republic amounted to 20.9 percent, for Poland to 20.3 percent, for Slovakia to 14 percent, for Hungary to 9 percent, etc.

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Inflation and exchange rate

41

58

112

411713.7

815

7968

615959

2116

86

0102030405060708090

100110120

1998 1999 2000 2001 2002 2003 2004 2005 2006

inflacija

dinar/evro

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Reforms of the pension system, health care system and publicadministration strongly encroach on the acquired rights, and for thatreason a strong political will and a consensus (reached at least in principle)between the government, employers and trade unions, are necessary fortheir implementation.

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PRIVATIZATION METHODS political parties which are running state companies

will become losers, hence every announcement of such a possibility provokes an immediate response from party officials, offering an explanation that such solutions are “bad for the country”, whatever that may mean.

Experiences show that after privatization, the services of these companies, as a rule, become much better, costs lower and the political influence of new owners, in a good regulatory framework, is much weaker than the influence of political parties which acquire the management rights without investing a single dinar in it and, by rule, without adequate management capacities

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HUMAN CAPITAL OUTFLOW

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the golden rule - productivity growth has to be at least equal to the sum of real appreciation and real wage growth.

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Macroeconomic Policies and Regimes in transition , the experience of Serbia

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