"Growth impossible with strong currency and interest rates"

Without more exports Serbia cannot avoid bankruptcy, says Nikola Pavicic, adding that country needs "a new economic policy that backs export-bound production."

Izvor: Tanjug

Tuesday, 31.03.2015.

16:07

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(Tanjug)

"Growth impossible with strong currency and interest rates"

For 14 years, he continued, Serbia's economic policy has been based on high interest rates, artificially strong domestic currency, and high taxes.

"That's the essence. With such economic policy we destroyed production and lost exports," said Pavicic and warned that "the reality is quite bleak for Serbia, because we have low exports, import a lot, and therefore have a large foreign trade deficit."

He said that in 2013 and 2014 Serbia imported goods worth USD 41 billion dollars while reporting exports of 29 billion.

The 12 billion deficit, he explained, was covered with 5 billion from remittances from abroad, and with "modest direct investments" - while the remaining 7 billion was covered with new loans.

"Now, there is our reality," he said.

According to the Tarket Sintelon director, "Serbia is avoiding the answer to one of the most important questions - how to change the interest rate system."

"Solving this problem is more urgent than the loss-generating companies that the whole country is dealing with," he remarked.

To change the interest rate system, there are two solutions, he said - to return to the dinar by means of legally prohibiting loans with a currency clause or the introduction of the euro.

"There is no country in the world that has had growth with such high interest rates or an artificially strong currency like the dinar," Pavicic said.

President of the Association of Economists of Serbia Aleksandar Vlahovic believes that Serbia "cannot pass decrees banning the use of foreign currency" but that the objective can be achieved in the long term "if we continue structural reforms."

"What is needed is that people have confidence in the currency. How many of you save in dinars? To change this, structural reforms must come first," said Vlahovic.

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