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The Government of the Republic of Serbia

In the service of citizens

Privatisation and restructuring of companies a precondition for employment and export growth

Belgrade, 3 February 2005

Head of the International Monetary Fund (IMF) Mission to Serbia-Montenegro Piritta Sorsa said today that a rapid privatisation and restructuring of state and socially-owned companies in Serbia would encourage investment and create conditions for employment and export growth.

Sorsa told a press conference that during a two-week stay in Serbia, the IMF team prepared a report on the situation in Serbia-Montenegro in the past year and added that the fifth examination of the economic programme carried out by the IMF and the Serbian government was realised.

The IMF focuses on the great role of the state in the economy, which causes large deficits in current transactions, as well as on the examination of the economic policy and the problems in its implementation, she explained.

According to Sorsa, the share of the private sector in the economy is still low and at 45 percent it results in a high import rate and low export rate. With such a low export rate, it is very difficult to cover costs of import thus triggering great imbalance in current transactions.

The payment deficit in the operations with foreign countries is financed through new debts, mostly private, worth more than $1 billion a year, Sorsa warned and highlighted that the state should focus on the acceleration of privatisation. That will significantly reduce the public share while increasing the private interest of GDP, and will also influence the restructuring of state and socially-owned companies.

She said that a large number of companies are facing problems in management because they do not have competitive goods that can be exported.

The IMF recommends concentration on the demand, said Sorsa, adding that the focus will be on fiscal, monetary, and income policies in order to solve the problem of foreign payment imbalance and reach sustainable growth.

The main challenges of the 2005 economic policy will be fighting inflation in order to keep it below 10 percent as well as reducing the current payment deficit, she noted.

The key factor will be the restructuring of public companies, she said, recalling that salaries in Serbia are higher than those in neighbouring countries, which is a bad signal for foreign investors. The IMF recommends that salaries grow according to productivity growth.

Sorsa explained that if the workforce in public companies is reduced, salaries can go up more than it was planned for this year.

Speaking on the prices of public services, she said that the IMF has offered pledges for the covering of production costs.

The Serbian government, with the support of the IMF, is getting ready to implement a plan to keep this year’s inflation below 10 percent, Sorsa confirmed. She announced that two more revisions are planned as part of a three-year arrangement between Serbia-Montenegro and the IMF for the 2002-2005 period.