Serbia Receives 3 Billion Euro IMF Loan

Well, the news is just rolling in off the wires this morning:

The International Monetary Fund and Serbia have agreed a 27-month, 3 billion euro programme to help the Balkan nation enforce the biggest spending cuts in years needed to anchor its weakening economy.

“Serbia’s GDP will almost certainly decline in 2009 … It looks more likely to be minus two percent. And we believe that growth in 2010 will be flat,” Albert Jaeger, IMF chief of mission, told a news conference.

He said the loan would probably be approved in early May and fiscal adjustment was the key tackling Serbia’s external and domestic financing gaps. The IMF said a fiscal gap of 3.0 percent of GDP was the maximum Serbia could finance, while a sharp fiscal adjustment, including a wage and pension freeze in 2009 and 2010, will help Serbia attain a more balanced external position.

What more can I say? The Eastern crisis is extending rapidly, more rapidly than we are deploying means to contain it. I don’t have time to go into this much more at this point, but I thought it might be worth reproducing a dialogue that went on over a mail thread this morning, between two people with a strong interest in what is happening in Serbia.

Mr A: I still don’t understand if this is a good news for Serbia…

Mr Z: No it is a terrible news, Basically as so far Serbia is unique in the way that now cannot apply either fiscal or monetary measures to kick off the recovery

Mr A: That’s my fear as well. And it is true, there is absolutely no space for fiscal or monetary measures. Moreover, I just got now an info that European Union accession funds for Serbia will not be distributed this year to NGOs/civil society projects/IDPs and refugees associations, but given directly to the government budget. Another sign that the situation here is really getting bleaker than I thought.

BTW, as Edward knows, I am not an economist and I am more interested in the social and political consequences of this crisis. In relation to Serbia, I am quite frightened. If the economic situation rapidly worsens, I will not be so surprised to see a serious political turmoil in Serbia… Hope I am wrong.

Mr A:Yeah, but you know people response is: “Crises, what crises? We have been in a crisis for last twenty years?”.

Politically I hope that there are some changes since the ruling coalition is very much a bizarre motley crew. The leading party in the coalition is the hostage of smaller parties crazy ideas. Unfortunately the same would apply for the leading opposition party – they too have too depend of forming coalitions with smaller “crazy” political parties.

Mr Z:Yep, I hear this story on a daily basis…

My question is anyway: what kind of consequences will possibly have the IMF loan on the Serbian economy?
– devaluation of the dinar?
– higher inflation?

Bizarre is the right adjective to describe the Serbian govt coalition. The problem is that unfortunately I don’t see any possible alternative. But that’s another topic 🙂

Mr A: Well, they will have to tackle competitiveness of the economy.

Basically an erosion of wages and depreciation of the currency.

It will not be pretty and particularly it will be hard in cities.

In conclusion, let’s just remember my little causal chain (with feedback loops, of course).

Financial Crisis -> Real Economy Crisis -> Political Crisis

This entry was posted in A Fistful Of Euros, Economics: Country briefings by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

8 thoughts on “Serbia Receives 3 Billion Euro IMF Loan

  1. Just want to say this is a GREAT blog. I’m surprised you don’t have more commentators.

  2. My question is anyway: what kind of consequences will possibly have the IMF loan on the Serbian economy?
    – devaluation of the dinar?
    – higher inflation?

    While I am Bosnian (although not living there) where’s situation even worst, and by following the events and various boards, I would say that
    without paradigm shifts, general situation isn’t going to be better in either country.

    Serbian Gov. imposing some kind of tax, which they call “Solidarity Tax”, under excuse that IMF requested. True or not, the fact is that the west directly or indirectly have brought those regimes in every ex-Yu country.

    Turmoil is what’s needed, with them after two decades, mired in; corruption, crime, destruction whatnot, in EU or not, either country going nowhere.

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  6. I believe people in Eastern Europe are still not affected by the global crisis that much. I spoke to my friends in Slovakia, Poland, Lithuania and Latvia. When I ask them how this crisis feels like they aswer – nothing has changed much. Some say this crisis was artificially created in the West. They say their job market is just fine. Apart from those exposed to currency volatility (credit in francs), they do not complain. Some even say – our country in an oasis of economic stability while the rest of the world experiences stormy conditions. I think those economies are behind the curve and will suffer more than the developped ones.

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