To help the economy, and to mitigate the effects of the coronavirus, the state of Serbia will for the first time resort to a measure involving the purchase of corporate bonds not only by state and public, but also by private companies.
Even after five years, the model is still being implemented by members of the eurozone, helping an economy facing the effects of the global economic crisis.
Professor at the Faculty of Economics in Belgrade, Ljubodrag Savic, notes that it is not known exactly, but it is estimated that between two and three thousand billion euros have been pumped into the economy of the Eurozone. He recalls that the European Central Bank first pumped 60 euros billion a month, and then as much as 100 billion euros by buying contaminated securities of troubled businesses to boost their operations.
According to Savic, it is a convenient mechanism for the state of Serbia to buy bonds, primarily state and public companies, in a legal manner, acceptable under EU rules. He says they do not have to do poorly, but in times of crisis, the system of coupled vessels will fall by the crisis. It is sufficient for them, as he notes, already the cost that will be due to the consequences of coronavirus because citizens will not pay for their services for three months.
In any case, the money invested in state-owned enterprises remains state-owned and there is no risk, while with bonds of privately owned companies one should be as cautious as possible so that it does not turn out to be merely an outflow of state payers’ money without results, notes professor at the Faculty of Economics.
How it was done in the Eurozone, Stock Exchange expert Nenad Gujanicic, from the brokerage company Momentum Securitis, explains for Sputnik.
“The European Central Bank (ECB) implemented a monetary intervention program, which first entailed the redemption of government bonds, ie bonds of eurozone member states, and later moved to the second phase when corporate bonds and bonds of eurozone corporations were purchased,” Gujanicic recalled.
He explains that the aim was to pump up liquidity in the economy, that is, these companies can borrow as cheaply and as easily as possible in order to overcome the crisis and emerge on the green branch. The ECB thus bought 20 percent of all corporate bonds, he says.
Speaking about the implementation in our country, he notes that if there are some legal obstacles to the implementation of this measure, it is the least problem, because the amendments to the regulations will quickly and easily exist.
It is undisputed, he says, that companies can already issue corporate bonds, but so far they have not done so because of the underdeveloped financial market.
According to Gujanicic, an important question is who will control the selectivity, ie which corporation the taxpayers’ money will go to?
And Savic, with all the caution of the state in buying bonds of private companies, nevertheless notes that there are very successful companies that deal with certain types of business, but also those that have a very diversified business, which reduces the risk of doing business if one works in one sector.
There, he believes, is a justified idea that by buying company bonds, the state injects fresh money into some new investment that will hire new people and that will pay new taxes and contributions, and market new products.
Sputnik’s interlocutor adds that the state can benefit from all of this and ultimately earn a return on those purchased bonds.
Gujanicic also believes that such a measure carries a high risk that the placement of funds will be in one direction only, but adds that the experience of the Eurozone has shown that such cases are inevitable and should be counted on.
