C-bank chief: Dinar not overvalued

C-bank chief: Dinar not overvalued Jelasic accuses analysts of giving incorrect information and of causing citizens to withdraw their saving deposits from banks, by which they lose rates of interest that they would otherwise receive. He compared the analysts who cause citizens to withdraw their savings with “wailing women”, insisting that “none of their catastrophic prognoses will come true” and citizens who withdraw their money will only suffer losses. According to the finance ministry, the laws that would enable an increase in the guarantee of savings deposits should be on the agenda of the Serbian parliament in mid- November. Governor Jelasic wonders if these analysts will reimburse citizens for the 12 to 13 per cent of lost income per year that they will suffer, taking into consideration Euro zone inflation of 3.6% and the savings interest rate of 10 per cent per annum. Accordingly, withdrawing a deposit of €10,000 will result in said citizen losing €100 on a monthly basis. The governor substantiates his assertions regarding the stability of the Serbian banking system by referring to the details of Deutsche Bank’s analysis of the possible impact of the world financial crisis on the countries of central and eastern Europe, which was declared on 15th October. As part of that analysis, Serbia was ranked second of 26 countries in terms of foreign currency reserves and savings and, according to the adequacy of banks’ capital, it was ranked first and the most financially stable. “These results show that risk in Serbia is much lower than in Hungary, Bulgaria, Croatia and Baltic states which have been rated as vulnerable,” the NBS governor added. Governor Jelasic has called on banks not to misuse the present situation by increasing interest rates retroactively. He added that black sheep are being separated from the rest of the fold now and that clients will remember which banks have acted correctly and which haven’t. The governor underlined that the NBS expects commercial banks to continue approving loans You travelled to Washington to attend the annual assembly of the IMF and the World Bank. How do these institutions rate the economic and monetary system of Serbia? Unlike domestic “analysts” and constant critics, in the report the IMF published after the visit of its mission in September the NBS received full support for the monetary policies it had been carrying out. The main issue that the IMF warned about referred to the question of whether, and to what extent, already over-pressed monetary policies could compensate for both internal and external challenges that the international financial crisis brings with it. What do the World Bank and IMF suggest and are there any new arrangements in sight? In accordance with the situation globally, suggestions are being amended on a daily basis; the amount of money being pumped into financial systems is constantly increasing and so far taboo topics, such as private ownership of the financial sector or ratings of balance categories on the basis of market prices, are no longer considered taboo. One thing is certain: the universal cure for all of these challenges has not been found by anyone yet. I had an opportunity to talk in person to Mr. Stroskan, head of the IMF, and ask him if he has enough staff members, because there will be an increase in the number of countries, like Iceland, Hungary or Ukraine, requesting an urgent financial support program from the IMF, as well as of those that ask for the program due to the economic reforms their governments are ready to carry out. Unfortunately, that proved to be the case only two weeks after the IMF assembly. Countries are quickly looking for a firm anchor for their macroeconomic policies in the shape of arrangements with the IMF. I do not wish to sound malicious, but I must remind you that if the suggestions of the NBS had been followed and implemented Serbia would have now had an advantage over others in regard to the creation of a new arrangement with the IMF. Of course, it is not too late even now, and the program with the Fund equates to less turbulence for our macro-economy amid the current global financial instability, as well as an improvement of the country’s reputation from the aspect of monetary value and interest rates. Serbia expects a loan from the World Bank to fund the completion of Corridor 10 routes through the country. Could the economic crisis affect the amount of that loan and how do the World Bank and the IMF see the world crisis? At this moment the World Bank, EBRD and ECB should show their true colors and prove that they support their country shareholders not only in good times but also in bad times like those currently being endured. Besides, that is precisely why these institutions were founded. If Serbia proves responsible and establishes a new program with the IMF, we can count on more money from the World Bank too, which, by the way, does not change retroactively approved conditions and interest rates, while the amount of money can be increased. For years, the NBS has had restrictive monetary policies that have been negatively viewed. Under what conditions would you decrease banks’ obligatory reserves? The precise parts that were viewed negatively are now actually being lauded because the policy has proved to be one of the key anchors at a moment when we’re lacking an arrangement with the IMF, and the moment when there is an internal lack of political stability. The National Bank took more measures towards the end of last week, measures through which the banking sector’s solvency has been increased. Additional measures will be taken in co-ordination with fiscal policies and depending on the stability of the financial sector. You have been critical of the rebalance of the budget. Has the government contacted you in connection with the 2009 budget and what specifically