Aleksandar Vlahović, President of the Serbian Association of Economists: There is No Better Future Without Deep-Seated Reforms

In 2015, Serbian government decided to carry out fiscal consolidation based on austerity which the Kopaonik Business Forum (KBF) had been advocating for years. However, today, we are critical of the slow restructuring of the public sector which is a prerequisite for the country having sustainable, long-term fiscal position. The past has taught us that procrastinating is not recipe for success

The Serbian Association of Economists (SAE) and the Association of Corporate Directors of Serbia, in partnership with Mastercard, will hold the 25th Kopaonik Business Forum between 7th and 9th March. Over 1,000 participants are expected to take part in the Forum, all representatives of the political and economic elite. We are talking to the President of SAE, Aleksandar Vlahović about the main topics of the „Serbian Davos“ (as the KBF is also called) and the influence that the Forum has on devising reform policies.

The topic of this year’s forum are lessons from the past and solutions for the future on Serbia’s reform path. Did we have a series of wrong attempts at reforms in the past, or maybe we had some good but overlooked ideas?

 — The main reason of our failed economic transition is the frequent discontinuity in implementing transitional politics. Unfortunately, in the beginning (during the 1990s), unreasonable political decisions had significantly delayed the beginning of the deep-seated economic transformation. Other East European countries used this most dynamic period of development of global economy to catch up to the developed part of Europe and the world. Following the political upheaval from 5th October, we had a consistent policy of economic transition which was abruptly aborted in 2003. Since then until 2014, despite some positive developments, economic populism, ambling around without purpose, and unreadiness to implement crucial reforms were the key features of our road to transition. Until the onset of the 2008 economic crisis, all of the system’s inefficiencies were funded with the huge influx of foreign capital through privatization. After that period, they were funded by accelerated borrowing. Today, both of these resources are depleted, and if we want to build an economy that is sustainable in the long run and competitive, reforming public sector is definitely conditio sine qua non.

What is most important to do right now in the reform process if we want to create sustainable solutions?

 — After short-term fiscal consolidation yielding good results, the successful continuation of the reforms entails restructuring of public enterprises, reforming state administration, education, and healthcare, and further reduction of the share that pensions have in the national GDP through consistently reforming the pension insurance system. Also, we need to improve the efficiency of our judicial system and continue reforming our tax administration because these are both important steps toward reaching sustainable solutions.

The KBF is a kind of reality check for public policy creators. Based on previous experiences, how much have they taken the suggestions and objections from the previous forums on board?

 — The KBF gathers economic and social elite of our country in one place for three days. All of the important economic and political stakeholders come to the Forum, starting with the Serbian government (prime minister, government ministers), the National Bank of Serbia governor, the president of the Serbian Academy of Arts and Sciences, the president of the Fiscal Council, the ambassadors of the EU countries, Russia, the US, Canada, Great Britain, China, Japan, South Korea etc., representatives of the international financial organizations and regional chambers of commerce, prominent executives from real and financial sector, big regional investors, successful entrepreneurs, foreign investors, directors of public enterprises, mayors and representatives of local self-governments, not to mention the most renowned Serbian economic theoreticians. We should also mention the social component of the Forum where participants will get to know each other. Some business deals were actually instigated at the KBF. During the three days, through well-argued exchange of opinions, ideas come forward that are then summed up in the document called Kopaonik Consensus. This document is then forwarded to the government and NBS with the view of assisting them as much as possible in devising economic policies. I think that up until now, and especially in the last few years, the Forum has directly contributed to the government and NBS devising good policies with its clear position about fiscal consolidation and monetary policy. Ever since the onset of the global economic crisis, the KBG has been promoting the idea of fiscal consolidation based on austerity, which the Serbian government had been ignoring all the way until 2014, while trying to jump start economic activity with the measures based on spending, as the key component of GDP growth. The negative effects of the ill-conceived policy are well known – a fast growth of public debt, outburst of budget deficit, and further erosion of external balance. Since 2015, the Serbian government has been using the recipe that was originally concocted at the KBF. However, However, today, we are critical of the slow restructuring of the public sector which is a prerequisite for the country having sustainable, long-term fiscal position. Our position is that short-term fiscal consolidation is not a reform measure in itself but it is a prerequisite for implementation of key reforms. This is also a reminder to the Serbian government that they have covered only the first, albeit easier, leg of the road and that true challenges are still ahead of them. In terms of our position about monetary policy, the KBF has always supported the National Bank of Serbia (NBS) to maintain its monetary policy based on targetted inflation and floating exchange rate.

You expect at least 1,000 to attend the Forum. How successful of a business project is the Forum?

 — Organizing the KFB is a very complex and demanding project. From the initial idea, that came about in the early 1990s, until today, we have covered a long road. Year-on-year we have been improving the quality of the forum, both content- and technically-wise. Of course, none of this would be possible without the support from our sponsors, the most successful companies in Serbia. As of last year, we have a new partner that is the renowned company MasterCard. As you probably know, MasterCard is very selective which events to support which indirectly speaks volumes about the KBF’s quality. As a non-profit NGO, the Serbian Association of Economists, as the organizer of the KBF, operates without state’s donations and, in part, has been funding its operations thanks to the successful financial results of the KBF.

How close are the topics discussed at the KBF, also called ‘The Serbian Davos’, to those covered by the World Economic Forum in Davos?

 — The World Economic Forum is probably the most important annual economic and political event in the world. Undoubtedly, the KBF is the most important event of its kind in our country that has been gaining on regional importance year-on-year. They topics discussed at the KBF do correspond to those in Davos, namely improving regional cooperation, facilitating economic growth, digital transformation as a result of the fourth technological revolution, education system reform and catching up to the developed countries in this area, scientific development, and balanced regional development are the topics covered by both forums. Furthermore, at the KBF, we also discuss the topics that relate only to Serbia like reforming the public sector, facilitating entrepreneurship, balanced development of financial sector, infrastructural improvements in the country and the region, reforming healthcare, developing agri-business and other. The similarities between Davos and the KBF also lie in the fact that both events are not keen on being active decision makers, but rather platforms for exchanging different opinions of the key stakeholders, or rather decision makers.

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