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The Government of the Republic of Serbia

In the service of citizens

State capable of meeting obligations

Belgrade, 13 March 2009

Serbian Prime Minister Mirko Cvetkovic said in an interview with the daily Politika that the government is making efforts to secure at least a minimum of economic growth, to ensure that nobody in Serbia will go hungry because of the global financial crisis and to protect the most vulnerable social groups.

The Serbian government’s website presents the entire interview.

The financial crisis:

We guarantee that nobody in this country will have to go hungry because of the financial crisis and that we will protect the most vulnerable social groups. I do not wish to give false hopes but I also do not want to create panic among the people. It will be difficult for the people and the state, more difficult than it was possible to imagine a few months ago. It is unrealistic to expect that this year will be better than 2008 but we are making efforts to secure at least a minimal economic growth, to maintain last year’s living standards and to avoid recession, at least a deep one.

Is Serbia threatened by bankruptcy?

Serbia is not going to go bankrupt. Budget revenues are smaller than planned and there has been a halt in incoming foreign capital but the state is meeting its obligations with regularity and a lot of planning is being done concerning future obligations. Measures are being taken to deal with the problems facing us.

However I understand economists who are rightfully warning about the gravity of this crisis, which could not have been predicted six or seven months ago. They are talking about the specific nature of the crisis which makes it necessary to take certain measures. This is something that all sides must understand and be aware of.

Set of social measures:

The set of measures is not final and for now it is still at the level of ideas presenting several various options and recommendations. It was initially prepared by the Ministry of Labour and Social Policy as a basis for talks with employers and trade unions. I expect that I will be formally informed about this proposal by the beginning of next week. It has already been discussed with all sides.

Proposal to shorten the working week:

Shortening the working week to four days is not the problem. The question is who will pay for it.

Finance Minister’s statement that a short working week could be financed from the budget:

To be accurate, she said that it could be done if funds were taken from some other ministry. The state does not have funds like that. It is not logical that employers pay their employees the same salary for a shorter working week. It would practically mean that they are being paid more per hour. The idea was, as it was done in some other countries, to shorten the working week and to reduce salaries in order to reduce expenses, so that saved funds could be used to avoid lay-offs.

Talks with the IMF:

Our platform for these talks is based on deficit increase and reduction of expenses, preferring to have a larger deficit than to reduce expenses because in a crisis it is not easy to reduce budget expenditure, certainly not when it comes to salaries and pensions, social welfare benefits and investments. If we reduce social welfare benefits we will deal with the crisis at the expense of the most vulnerable social groups and if we give up planned investments then we are potentially decreasing the demand which generates new jobs and GDP growth.

It would be bad to give up these investments because these investments provide jobs in a crisis. The other question is how efficiently we have used these funds up until now. A few days ago we intensified work on designing project documentation and expropriation for Corridor 10 so that we can call a tender, making it possible for work to begin on the northern section and for 30 to 40 kilometres of the road to be built this year.

What is acceptable for Serbia in negotiations with the IMF, what if Serbia’s terms are unacceptable for the IMF?

This is a question of balance. How much will we reduce expenses and which ones, and how big will be the deficit. This will be the main point in the negotiations with IMF. We will jointly go over every item and see what the most sensible options are. My opinion is that the talks will be tough, which is always the case with the IMF. This time, perhaps, they will be a bit easier because it is also clear to them that we are not an isolated case; that other countries are also dealing with similar problems, in fact even bigger ones. I believe that they will be ready to consider every question in a realistic manner. We will put all the figures on the table in order to find a good joint solution.

What are the figures involved?

The processing of these figures is being completed now, but I am mainly talking about how to secure €1.2 billion, which is the sum of the expected double deficit (planned and additional) and debt obligations transferred to this year.

How will the budget hole be dealt with and from which sources?

At this moment we have covered from €750 million to €770 million and we are short of some €400 million to €450 million, which is the sum we are asking for from the EU. But we cannot rely on that procedure. We will have to find additional sources, for instance, commercial loans, which would be refinanced when funds to support the budget become available from the EU or other international creditors.

