This title is not meant to diminish importance and value of already ex Serbian minister of finance Lazar Krstic. Not in the least, honestly. After all, a pawn could play a very important role in a game of chess and, if used correctly, could even endanger a queen. On the other hand, Krstic himself has been acting as if he was, if not just a cog in a big machine, than certainly a dedicated team player who didn’t want to disturb a smooth collective operation – at least that was the impression of the public. (The extent of the work and harmony is another issue.)
What influenced Krstic to make such a radical move and resign – even before the first 100 days of the government were up, while it was still warming up? The strangest thing, maybe exactly because of the way he came into the government and the way he behaved, is that such move was not entirely unexpected. The author of this article himself wrote about this possibility about a month ago. If you remember, the rumor (which turned out to be more than just a rumor) was that Krstic’s closest associates, also young and educated, wanted to leave because they had lost their faith in government’s reform intentions, and that it was him who convinced them to stay a while longer. So, it seems that it’s now high time for him as well.
However, there are those who claim that this is all part of a political play – to sacrifice not so politically important Krstic on “an altar of painful reforms” in order to preserve intact and integral Vucic. It is clear that this can’t happen and that such calculation, if there is one, would be very naive.
However, while we’re talking about a calculation, a misunderstanding – or maybe “misunderstanding” is more accurate – between Krstic and Vucic was precisely about it. Actually, not so much about the calculation of the first one, whose accuracy the second one didn’t deny, but about its consequences to the citizens. According to the minister of finance, fiscal consolidation, i.e. the beginning of the process of balancing budget incomes and expenses, requires three key things: two are related to public sector – salaries cut by 15% and layoff of 160,000 employees – and the third one is about pensions cut by 20%. Actually, there is another one – increase of the price of electricity by 30%. Although, strictly speaking, this one is not part of fiscal consolidation; this demand was meant by Krstic as a warning that, unless something is done immediately, the public power company (EPS) could very soon become what heavily indebted Srbijagas already is – a millstone around Serbia’s neck.
However, “soft-hearted” prime minister, as Krstic called Vucic at one point and the phrase was immediately picked up by some media, couldn’t agree. Not so much because of his own power, as he said several times during the last couple of days, but because the citizens couldn’t handle it, physically nor politically. While it is true that opinion polls show 90% of the population being pro reform, when asked about particular changes enthusiasm falls to 10%, said Vucic. However, this may be a good point to ask the prime minister – why do we need those polls? The billboards before the March elections, as we all know, said “Full steam ahead into the reforms”, and not “Into the reforms – one step at a time”.
If there’s something Krstic knows, it’s how to calculate. Immediately after the elections – while the floods were still not used as an excuse for giving up on reforms (we’ll see whether permanently) – him and the minister of public administration Kori Udovicki, said that it was necessary to cut salaries and pensions by 10%. How come that he is now asking for twice as much?
There is an answer to this question. Cutting salaries and pensions by 10% would save about half a billion euro. But, that’s not enough to reduce Serbian deficit to an acceptable level, i.e. about two billion euro, compared to predicted 2.8 or, if nothing is done, maybe even 3 billion euro. In order for it to be enough and “for the fiscal consolidation to succeed”, says economist Milojko Arsic, “it is necessary to save as much as possible on other expenses. This means that covering losses of public companies must be stopped, first of all Srbijagas and Ironworks Smederevo, as well as restructuring companies”. It also means implementation of the pension reform and decrease of subsidies.
Finally, Arsic agrees that laying off of (relatively) large number of employees from the public sector is inevitable. But, according to him, 160,000 people is too much. It would be enough, says Arsic, to lay off 100,000 employees, including 50,000 or so employees at restructuring companies and, of course, local government and public utility companies. And not immediately, but during the next 2 or 3 years, because this is how long it takes to do this properly.
Tit for tat
All in all, it is not necessary to do everything Krstic listed cumulatively, i.e. immediately and simultaneously. Given all this, it could be true that this whole play about his resignation was created in order for Vucic to gain some political points (or, at least, to not loose too much), even despite the painful cuts because he didn’t allow those horrible salaries and pensions cuts and lay offs, which that (McKinsey and IMF loving) Krstic asked for.
But, creation of Vucic’s (all mighty) persona has gone too far for some Krstic to carry even a part of his responsibility. The speed at which Serbia’s ex- treasurer falls into obscurity confirms this. So, the second possibility has a significant level of credibility: that, namely, Krstic made a decision to stop sacrificing his expert capacity and integrity, and especially his perspective, for a marginal role in an already pretty much loosing game.
So we come to the prime minister Vucic and his position. Namely, during the last year he has lost (some would say – wasted) two men he himself chose and brought – two “anti-Dinkics”, as it seemed at first glance – as his chief support and momentum in implementing the reforms. If Krstic was his right hand, as he himself puts it, and even if Radulovic was his left, that means that he has lost both of his reform hands in a short time.
Of course, these are all metaphors, new ministers replace the old ones; new ones could even be better, it’s not impossible. But, still, these frequent changes show that there is no clear plan and that the government not only lacks the political will to implement what was promised, but doesn’t even know what it wants.
The fact that the IMF didn’t come to Serbia neither in June nor in July confirms this. Simply, what our government suggested was not enough for the IMF. This is why budget revision was temporarily, and Krstic permanently, postponed. Now, the new minister of finance Dusan Vujovic announces an arrangement with the IMF, maybe as soon as September-October. And, more importantly, so does Vucic. And, even more importantly, rumor has it that it was Vucic (but who else) who wouldn’t agree to pension cuts over 5% until now. We will soon see whether he has changed his mind.
Mijat Lakicevic blog, July 16th, 2014
Translated by Marijana Simic