One half-sentence uttered by first deputy Prime minister Vucic, and I quote: that Serbia will gain the widest international support for that program, (partially) reveals that the program was presented to the IMF mission, which visited Belgrade between October 1 and 7. Why do I claim that it is good that the program was harmonized with the IMF? Because I believe there are no good enough measures for Serbia in the next three years, if a larger-scale reprogramming of foreign debt is not ensured. I saw somewhere that Stojan Stamenkovic, our renowned analyst, estimated that Serbia must reprogram between 7 and 8 billion USD of foreign debt. I believe that this was the key motive for the government of Serbia to accept the path suggested by the IMF.
If we look at the contents of this program, it is evident that the IMF has agreed to certain concessions. This is why Vucic talks about special conveniences for Serbia, while indirectly admitting that it is a standard IMF program for countries facing the same situation as Serbia. This is the main characteristic of minister Krstic’s plan. He adhered to the basic principles for treating a patient of this type. However, it is evident that he also followed the suggestions of the two main coalition partners in the Serbian government: the groups led by Dacic and Vucic.
From Dacic’s group he accepted the following – that all pensioners are amnestied from any kind of austerity measures – even those with high pensions are not included in the solidarity tax program. As to Vucic – he accepted the suggestion that the economic policy of the previous government should be characterized as irresponsible.
The previous government attempted to maintain the internal dynamics and economic growth by taking foreign loans and tolerating a high budget deficit. Today, this approach carries more risk than possible gain. And in this context, it should be understandable why the minister of economy Radulovic wasn’t present at this session of the government, since his plan of proactive economic policy cannot be implemented when the budget deficit stands between 7.5 and 8%, maybe even higher. In this situation, it is more important to lower the budget deficit and rein in public spending, that is, preserve some form of elementary macroeconomic stability, than to implement a proactive policy which does not guarantee a serious result. And it has not yielded a serious result during the activities of the previous government.
The main problem is thus that Serbia must make a move, that it has to implement austerity measures and a policy that, in all reality, will have recessional consequences. Unfortunately, we may be faced with a zero growth rate next year. Krstic said nothing about this. I believe that this is the main danger of this entire three- year horizon, which will probably be the timeframe of the arrangement with IMF.
During those three years, there is nothing especially good we can look forward to. On the other hand, I cannot recall that any serious economic program was ever implemented in Serbia, because, once different interests, lobbying and the inertia of the disarray in our state economy kick in – then the majority of these program are reduced to nothing.
The problem lies not only in the sloppiness of the public administration, but also in the great poverty within the country. Krstic mentioned that subsidies to the economy on the annual level amount to around 1.5 billion EUR. However, if we look at the budget, we can see that only 84 billion RSD are earmarked for directed subsidies.
A part of the subsidies is approved by individual ministries. For example, the ministry of economy gave Fiat in Kragujevac subsidies in the amount of 5 billion this year, although the sum earmarked in the budget was lower. The issue is that people and companies in Serbia do not pay their public dues. Tax collection is decreasing, smuggling of excise goods is increasing, large-scale theft obviously takes place at customs points.
People are not paying heating bills, rent, or electricity. Only about 60% of electricity bills are paid, while the situation in this field was much more orderly in the past. Srbijagas is complaining as well: nobody is paying the gas bills. This is partially the consequence of the disorder present in the society, and the feeling that, when populists are in power, they court the people, and the people understand this as the freedom not to pay their dues to the state.
The young minister Krstic has said – and we did not hear something like this from the government for a long time – that the problem of Serbia is the fact that 50% of the entire economy is the state itself. The state owns 50% of the capital and 50% of all those employed work for the state, which is also a scandalous piece of information. This means that there are not only 550.000 people employed by the state, but maybe as much as 700.000. So it is natural that the budget has crashed. The budget deficit stood at 121 billion last November, and we can expect it to exceed 200 billion by the end of this year. It is indicative that minister Krstic failed to mention the current level of budget deficit.
