serbia note elections

8/12/2019 Serbia Note Elections

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Vladimir Gligorov

Serbian Elections: Mandate and Expectations

Early parliamentary and elections for the Belgrades city council produced few surprises.

Forecasts gave clear win to the Progressive Party (which included some small and fringe parties

their list) and losses for both the democratic and nationalistic opposition parties. In the end,

Progressive Partys win was more decisive than expected both for the seat in the Parliament and

in the City Council. By contrast, nationalist parties were practically wiped out while the

Democratic Party and the splinter New Democratic Party just managed to pass the census of 5

percent of votes cast. The fourth party to get into the Parliament is the Socialist Party of the

acting prime minister with less than 14 percent of votes. The progressive Party has a clear

majority of seats in the Parliament and can have a two-thirds majority in coalition with either the

Socialists or the New Democrats. That should make it easy to change the constitution, which will

be necessitated if the process of EU integration continues unimpeded.

So, the Progressive Party has an impressive mandate, the only question being how will it

interpret it and what it will use it for? Given the issues on which the election was decided, it is

rational to expect that the mandate of the Progressive Party will be interpreted as:

(i) Legitimising the Brussels agreement with Kosovo, which are the basis for theprocess of normalisation and eventually of formal mutual recognition, and also as

an agreement with the decision to start negotiations with the EU with the aim of

acceding as soon as possible.

(ii) Approving the introduction of sweeping economic reforms, which was the keyslogan of the Progressive Party in the pre-election campaign.

Which reforms can be expected, however? In the campaign, it was suggested that the

budget would have to be revised immediately after the new government is voted in by the

Parliament. Though specifics were not given, the understanding was that public expenditures

would be cut, but not the pension bill. Significant reduction in public employment has been

mentioned repeatedly together with further cuts in public wages and salaries. Further tax

increases have been ruled out. Support for businesses in the form of subsidies is to continue,

though there have been no specifics. The IMF mission was in Belgrade just before the elections

and it was suggested that a three-year stand-by or precautionary agreement would be sought


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immediately after the new government takes office. Finally, the date of July 15 has been set for

major reform bills to be adopted, including labour market reform, the change in the bankruptcy

lawall in all about 25 reform laws, though no details are available as to the contents of these

laws.

In addition, most publicly or socially owned (leftovers from the self-management past)

firms should be either restructured or liquidated by the end of this year (originally, i.e. six

months ago, the dead line was end of June 2014). This is probably going to be included in the

programme with the IMF, though the speed with which this is to be done seems ambitious. Also,

some of the loss making publicly owned companies, e.g. Srbijagas, the gas import and

distribution company, and Serbian Railways. Smederevo Steel Mill, and a number of other

companies, will be reorganised and financially stabilised.

It is important to realise that these reforms are problem driven. The government is

announcing measures to deal with urgent or unsustainable problems; it is not at least as far as one

can tell on the basis of available information strategy driven. It looks as if the IMF is going to

adopt a similar approach as it mostly raises concerns with fiscal sustainability and some

structural reforms, mainly relating to the labour market law. The emerging strategy, to the extent

that it can be discerned, is to deal with problems as they emerge, but to rely mostly on

investments, mainly from abroad. A number of those have been announced and should come

from the Persian Gulf states as well as from Russia and China. Also, there is some interest of

German firms investing in some industries.

The problem, however, is that the interest in investing in industry is limited while the

domestic corporate sector is facing liquidity and solvency problems. Also, further exchange rate

depreciation, which could help foreign investments in the tradable sectors, runs the risk of

making private and public debts, which are either in euro or indexed to euro, difficult to sustain.

The government obtained a ten year billion dollars loan with 2 percent interest rate from the

Emirates and intends to refinance the existing more expensive loans. But, current and forecasted

public and current account deficits are such that additional financing is needed. So, exchange rate

policy is limited. That makes monetary policy also rather less than flexible, though currently

inflation is slowing down significantly. But the central bank fear, perhaps even unnecessarily,

that monetary easing would lead to the exchange rate depreciation and that would exasperate the

problem of debt refinancing.


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Probably the most hard to assess is the attitude that the new government will take

towards the system of governance. The main criticisms by the former minister of economy, Mr.

Radulovic, but also by the public in general has been that party appointees mainly run the large

public sector. This support an oligarchic system that has all the usual costs in efficiency and

employment. There is no indication that this is about to change. If it does not, the reform of the

corporate system and of the product market will be difficult or impossible. That will also make it

difficult to improve the financial system, because of the large share of corporate non-performing

loans. This is probably the key test of the reform ambitions and as of now, the expectations are

not very optimistic.

The weakness of the emerging party system is that there is no opposition or it is very

weak. That is not an obstacle to reforms, if those are intended, but may prove to be problematic

in case of challenging economic developments. The incoming government is facing a full

agenda: constitutional reform, EU negotiations, financial and institutional stabilisation, and

practically the whole transition agenda except for external trade liberalisation. The mandate is

there as are the expectations, the issue is the lack of strategy and the uncertain sustainability of

the political will.

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