Last year 2022 was marked by economic hardships that affected the whole world, including Serbia. Due to the war in Ukraine, there was a sudden jump in the prices of food and energy, which, like a domino effect, caused an increase in inflation in all European countries, and then an increase in interest rates. It’s been a long time since there has been such expensive borrowing, which could further slow down economic growth.
In an interview with Euronews Serbia, professor of the Faculty of Economics, Danica Popović, says that the latest data from the Statistical Office, which states that the year-on-year inflation is 15 percent, is actually not a realistic indicator because, as she states, some prices in our country are frozen.
“Inflation is not 15 percent and we know that because they have frozen some prices. If the prices were the way they are, then we could see it being over 20 percent or even more. The question here is who bears that cost when the price freezes? Some seller. As consumers, we are a little freed from that, so we don’t really need to complain. However, as a country, if we say that inflation is 15 percent, that’s real…” says Popović.
However, in response to the statement that it is official data and that the NBS states that they believe they have managed to calm inflation, which has hovered around 15 percent in recent months, Popović says that it should actually be viewed through the costs on paper, but they real, as well as global.
“One big cause of inflation is import inflation, what’s happening in the world – the price of oil has been going up terribly for a while. In addition, food in all countries has been jumping. You also have inflation based on looking at the real costs that have come in. You really should expect to calm it all down. How successful the National Bank will be in all this depends a little on it,” adds Popović.
Commenting on the price freeze, Popović says that it is a good solution, but not for everyone. In this way, she believes, those who do not need such help are protected.
“I am not a supporter of limiting prices due to inflation. In this way, you protect all living things. What is our goal when inflation starts? To protect the most vulnerable: the disabled, pensioners and all those who live on the lowest incomes. Inflation must not happen to them, no inflation at all. The government financed others by restricting prices. It’s all a waste. If everything were collected, you would create a social program. Why should we protect from inflation those who are not in special social categories. If we did not protect, we would get that economic growth. Let it be known who can do what. There were no freezes in other and larger countries,” adds Popović.
She states that fighting inflation with a reference interest rate is the only civilized way to reduce it.Â
“The second way is the one the governor used. Actually, when the insurance company wants to increase its premium, it sends a letter to reduce it – so that someone from above tells you that you shouldn’t think of touching the prices,” she explains.
Popović states that the country’s economic growth is also important in addition to inflation, but adds that her assessment is that even if inflation calmed down, it would not exist.
“If you increase the amount of money in the country, the more it is, the less it is worth. If you increase the interest rate, you reduce the amount of that money – the less it is, the more it will be worth and the inflation will be less. Here, too, economic growth depends on businessmen who lead economy. If to you public enterprises have such a share in the GDP where party cadres sit, then you have no sense of increasing economic growth. What is the basis for increasing economic growth is that people decide for themselves which investments they will invest in. Now and if you let all that calm down, you wouldn’t have economic growth again,” she says.
In the budget proposal for 2023, 25 billion dinars are planned for subsidies to the economy, which is the third largest export subsidy. The Fiscal Council states that with this plan, the Government aims to attract as many investments as possible. Popović says that this is a good idea when one of the investors is hesitating whether to invest and that this has proven to be the practice of countries that have already implemented this.
“That method of subsidies is a method that was applied very briefly. Dinikić brought that to us. When you see the experiences of other countries – Hungary, the Czech Republic, Poland and the like, it turned out that such subsidies attracted (investments), but only in those moments when someone hesitates. For example, when a company hesitates whether to go to the Czech Republic or Poland, then bribe the Czechs with subsidies so that they don’t go to the other side,” she explains, adding that their goal is that some people only for a while be employed.
Popović says that even for something like that there should be an alternative, and that the economic environment is crucial.
“The alternative is for people to get a job themselves. If someone needs to sew shoes, they will find work easily and only if there is a good economic environment. People will always choose an easier solution. If there is none, their eyes will be open and they will look for”, adds Popović.
Commenting on the climate in Europe, primarily because of the war in Ukraine. The IMF recently published an analysis concerning Russia and its economic decline, and Popović says that we should be aware of the fact that the Russians are now in a rather unenviable position due to the current situation.
“I grew up in a different era. I don’t understand how anyone can rejoice in the fall of Russia, when some people live there who are under sanctions like we are when we are bombed. I don’t know why Russia is equal to Putin. You shouldn’t rejoice that is someone economically bad. The chain is broken. We had a good lesson. How is the globe connected? It was shown by an ordinary pencil. They tell you that an eraser is from Taiwan, the graphite is from Africa, and the design is from Chicago… And when you look at that pencil, then you see that one pencil had 28 parts from different countries of the world. Now no one in the world can make one pencil anymore,” explained Popović, Euronews writes.
