Disturbing insolvency of Serbian companies - Corporate accounts of 66,000 companies blocked, debts reach about 290 billion dinars

The Economics Institute (EI) in Belgrade assessed that the economy of Serbia was extremely insolvent and that a reform of the public sector was the only way to seriously deal with that problem.

That reform should, "on one side, relax the economy and, on the other side, establish bases for permanent financial discipline of the economy and the state", said Stojan Stamenkovic, an associate of the EI, at the presentation of the new issue of the bulletin Macroeconomic Analyses and Trends (MAT), which is published by the EI.

According to his words, non-market methods such as monetary expansion, subsidized liquidity loans, debt restructuring or multilateral compensation can only solve the problem of insolvency ostensibly and for a short time.

According to MAT, the corporate accounts of 66,255 companies in Serbia were blocked in late February, while their total debt amounted to RSD 287.6 billion.

Stamenkovic said that the deadline for payments in Serbia should be limited to 60 days pursuant to the EU Directive stipulating that the period for payments must be between 30 and 60 days.

Vidosava Dzagic, vice president of the Serbian Chamber of Commerce, pointed out that the basic problems of the domestic economy were insolvency, unemployment, and inflation.

- The state should settle its obligations to the economy sector on regular basis, which would represent an appropriate stimulus for domestic growth. Insolvency is a growing problem that, according to our analyses, registers a constant growth since 2006. That is why the SCC suggested that the mandatory period for all payments should be between 60 and 90 days, which would strengthen the financial discipline in our country.

Vladimir Vuckovic, editor of the bulletin, assessed that the increase in the value of the Dinar was "not a good phenomenon" and that it was "threatening the economy more and more".

- Increase in the value of the Dinar looks good at the first glance, but it weakens the export competitiveness of the Serbian economy - said Vuckovic.

Vuckovic stressed that one of the most significant events from the beginning of the year was the export growth, as well as a reduction of the foreign trade deficit. We owe the current growth of economic activities to the export and not to a higher internal demand, said Vuckovic. However, what we should expect next year is further growth of the value of import as a result of an increase in global prices of fuels, primarily oil and gas.

Due to the sale of securities indexed in euros, the Dinar is appreciating, while liquidity is not growing, which leads to simultaneous occurrence of the strengthening of the national currency and the growth of inflation. Increase in prices is expected to exceed the goals set by the National Bank of Serbia (+/- 6 percent). The expected inflation rate for the end of May exceeds 8 percent, which is why economists gathered around MAT doubt the achievability of the goal of the projected inflation for this year. Inflationary expectations of businessmen are growing - according to MAT's analysis, 78 percent of businessmen expect prices to continue to grow by the end of the year, while 44 percent are of the opinion that the prices of their products and services will rise.

Talking about possible privatization of Telekom Srbija, all the present agreed that the failure to sell the company would negatively affect the amount of the budget deficit, but they also said that the sale would disturb the balance in the market of telecommunication services.

- If the Government reaches an agreement with the company Telecom Austria, the state will practically sell three monopolies: on fixed telephony, mobile telephony, and telecommunications infrastructure – Stamenkovic concluded.

M.D.