Possibility of VAT increase:

That possibility is not under consideration.

Expansion of the loan programme for supporting economy by another round of loans for liquidity:

The first set of short term measures, judging by the demand for loans, proved to be a complete success. It is true that it is still too early to talk about effects, we will see in a month’s time how this will function and for which purposes the money will be spent. However, there are indications that the crisis will last for a few years, and if within a month or two this becomes a reality then we will have to prepare our economy for a prolonged crisis.

Resolving the problem of non-liquidity and growing debt in economy:

The possibility of debt conversion (on the basis of unpaid debts to the state) is under consideration for five, ten or twenty percent of capital in companies, but with suitable exit strategies so that when the crisis is over the state sells its shares within two to three years to the majority owner or to someone on the market.

Similar actions were taken in Western Europe, with the difference that they provided cash but we are doing it without affecting the budget by converting past debt, not current obligations. This could eventually be a model of multilateral compensation on two to three levels, between the state and public companies, public companies and the rest of the economy.

Proposal that the government should approach foreign creditors to re-programme debt obligations of private companies:

This is not a bad idea. An appeal to them doesn’t cost anything. It would be good for our economy and the state because foreign exchange outflow would be reduced giving more stability to the domestic currency.

The case of Miladin Kovacevic: All those who criticized the government because of its decision to reach an agreement with the US following the problem caused by Kovacevic’s escape were essentially proposing to leave relations between Serbia and the US clouded. We are already dealing with the long term results of that incident. I don’t see why it is a problem that the talks with the US were kept as a state secret. A platform is needed for talks and of course it is not presented to the public until the negotiations are over.

Is the government in a difficult position because of the leak concerning the talks?

I did not see that as a difficult position for the government. The fact is that our citizen beat up a citizen of another country in the other person’s country. The procedure was initiated on this basis. Our citizen ran away from that country with the help of our officials and it is a fact that the country in question is the most powerful in the world. We could have chosen to do nothing to improve relations with the US and to leave matters as they were or to try and improve things. We have initiated disciplinary and court procedures against our officials. We are making efforts to resolve the problem completely and it will be resolved.

The problem is that somebody leaked that information, intentionally or perhaps unintentionally. It is not the government’s job to carry out investigations; there are state organs responsible for this. I cannot give details about how far the investigation has gone. In any case, a good idea from the government, to resolve this problem, has been questioned.

If it is established that one of the ministers leaked the information are you ready to dismiss them?

I am ready to deal with the question in a thorough manner.

What progress has been made in talks with the US?

I expect that we will successfully conclude talks. This will eliminate an obstacle in improving relations with the biggest power in the world, which will also help us in EU integration.

Upcoming visit by Croatian Prime Minister:

Good relations with neighbouring countries are the foundation of political stability. Serbia and Croatia are both looking towards a European future. Even though I think that Croatia made a wrong move by recognizing Kosovo’s illegal declaration of independence I believe that the Croatian Prime Minister Ivo Sanader and I will make a major breakthrough in resolving several important issues such the return of refugees and property, the problem of missing persons, minority rights and economic cooperation.

Does the government’s team recommend a fixed value for the domestic currency?

No. In accordance with the economy’s demand we want a stable currency without big oscillations, as was agreed with the IMF. A fixed value would involve a so called monetary committee, as in Bulgaria, Bosnia-Herzegovina and some other countries, or informally without a committee but with the willingness of the National Bank, the decision to defend the currency until the last coin, but this is not our strategy.

Does this mean that there is no essential disagreement between the Governor of the Bank and the Prime Minister?

When it comes to the currency value there is none. However, the Governor thinks that the government should have a more strict fiscal policy including reduction of salaries and pensions. Economically speaking that would be better and easier. If we were to reduce salaries we would have a surplus, but salaries are not just numbers that we can drag from one point to another. There are people behind these numbers and we are trying to reach a balance between economic possibilities and the duty to help these people through the crisis as painlessly as possible. The government, unlike the Governor, has to think of these matters.