If a country’s government wants to implement unpopular austerity measures, it can always cite pressure from this international financial institution as an excuse. – The decision of Argentina, Moldova, Ukraine, Belarus to thank for cooperation with this international financial institution has raised the question of whether Serbia could do without its supervision.
The news that the International Monetary Fund (IMF) remains without clients and that most countries, such as Argentina, Moldova, Ukraine, Belarus, intend to withdraw from the fund’s support, has raised the question of whether and under what conditions Serbia could say – thank you, not. Is only a high GDP growth, stable finances, and more, sufficient for that answer, and when is a country certain that it no longer needs someone to control it in this way?
As an argument for why he no longer wants the IMF in his backyard, newly elected Argentine President Alberto Fernandez says he will not take the remaining 11 billion euros from the current loan program from the IMF because “drunkenness is not treated with wine.”
Moldova’s President Igor Dodon also announced his intention to withdraw from the Fund’s support in early November, and the Belarusian government has restricted cooperation to technical consultations only. Even the Minister of Finance of Ukraine has pledged to cut off cooperation with this international organization by 2023. The IMF is clearly no longer a lifeline for weak economies.
Serbia’s arrangement with the IMF, the so-called guardian, was not a delight for our citizens either. On the contrary. They were more angered by messages from domestic politicians who conveyed to them that the IMF insists on a reduced share of wages to GDP, a rise in electricity, austerity, which has turned into a freeze on pensions in the past four years, and penalties for those who think of retirement before the age of 65, ban on employment in the public sector, etc.
The IMF board of directors has assessed these days that Serbia continues to successfully implement a defined economic program, with good domestic growth factors, low inflation, sound financial system, structural reforms and further reduction of public debt to GDP, NBS press release.
Domestic factors, that is, strong domestic demand, fully offset the negative influences from the external environment. Therefore, for 2020, the IMF projects the growth of Serbia at a rate of four percent.
Asked if Serbia can “continue to live” without the IMF, Sasa Randjelovic, professor at The Belgrade Faculty of Economics says to Politika that it is a general assessment that the existence of an arrangement with the IMF increases the chances of implementing reforms aimed at establishing a functioning market economy, but that it does not guarantee that this will happen. The IMF mission, he points out, is to ensure the stability of the world financial system by providing financial and technical assistance to countries at risk of not being able to settle their public and/or private foreign liabilities due to a lack of foreign exchange.
– One of the important factors that influence the sustainability of the country’s external position is the sustainability of public finances. Therefore, countries often enter into arrangements with the IMF in the face of increasing risks to the sustainability of public finances (high fiscal deficits and public debt), which has repeatedly been the case with Serbia over the last two decades. So far, Serbia has made mostly precautionary arrangements with the IMF, which committed itself to implementing certain reforms (deficit reduction, privatization…), and in return received loans from the IMF that could be used in a crisis of external liquidity (but not for financing the fiscal deficit or servicing the public debt) – says Randjelovic for Politika.
On the other hand, Serbia’s current arrangement with the IMF is somewhat looser, as it does not foresee the possibility of withdrawing loans.
– There is relatively strong empirical evidence that the existence of an arrangement with the IMF, as a rule, affects the stabilization of public finances, that is, the reduction of the fiscal deficit. This is especially the case for countries with relatively weak institutions, such as developing countries and European countries in transition, where short-sightedness in economic policy making is, on average, more pronounced. A similar assessment can be made with regard to the last two arrangements of Serbia with this institution, which have stimulated the government to decisively implement fiscal consolidation measures and implement some market reforms (for example, in the labor market, in the pension system) – explains the source of Politika.
Doctor of Economics from the Faculty of Economics in Belgrade prof. Ljubodrag Savic says that Serbia could manage its public finances without the International Monetary Fund’s mission, but provided that some of these government brakes do not relent. When asked exactly what he means, Savic replies that, for example, 2020 is an election year, and that uncontrolled spending of money for election campaigns could occur, which would not be the first time.
– Namely, if we remember in 2011, the IMF was in Serbia because it was determined that much more money was spent on elections than it was possible at that time, so the then Mirko Cvetkovic government was asked to check and explain this spending. The IMF no longer appeared and the agreement with them was suspended – Savic reminds.
The current government, he points out, has no need to obey the electorate, and therefore does not purposefully spend the money for the elections, because the situation is pure in their favor – they have no opposition.
