Aleksandar Milošević – Hard-hitting Math

Are we going to wake up?

Photo © Radenko Topalović

His analyses of the economic situation always put us in the context of global political events. He is an economic journalist whose articles always reveal the essence of the problem. In an interview with Aleksandar Milošević, editor of the Economy section in the daily newspaper Danas, you will find out what economic consequences the war in Ukraine has brought to Serbia, what is going on with inflation, the real estate market and people’s dissatisfaction.

It is impossible to start any conversation about the economy today without mentioning the ongoing war in Ukraine. At the beginning of the conflict, all sorts of things were said, including that Europe would freeze without Russian gas and that Russia would collapse under Western sanctions. What consequences do small economies like ours have suffered from the war in Ukraine?

True, but in the end neither happened. Europe was lucky to have such an unusually warm winter, which meant there was plenty of gas to spare, while Russia avoided some of the projected worst-case scenarios and ended the first year of the war with a GDP decline of just 2.5 percent. Those who observed the situation with a cool head a year ago were trying to explain that politicians’ foreshadowing catastrophic scenarios for Russia would not come true and that that would not deter Moscow from further attacking Ukraine.

Of course, this does not mean that there were no major economic consequences, both for the actors and superpowers themselves, as well as for small countries such as ours. The European Union moved away from Russian energy sources, which benefited America and its liquefied gas – this was also helped by the blowing up of Nord Stream 2. Russia has become increasingly isolated, it has lost a good part of Western technology, products and companies and has experienced a brain drain, while the sanctions quite effectively limited the price of its oil and took away its best gas buyer. However, the country is now rapidly orienting itself towards the East – China, India and Saudi Arabia – and trying to develop its own substitutes for imported products. China changed its decades-long policy and began to act much more assertively in international relations, competing with America – first as the most likely peacemaker in the Russian-Ukrainian conflict, and then with the historic reconciliation of Saudi Arabia and Iran, which were all roles traditionally held by the USA. Furthermore, as a saviour market for Russia, China has acquired a unique lever of influence over official Moscow, which will have far-reaching consequences both for Russian export prices, which Beijing can practically dictate at will, and politically. In the longer term, the new China-Russia-India-Saudi Arabia axis, plus Iran, threatens to use its own currencies in mutual transactions to create a network that will attract other countries with the force of its financial gravity and undermine the dominance of the dollar as a global accounting currency, which, in turn, would lead to even greater tension between China and the USA, and possibly to the spillover of the conflict from economic to political or even military terrain, that is, to global instability.

For small countries like Serbia, the war in Ukraine created two main problems – the first is the energy crisis, especially visible in Europe, which led to record high prices of electricity, gas and other energy sources and also resulted in record high inflation. This was further exacerbated by the food crisis. The second problem is political pressure exerted on countries to side with one of the parties to the conflict, that is, to separate themselves from Russia politically and economically. In the case of Serbia, this would mean imposing sanctions against Moscow. Bear in mind that we already had to agree to the reduction of the number of flights to Moscow and in effect, energy sanctions against Serbia as we are not allowed to purchase crude oil from Russia.

The Dutch are used to doing well, and we are used to doing poorly

What is happening in shops? The retail prices are going crazy and everything has become so expensive. Still, it feels that nobody is too bothered by it. What will happen with inflation in the coming period? Is there any chance of inflation stopping?

Serbia is used to high price growth, not only because it still remembers the hyperinflation of the 1990s, but also the double-digit price increase from the first decade of the 2000s. This may be the reason why even though everything has become more expensive, we do not have a strong public reaction to it.

Economists nevertheless agree that the largest part of our inflation is “imported”, that is, it originates from the global jump in the prices of energy sources – electricity, oil and gas, as well as from the rise in the prices of basic agricultural products, which was influenced by both the relatively weak agricultural season and the problems caused by blocking grain exports from Ukraine, which created shortages on international markets, i.e. higher prices. And yet, with 15.1 percent inflation in December, price growth in Serbia is significantly higher than the 9.2 percent in the Eurozone, so a good part of the inflation is our fault.

As for inflation this year, the National Bank of Serbia (NBS) projects the average inflation in 2023 to be more or less at the same level as in 2022, which means that we are in for another difficult and expensive year. The terminology used by politicians is interesting here, as they use the term “average” inflation when talking about 2022 and “year-on-year” inflation in December 2023 when talking about the inflation that awaits us this year.

The motivation is clear, that is to use smaller digits to show how high the inflation is. Regardless, the government’s “math” will still hit people’s wallets hard as prices will go up this year almost as much as they went up last year.

