Macroeconomic Policies and Regimes in transition , the experience of Serbia

1. 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 CLDS dpopovic@one.ekof.bg.ac.yu

2. Mind the gap ...

4. Time consistency … 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

5. 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.

7. In mid-2005 Serbia is, explicitly or implicitly, still subsidizing 75 large socially owned loss-making companies, which employ around 150,000 workers. In addition, the government is adamantly keeping control over public enterprises and public utilities (600,000 employees), which gives a totalof around 40 percent of registered labor. PRIVATE AND SOCIAL SECTOR

8. Transition is all about structural changes

9. 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.

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

23. 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

24. HUMAN CAPITAL OUTFLOW

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