Economic growth has slowed down due to a devastated judiciary and an economic environment in which no one is safe
At a time when Serbia is threatened with sanctions and the withdrawal of investments if it rejects to accept the agreement with Priština, we spoke with Danica Popović, a professor at the Faculty of Economics in Belgrade, who believes that the fear is real and that our economy would suffer enormous damage if investors withdrew. Collapsed institutions and a devastated judiciary are responsible for the bad economic situation in the country, and of course, there is only one person to blame.
The Serbian president recently informed us that if we did not accept the European plan for the normalization of relations between Serbia and Kosovo, foreign investments would be cut off. Do you consider this a realistic consequence or is this just about scaring people and making excuses?
Foreign investors are “timid animals”, as economists like to say. None of them come to Serbia to stay, but to earn money. As soon as the risk emerges, they think about the profitability of moving to other locations. This is how every rational investor acts and calculations are made every day. If we add to that the fact that the West has made it clear that Serbia is in serious danger of being sanctioned, then it is only a matter of days before foreign investors will stop coming, and the old ones will probably start packing up their things and leaving.
What would that mean for Serbia? That would be the end of the exchange rate where 1 euro is 117 dinars. That would certainly happen because when there is no foreign currency influx, the dinar must depreciate. The exchange rate reacts like a pharmacy scale and the balance is disrupted in an instant. The National Bank (of Serbia) could correct such disturbances only by spending foreign currency reserves, and that does not last long, because there are no new foreign investors to fill them. One must be aware of that.
We have seen in numerous examples that all those foreign investments were not really that good for us. So-called foreign investors here have often received huge state subsidies, so when they drained our coffers, they would usually withdraw, lay off workers and take their capital out of the country. Why do we then perceive foreign investments as something that our economy cannot do without?
The experiences of all successful emerging economies are based on foreign investments. Why? Because investors bring three things with them that a country doesn’t have – capital, production and powerful export channels. No country has developed in a different way – just look at the experiences of all countries in transition, they are all the same in that regard.
As for the subsidies given to foreign investors, this is exclusively a “Serbian thing” as no successful country has massively subsidized foreign investments. The practice of subsidizing was introduced by Mladjan Dinkić, and it remains in place to this day. Why is that so? Because investors were hesitant to come to Serbia if there aren’t subsidies. In Serbia, they lack legal certainty, the risk of doing business is high, and subsidies compensate for that. Without them, they would not have come.
Therein lies the answer to your question of why do domestic investors not receive subsidies. The argument is simple – because domestic investors are willing to work without state subsidies. Truth be told that should apply to all investors. Indeed, isn’t the state meant to help the disabled, the handicapped, the sick, and not healthy and genuine investors, regardless of where they are from!?
It won’t get better as long as we consciously remain silent and endure dictatorship and the destruction of institutions
What are the biggest mistakes of our national economic policy?
Serbia’s growth did not slow down because of a bad economic policy. The biggest mistake lies in the devastated judiciary. This is the reason why nobody is safe in the Serbian economic environment, especially those who enter the market game. When an investor is harmed in some way, nobody can be sure when or if the court will react at all. In such conditions, the majority of investors do not even want to invest money in Serbia, because the business risk is too high. This, of course, also applies to domestic investors, the wealthiest of whom are moving their companies to Cyprus, Malta, or other safer places. All of this could be rectified if only the judiciary functioned properly. Many successful foreign investors would take the places that are currently occupied by companies such as Yura, Leoni, Linglong and other infamous investors. This is a consequence of the disordered business environment, which is rarely discussed.
The recent dismissal of the public prosecutor who investigated corruption in the Electric Power Industry of Serbia (EPS) is very telling. It shows us that the state is afraid of being investigated, that there is very high corruption in the public sector and that society is disinterested. Why do you think we, as citizens, are not interested in how the government spends our money?
How many people in Serbia know how to read and interpret budget figures? Why should citizens even have to do that? That is the task of the media, including those media outlets that broadcast on a national frequency. They have to pool experts together who will inform the public about the state’s misuse of funds. Therefore, the problem is not whether we are interested in a certain economic problem or not, but the problem is that an objective public broadcaster does not exist, or rather it is managed by the servants of the ruling regime. This is the only place where we can see how Aleksandar Vučić shouts at a TV presenter without interruption and at the top of his voice. By shouting at a TV presenter, he is, in effect, shouting at us too, no? The message here is that we should keep quiet, or we’ll end up worse than Zoran Stanojević. So what should the ordinary people living here be interested in? How to get through injury-free… Only the Serbian president knows how the government spends money. I am sure that he will tell us that one day, all teary-eyed. This is what Serbia looks like today.
How should we resolve problems in our public enterprises like EPS which is foreseen for privatization? Is there any justification for such a strategic enterprise to be handed over to a private company?
Do you think that state property will solve our problems? How did the state property protect us from having a baker appointed CEO of EPS? It did not, at all. Let’s be clear, in the existing system, you have corruption, transfer of state money to the ruling party, nepotism, partocracy and everything else. Therefore, two steps are needed to secure private assets and all developed countries rest on these two steps, with one being the implementation of the rule of law, at least in the area of property rights, and only then can we plan privatization.
While we are progressively getting poorer and prices are going crazy, the National Bank of Serbia’s governor claims that inflation will be even lower than projected. Is she right? Is the end of inflation in sight?
The president recently stated the exact opposite, namely, that we have never been wealthier than we are now. How and on what basis should we trust his words? How can you believe the governor who tells the public that the price of potatoes in Serbia has risen by 152 percent because people rushed to hold weddings and celebrations after the pandemic? The last thing she said was that our inflation is mostly “imported”. It’s a mystery to me how did we manage to turn this “imported inflation” of ten percent into domestic inflation of fifteen percent. However, if it is any consolation, the data show that inflation in the world is slowing down. That’s a good sign.
Domestic investors are willing to work without state subsidies
Is the current dinar/euro exchange rate realistic and how is this exchange rate maintained? Is there any reason to worry?
Dinar/euro exchange rate is realistic because there are individuals, companies and institutions that want to trade in currency at that exchange rate. Whether that course is sustainable is another question. As I said, this course is maintained by foreign investments. So you have to decide – if you don’t want to see foreign investors here, you will have to forget about the current exchange rate.
What is your economic development projection for this year? Can we be optimistic or is the crisis continuing?
The state of the economy this year will be the same as it is today or slightly worse. It won’t get better as long as we consciously remain silent and endure dictatorship and the destruction of institutions. And we can certainly change that!