Keepin touch

Whether you have a question, comment, suggestion or any problem in the purview of the government, send us your message and we will try to respond as soon as possible. If your problem is not in our purview, we will forward your message to the relevant institution.

The Government of the Republic of Serbia

In the service of citizens

New round of talks with IMF starts in May

Belgrade, 16 February 2006

Serbian Deputy Prime Minister Miroljub Labus said in an interview for today's issue of the weekly "Vreme" that talks on the new arrangement between Serbia and the International Monetary Fund (IMF) will officially start in May 2006, while talks on a new design of the future arrangement will start in April.

Miroljub Labus

The Serbian government's official website gives excerpts of the interview.

On the last revision of a three-year arrangement with the IMF:

Generally speaking, a positive thing is that by this last revision we managed to conclude the arrangement with the Paris Club of Creditors and finally solve the problem of Serbia's foreign debt in the forthcoming period.

I recall that one of the reasons for dissolution of former Yugoslavia was the inability of that state to clear its foreign debt, so some of the republics in the federation tried to run away from this common problem. Therefore, the issue of Serbia-Montenegro's foreign debt was extremely important three years ago as well, and we agreed on a write-off scheme with the Paris Club of Creditors (51% plus 15 %), on the provision that, in a way, the IMF gives the final verification of the total write-off after three years.

All these years I spent corresponding with the Paris Club, since the conclusion of the arrangement, I regarded as years in which the agreement with the IMF represents an instrument of realisation of our relations with key state creditors. We managed to draw it to a close and that is the most significant point on the positive side of the arrangement.

If you ask me about the actual model of our relations with the IMF, we had continuous discussions on how appropriate the model is for our specific problems. Even now, in the decision-making process (the final decision was reached on February 6th), several constituents of the IMF's board of directors put forward certain objections, since we have always been expected to hit two different targets with only one arrow, which is impossible in macroeconomic policy. I kept reminding the IMF experts that it is impossible to use the policies of dinar exchange rate and foreign exchange rate at the same time – both for combating inflation and reducing Serbia's balance of payments deficit in foreign relations.

Since it was impossible to achieve both these aims, we had to compensate the weaknesses of that approach with sharp adjustments in the budget (moving from deficit to surplus) and also set about the policy of managing remunerations in the public sector. Simply, as experts would say, there was a problem of macroeconomic package design which we strove to bring in line with the IMF, since those who were pointing to us that the same could be done with structural adjustments in our economy, kept disregarding the simple fact that the process of structural adjustment needs time. And besides, a discrepancy in our macroeconomic arrangement's "design" was increased by dramatic changes in parity between the dollar and the euro and the exceptionally high rise in crude oil prices on the world market (these two being processes beyond our control). All this had a negative influence both on domestic inflation and our balance of payments.

I reiterate, it was worth enduring it all for the purpose of settling our foreign debt, and we managed to achieve it in the past three years.

Should Serbia immediately accept the new agreement with IMF:

We are restricted by IMF's rules. If a country is indebted by over 1.5 times of its capital with the IMF, it must allow the IMF to thoroughly scrutinise its administration, and Serbia is one of these countries.

We will formally begin talks on a new arrangement with the IMF this May and, as early as April, when I am to attend the regular IMF and World Bank spring session, we will start to discuss the future arrangement. Therefore, it is not so important for Serbia whether there will be any agreements on calling in new loans with IMF (additional loans are not a necessity for us at the moment), but rather whether we will be met with understanding for the new design, the new form of the agreement of the macroeconomic policy. Naturally, the new agreement will include more structural demands than the previous one.

Regarding the state's investment into the economy:

I think that currently there is less intervening on behalf of the state than ever, but it has never been more obvious. For instance, today the budget participates in GDP less than it did several years ago. The participation in GDP in state-issued subsidies for unprofitable companies is also less than it was five years ago. We have managed to halt increasing public spending in GDP. However, the role of the state is not completely transparent and clear. The most transparent aspect is the state's interference in the control of public sector salaries, and I believe that the criticism you have mentioned has arisen primarily because of this. The government is setting the criteria for public sector salaries so as to be able to control that portion of the inflationary rise. Naturally, this is causing discontent among the unions, and we are in constant negotiations with them. I think these talks have thus far been successful and that our viewpoint has been met with approval.

The second obvious thing today is the role of the state in the privatisation process. However, no one dares to question our assessment that socially-owned companies that haven't been sold so far due to their huge debts, will never be sold unless the state interferes and relieves their debts. We have therefore introduced the so-called conditional debt release, to help companies that cannot find a strategic partner to become more attractive for potential partners, because without them these companies are beyond salvaging. The state has thus taken upon itself the risk of having low privatisation revenues in order to prevent insolvent companies from closing down and help them find a new perspective with investors.

I repeat, it is not possible to accuse the government of "state dirigisme" on account of public sector salaries and the government's policy of debt release, because the total amount of money set aside as assistance to the state and social sectors in the economy is much lower today.

Regarding the implementation of the Law on Bankruptcy in large social companies subsidised by the government:

You see, the new Law on Bankruptcy is a good law, devised to be a major instrument in the process of clearing up companies in a dubious financial situation. In well-developed market economies, such companies undergo the process of bankruptcy and then become able to do business normally, which is not the case in Serbia. If a company becomes insolvent in Serbia, it either simply gives up or dissolves, rendering its employees jobless.

This is what makes all the difference. Separating the wheat from the chaff, that is healthy from unhealthy companies, works well in normal economies, but yields bad results in abnormal ones. Since our economy is still recovering from the shock of the embargo, the dissolution of the previous market, the 1999 bombardment campaign and the utterly wrong macroeconomic policy of the Milosevic regime. We are still undergoing a period of great economic depression. If we were to apply a surgical bankruptcy procedure, it would mean shutting down all these companies. But, would our economy be better off then? I think not, and I believe we should start with "conditional insolvency" so to speak (the discharge of debts towards the state), to help the companies find a strategic partner, help them and their employees to survive as well.