People are protesting in the Netherlands due to a fuel price increase of only a few euro cents, but in our country, people seem to be anaesthetized – they do not react to the extremely difficult economic situation and do not call its creators to account. Why is it so? Why don’t we care about getting better?

It may sound defeatist, but the Dutch are used to doing well, and we are used to doing poorly. That’s why for them, those few cents are a serious deviation from their expectations, and for us, neither the collapse of the dairy industry, nor the over 20% increase in food prices, nor any change in labour or pension legislation that harms citizens is a sufficient trigger for action. We are just used to such things happening to us all the time. The second thing is that we have accepted the fact that political responsibility does not exist in Serbia, so political action is futile. Who has ever resigned because people took to the streets to protest? No-one.

Photo © Radenko Topalović

How do you comment on the events in France with the mass and, unfortunately, violent protests following Macron’s announcement of the pension system reform? Could it cost him power and can Marine Le Pen profit from these protests?

France has a long tradition of civil protests of all kinds, so the latest ones hardly surprised anyone. But it still seems that France may be the only country where protesters will destroy their capital because they now cannot retire before the age of 64. On the one hand, one must envy the French for such an attitude, and on the other hand, for us, who look at it completely from the sidelines, from a country that has long since increased the retirement age without anybody protesting, i.e. far worse than what is Macron trying to do. This kind of retirement reform seems reasonable at a time when life expectancy is increasing, the birth rate is dropping, and no government can count on technological advances and the associated productivity growth to be enough to neutralize the negative economic effects of those trends.

As for Macron himself, I probably don’t know the French political scene well enough to comment with authority, but if he survived the Yellow Vests protest, it seems he will survive this one too. Can Le Pen, on the wave of popular anger, get a new chance to enter the Elysée Palace? Who knows, but the current international situation is not doing her any favours. Specifically, we are talking about the Ukrainian crisis and the deep odium towards Putin and Russia in general that has been created in the last year in the Western public, with Le Pen viewed seen as a politician under Russian influence. Let’s remember how in the last year’s presidential debate, Le Pen tried to corner Macron by accusing him of inviting Putin on an official visit to France as president.

“I called a foreign leader to visit, not my personal banker,” Macron snapped at her, alluding to a loan Le Pen took out from a Kremlin-linked bank. After a year of increasingly brutal war in Ukraine, hardly anyone could withstand a new wave of such attacks, regardless of all the profits one makes as an opponent of the pension reform.

Who has ever resigned because people took to the streets to protest? No-one

Who in our country is responsible for the current economic situation?

Certainly, the government creates an environment in which economic activity takes place, and in Serbia, the government is a major economic factor which acts through public companies and infrastructure projects.

What mistakes did we make with our economic policy and what kind of things we do not influence? 

There are many – from the policy of subsidies to foreign investors, who can effectively get over 50,000 euros per each job they create, through to public procurements in which only one bidder participates, the sale of key buildings to politicians’ buddies, non-targeted distribution of state money to companies during the pandemic, excessive and unnecessary parafiscal levies, disastrous staff policy in the public sector and the related total breakdown of the power system last winter, certain public companies having acting directors for too long, wasting Serbian taxpayers’ funds on economically unsustainable and socially unjustified projects such as the national and other stadiums, the inability to set up salary brackets and so-called social cards, lack of progressive tax policy, disrespect for the integrity of the National Bank of Serbia, too much red tape, etc.

As an economic analyst and journalist, what do you think about the current situation in the real estate market in Serbia? What can we read from that situation in the context of the Russians that have come here, social relations, the economic power of the population, class differences…?

Experts are divided about whether we are in a market bubble or not, but in a country with such a low average salary, paying 2,000 euros per square metre of an apartment which is not even located in the most popular Belgrade municipalities, can hardly be rationally justified. It is a widespread practice in our country that people buy a new apartment is bought by selling their old one or that they buy a larger one or two smaller ones by adding more money to the purchase. Then the sellers themselves use the money from their sold apartment to buy one for themselves and so on. That could an explanation for such high demand despite extremely high prices. For now, the Russians have changed the apartment market to mostly rental, and buyers fear that they will not be able to meet the prices that the Russians can afford to pay, which, according to some reports has already started to happen. The Russians also realized that the Serbian real estate owners had charged them astronomical rental prices when they first moved here, but now they can see for themselves that the rental prices in Serbia are far below those they had to pay.

China changed its decades-long policy and began to act much more assertively in international relations, competing with America

What is our future like? Can we be optimistic?

As the saying goes – “we cannot be saved, but we will not perish”. So we can do it and we have to do it.

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