I believe that Serbia must make a move, that it is good that this fact has been understood, and that it is good that the government is trying to implement the program approved by the IMF, because these is no chance to reprogram debts if IMF does not indorse you. And reprogramming will be important if a new economic policy of Serbia is drafted. Regardless of the fact that the state controls 50% of the economy, it should have some kind of plan to animate its resources. However, minister Krstic did not speak about this too much.
The first to be hit by this program is the middle class, and those are the people voting for the opposition. And this is probably why they have been sacrificed to take the first blow. On the other hand, the voting groups assumed to be supporting the ruling coalition have been firmly protected: pensioners, for example. Measures to combat the gray economy have also been presented, albeit in a foggy manner. This is a separate problem which has an almost political dimension in Serbia, because gray economy is way too excessive here, and a completely unexplored topic as well.
There is no data on how many unemployed people make their living from the gray economy. Furthermore, a number of small companies, when pressured by taxes, transfer part of their business into the gray zone. Every attempt at fiscalization eventually ends with two basic bad effects. First is that a certain number of people abandon every business, and the second is that this also raises the prices on the gray market – eventually, everything once more ends up as inflationary pressure.
As to the arrests – this is an unacceptable political weapon wielded primarily by the SNS: Nikolic and Vucic. They noticed that the people are happy when someone is arrested, and that these arrests strengthen their political rating. They know that, once you start implementing measures which cause tensions in the society, you must channel the anger of the population. This social anger must be focused, diverted from the government and aimed at the previous government, that is, the Democratic Party. Thus, the Socialists and Dacic are not guilty, the Democratic Party is the culprit.
When you house burns down and you are left with nothing, then for each item you buy you must take a loan: this is where this excessive debt comes from. Thus, the problem of the DS-led government, which was in power for 13 years, was that it never sufficiently explained to the people what really transpired in the nineties.
It goes without saying that this anger could not have been channeled against the Democratic Party if it had not made mistakes. And maybe the most accurate criticism of the previous government was made by minister Krstic, when he said that, during its mandate, not a single brave move was made. And when you are faced with the situation the current government is faced with, then the smartest move is to depict your troubles as bravery. And this is the political atmosphere surrounding this program – someone had to do this, otherwise, Serbia would not survive. And the truth is – only this government or these parties would not have survived.
If 50% of the capital is state-owned, then any kind of departization is illusory – when the state appoints 50% of people who manage capital, professionalization and successful managers are nonexistent. At that session of the government, minister Krstic, knowingly or unknowingly, explained that the concept, in which the state – the ruling coalition – controls everything, has turned into a fiasco.
If the state, as the employer, does not know the number of people it is paying, if the state is careless in taking loans, if the state demonstrates such catastrophic results and wasteful spending in its own companies, if the public sector has 15 thousand vehicles, this means that these are all arguments against an old economic model in which the state is the boss, the entrepreneur, the friend of numerous investors around the world, the one who found a way for all of us to fly cheap to Dubai. This slipped Vucic’s tongue, but this is the key word, there – you can fly cheep to Dubai because of our success. And who will fly from Serbia to Dubai, I cannot tell, it was always some political and economic elite that flew. This is not enough for the people – that they have the opportunity to fly cheep to Dubai.
However, I don’t expect the ruling coalition to encounter a broader social discontent, because these 120.000 people whose salaries will be lowered are not the driving engine of any social movement. And someone said during that session – if they cannot live a good life, let us at least provide them with a sense of justice – we will arrest the rich, tax those who have high salaries, etc. However, this program entails, for example, that a rational price of electricity is reached – something that can cause more serious social disturbances than the transparent segment of the program.
The program entails a significant decrease of subsidies, and this means another 200-300 thousand people without their livelihoods. And if the people are forced to pay their dues, all this together can increase the level of dissatisfaction – unless these measures achieve something attractive, which I doubt will happen. Krstic said that, if we want to be perceived as a serious state, we must show that we have the power in our hands – and if the people are not paying electricity, it means the state has no power. You can wave your baton around as much as you want, and it is still not power. The power is when the people pay their dues.
Translated by Bojana Obradovic