Dr Mihailo Crnobrnja, Professor Emeritus at FEFA and President of the European Movement in Serbia: Wrong Priorities

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It is difficult to understand why we need a national stadium and 56 fountains at this point in time, rather than make investments (subsidies) in the growth of industrial and agricultural production

We have talked to Dr Mihailo Crnobrnja, Professor Emeritus at FEFA and President of the European Movement in Serbia, about the direction in which the Serbian economy was heading, whether the neoliberal concept was a good solution for Serbia, how well was Serbia using pre-accession funds, and how far we are from the actual EU membership.

 

What is the situation in the Serbian economy today? What are its weakest, and what the strongest points?

— Generally speaking, I would say that the economy is slightly ascending. I would disagree with the officials who classify as “the best in the region” and sometimes even “the best in Europe”. The facts show that our external debt has seriously decreased and that this is partly a consequence of exports growing faster than imports, which is also positive, the stability of the dinar, the fact that serious European and global companies have found a place for themselves here and have launched production in our country, and our ranking/position on both the World Business Forum and the World Bank lists is improving. Unemployment is decreasing, although unemployment still grows faster than employment, which is due to people retiring faster, or shadow economy, or brain drain. The brain drain is definitely our weak point. Actually for me, as a professor, the brain drain is probably our weakest point. We are investing heavily in education, and many are still perpetuating a slogan that was once coined by university students – “I need to graduate in order to emigrate.” Another problem is choosing priorities in the public sector, where investments are not private but are budgetary. It is difficult to understand why we need a national stadium and 56 fountains at this point in time, rather than make investments (subsidies) in the growth of industrial and agricultural production. Last but not least, a lot still has to be done on increasing the share of domestic investments in the domestic product because this is the only reliable basis for the long-term growth of the domestic product. Foreign direct investments, which we also stimulate, are good and important, but they should not be more important than domestic investments.

 

As an economic consultant, what advice would you give to the Serbian government in terms of their next moves relating to the economy?

— My answer is pretty much the same as the previous one – to reduce the brain drain by providing better quality and more useful education and to grant subsidies for the launch of new domestic production. This is already being dealt with but too little is being done considering how much has been invested in the aforementioned national stadium and fountains. In order to rank the priorities properly, our economic system needs to take half a step back and implement planning. Not the Soviet-type of planning (totalitarian and too detailed), but the so-called indicative planning for which Jan Tinbergen from the Netherlands got the Nobel Prize for Economy. We have been relying too much on ideology and theory of neoliberalism that rests on only three things – market, market and market. Finally, we need to get tougher on corruption and black/shadow market. Some results have been achieved in this respect, but we can and must do much more.

 

You are critical of the neoliberal concept in Serbia, but is this really neoliberalism considering that the state significantly influences the market with its subsidies? Which economic model is applicable to our situation?

Yes, you are right. When I was critical of neoliberalism I was thinking more about changing ownership over capital than price formation. So, instead of the “market, market, market” motto, we should have used the “privatization, privatization, privatization” motto, which we overdid, to be honest. As far as the economic model is concerned, I have indicated in my answer to your second question the best option – a dose of indicative planning, i.e. dirigisme. Something like China, our strategic partner, did. In the last 40 years, China has had an average growth of the domestic product of over 8%, and thus became the second strongest economy in the world. Of course, I am not siding here with their political monolithicity. I would like to remind you that China has the second highest number of millionaires in the world, which is something that is incompatible with the classic communism. Hence, my suggestion is that, instead of various consumer products, including garlic, we import from our strategic partners the recipe on how to have constantly high long-term growth rate.

 

You said we overdid it with the privatization. How would you comment privatization of domestic banks (Komercijalna, Jubmes and Srpska), and the sale of claims of bankrupt banks?

— All of that is a part of the neoliberal approach that I have mentioned earlier. In simple terms – everything that is state-owned is bad, and everything that is a result of market activity is good. This is overinflating the fact that the market is a better resource allocator than the state, but the truth is that in many countries both factors are considered. The gist of the problem is to find the right roles and balance.

