One should be careful and not give help linearly, but selectively.
– In the case of the announced package, in addition to tourism, the fair economy should also be helped, because they do not work in this sector either, and now they have been left out.
At the beginning of the year, all countries are reassembling what to do next in the fight against the consequences of the virus. Thus, Janet Yellen, the candidate for the US Minister of Finance of the newly elected President Joseph Biden, and previously the head of the Federal Reserve, called on the deputies in the Congress to act with a large crown package of support, emphasizing that the economic benefits far outweigh the risks of increasing debt burden.
“Without further action, we risk a longer, more painful recession and longer-lasting economic scars. Neither the newly elected president nor I are proposing this package of relief, ignoring the issue of the burden of the state debt. But at the moment, with interest rates at historically lowest levels, the smartest thing we can do is to act extensively,” she stressed.
She said that although the amount of debt to gross domestic product (GDP) has increased, the burden of interest on debt service paid by the Ministry of Finance has not increased, thanks to lower interest rates. She added that she will closely monitor it while the economy is in the process of recovery.
Can small countries like ours apply the American recipe for generous new aid to the economy, bearing in mind that it is still the richest country in the world, whose public debt has been higher than their GDP for decades, and they do not worry too much about that. Is it better in our case to prevent the consequences than to “treat” the economy later, perhaps with more disastrous consequences and a more expensive price?
Goran Radosavljevic, a professor at the Faculty of Economics, Finance and Administration (FEFA), says that last year it turned out that all countries in the world do not have a better recipe for fighting the consequences of the corona than throwing money out of planes. This does not mean that it is the right solution, but that no one has found a smarter solution. No economy has really said “this is the recipe for this crisis”. A mitigating circumstance is that the price of money is at a historically low level, so it does not matter to the states whether they gave their funds or borrowed, although they mostly borrowed.
“Last year, Serbia made a deficit in the state treasury of nine percent of GDP and must take care to use the funds it gives to help the economy in the best possible way. In my opinion, the much bigger problem is how those funds are spent, productively or not, and what is the effect of all that. For example, last year, the growth of retail turnover was five percent, and the state generously helped that sector as well. Because the state gave them a minimum for workers, postponed loans, they could use all the measures, and that was a cost for the state. Other parts of the economy, such as caterers, have seen a big drop in business and need help. At the moment, it is important to whom you give money. Do you give them to everyone who needs them or only to those who can survive? If a company will fail after the crisis, because the market has changed, why give it money, or just for the sake of saving jobs at the moment. It is true that some rich countries, such as Germany, Great Britain and the United States, shared money with a fist and a hat, but those are rich countries and they can afford it,” says Radosavljevic.
According to official data, Serbia spent six billion euros to prevent GDP from falling by about a billion euros, he says. It is too early to calculate the effects and we will only be able to do that in a year or two. In the first wave of the crisis and closure, help for everyone was probably the only possible one. There was no time or knowledge to react differently. Now, if the minimum were given to everyone, that would mean not understanding who creates jobs. If the state gives money to the entrepreneur with five employees for the minimum wage, and nothing to him, he will close the company regardless. Measures this year must be targeted, and enough time has passed to see who needs help and in what way, he believes.
We are constantly measuring how much the public debt has increased due to borrowing, and Radosavljevic says that when the crisis broke out, everyone took the position that saving the economy is a priority, and now a year has passed since the crisis broke out and the right measure should be found: Come on not to spend another two or three billion euros, but to optimize it.
– When talking about the American public debt, we should keep in mind that the United States always transfers its costs to third world countries. As long as the dollar is the world’s reserve currency, any disturbance in the US monetary market is shifted externally by raising and lowering interest rates. We are the opposite case, we are among those countries to which the cost is transferred, because our debts are in dollars, euros, and when the ratio of dollars to other currencies is disturbed, our public debt grows. That is why we have to develop the domestic debt market, in our own currency, because it is better to borrow three percent on a dinar than one percent on a euro bond. These are the nuances that will wait for us one day when we start repaying our debts – says Radosavljevic.
Ivan Nikolic from the Economic Institute says that Serbia has both reserves and fiscal space to borrow more without jeopardizing the medium-term prospects of stability, but that we still cannot act like America.
“Taking into account the circumstances and the damage that may occur, it is logical to give help. One should be careful and not give linearly, but selectively. In the case of the announced aid package, the latest measures from the previous year should be followed for tourism, catering and related activities. This time, the fair economy should also get help, because they are not working either, and they were left out,” says Nikolic.
He adds that the dynamics of recovery is uncertain and it is difficult to stand behind the estimates. That is why one should be measured in giving help, it is better to be frugal, he says, Politika reports.