 

Since 2000, when Serbia underwent political changes, to date, the European Union remains the biggest donor in the country with a total amount of EUR 2.96 billion. How important is this money for us? Is it being adequately used?

— Bearing in mind the low domestic savings, and the share of domestic sources in all investments, these funds mean a lot. The first and obvious reason is that they are donated, not loaned, so these funds are non-refundable. Another reason is that the donated funds are spent on a very wide spectrum – from production, energy, and transport infrastructure to education, healthcare and environmental protection. Last but not least, the EU donates funds for concrete projects that, besides ours, have to also pass their check of the profitability of the investment (cost and benefit checks). This reduces the chance of the so-called politically motivated investments and corruption, although, unfortunately, these two unpleasant phenomena do happen.

 

What would you say about the effort that Serbia has been investing in opening and closing the EU accession negotiation chapters? What problems in the European integration process does Serbia face?

— Apart from chapter 35 (Kosovo), everything else is moving forward but not at the speed we want and expect, unlike in other countries that have already entered the EU. We should bear in mind that one of the factors responsible for the slowdown is that the EU enlargement is not so high on the list of priorities as it was at the time when, with the exception of Malta and Cyprus, former communist countries were EU candidates. Back then, the enlargement was on the top of the EU agenda. That’s no longer the case, partly because of the other problems that the EU is currently dealing with, and partly because of the EU’s experience with taking in the candidate countries that were not sufficiently prepared for the membership (such as Romania and Bulgaria). In regard to Serbia, our main problem, and something that the European Commission has been warning us about is chapter 23 (judiciary and fundamental rights) and chapter 24 (justice, freedom and security). These chapters have been opened but the progress has been very slow. I would also add to this list chapter 27 (environment), not because of political or administrative problems, but the fact that harmonizing our regulation with the EU’s in this segment is very expensive and runs into billions of euros.

 

While we are on the topic of chapters – there is a chapter that is unavoidable and applicable only to our negotiation process. It’s chapter 35 that refers to Kosovo. There have been announcements that the official talks between Belgrade and Priština will be finalized this year. What is your take on this?

— I doubt that is going to happen, although it would be good if it did happen. The two sides are still too far from each other to cross the road ahead without external help (or rather external pressure). As we speak, the important meeting in Berlin, with the French President and the German Chancellor in attendance, has not yet taken place. This meeting just serves to increase pressure. In order to alleviate the pressure on the Serbian side, President Vučić will meet with the presidents of China and Russia before the Berlin meeting. These are big players, but it is not certain that the result of the meeting will be big enough for the negotiations to be finalized by the end of the year.

 

How did the problem with the Kosovo authorities imposing a tax on Serbian goods affect the talks? Do you approve of the way in which the EU handled this problem?

— The talks have been at a standstill for a half a year now. The economic consequences of this tax for Serbia are not enormous, but they are being felt especially by some companies which have been selling a significant quantity of their products in the Kosovo market for years. The EU’s reaction has been good, i.e. denouncing Kosovo’s move. It is also too tepid and lacks a strong move that would demonstrate the EU’s dissatisfaction and force Priština to seriously reconsider the tax. The lack of a strong reaction from the US has further exacerbated the situation. And we all know too well that the Albanians listen more to the US than the EU. Only Priština erected a monument in honour of a US president (Clinton, in this case). All in all, there is no doubt that the meeting in Berlin will be used to up the pressure but it remains to be seen whether this meeting will be sufficient to remove the heavy ‘rock’ that is blocking the road to progress.

 
LOANS INDEXED IN SWISS FRANCS

Who should be dealing with the problem of mortgages indexed in Swiss francs?

— I think that a ‘solution’ to this problem has already been found. It will be jointly solved by mortgage users, the banks themselves and the state by the banks writing off a part of their claims, and the state partially compensating them for that thus facilitating the repayment of mortgages. It seems that the state still has a role to play, but not as a factor in stimulating production and economic growth, but in maintaining social peace and reducing the number of reasons for street protests of which there are already too many..

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