will you insist upon? The 2009 budget requires a 180 degree turnaround in relation to this year’s rebalance. If responsibility for the future of the country is not shown now, and if it is not proved by the budget that will be near to a balanced one, Serbia will have a hard time. If the budget deficit is similar to this year’s there will not be a program with the IMF and I daren’t wonder what impact that would have on our macro-economic stability. To what extent has the new government coordinated its moves with the NBS during its first 100 days? Co-operation with the government has been good, but that does not mean that our remarks are reflected through concrete moves, such as a decrease of the deficit or expenditure. The government’s task is to govern, while the NBS can point out consequences and take precautionary measures. That is not a desirable role, because when the situation worsens the National Bank cannot withdraw and say “we warned you on time”. Rather, it has to take part in saving and repairing the affected stability. Which will have the decisive influence over forming next year’s budget: reason or political promises? Everything will be shown through the level of the budget deficit, and more reason means less deficit. Not only that, it also means proof of responsibility and readiness to finally sacrifice current spending for the following two or three years for the long-term benefit of the country. Macroeconomic policies will be sustainable if the country receives direct investments of €3 billion. How is it possible to achieve that, considering that the world economic crisis is set to continue? Much more active lobbying will be needed on both state and bilateral levels. I hope that Fiat’s investments will encourage other multinational companies to invest in Serbia. As for privatization, it is necessary – unless a sale is possible – to complete the reorganization and preparation of these enterprises during 2009, for privatization in 2010. I hope the unfavorable circumstances on the international market will not contribute to our reorganization of these enterprises. What impact will the world financial crisis have on Serbia? The real question is to what extent economic growth will be affected, if the total economy receives loans with double figure interest rates and there are not enough of them. If we do not succeed in finding enough capital from abroad, and based on the increase of domestic deposits, the question would arise as to what our anchor is from the aspect of macroeconomic policies, while commercial speculators and debt traders could start creating chaos for Serbia. To what extent can the NBS intervene financially without affecting foreign currency reserves significantly? Both as a man and as a governor, I am a great miser, and in these turbulent times I think this characteristic of mine should be made even more popular. As a citizen I would only be worried if I saw that the National Bank spending foreign currencies reserves in order to maintain a particular level of value. However, the National Bank is not, and will not be, doing this, as we will be entering a period of great suspense in the coming weeks, during which only high foreign currency reserves will provided the necessary stability. At what price is the NBS protecting the value of the dinar within the weak economy of Serbia? The NBS is not protecting any level of value, which it has proved over the last few days. What we did do was to prevent serious oppressions that were occurring over the course of a single day. Could the real price of the dinar be achieved on the world’s monetary markets? This story about world and domestic markets is only discussed in circles that do not understand at all how capital is traded in the 21st century. Just as the florin is used as the currency of first instance in Budapest and the kruna in Prague, the dinar is used in the same way in Belgrade. As for the rating of our currency, one should take a look at websites of some central banks and you will see that the dinar is rated alongside all other currencies. How would you rate the stability of banks in Serbia? The banking sector in Serbia is a few times more solvent than those of countries that are currently pumping thousands of billions of dollars into their systems. All of those who know our financial system “admit” that fact. This is a result of the restrictive measures that the National Bank started taking even before the world financial crisis broke out. Of course, we have serious challenges ahead of us, just like many other countries, but unfortunately we have something else too and that is a weakness to cause ourselves much bigger problems than there are objective reasons for that, by stirring up public negative psychosis and fears from the past. Some media, so-called “analysts” in Serbia and irresponsible politicians are working on that. Are we too indebted as a state and as individual citizens? Serbia is not too indebted as a state. However, private debt has significantly increased over the last few years – though neither the state nor taxpayers guarantee that debt. That is the risk of enterprises, banks and private investors. As for citizens, they were the first to realize the seriousness of the time approaching us, hence their debts are decreasing – with the exception of mortgage loans. Whether the citizens of Serbia are too much in debt or not will depend on economic perspectives, first of all on keeping stability of prices and macroeconomic stability, maintaining existing job levels and creating new ones. Inflation is significantly higher than was initially projected? The National Bank has been leading restrictive monetary policies since the beginning of the year, while many other countries only started doing that after they had faced the world financial crisis. The future of inflation levels will depend on the 2009 budget decisively, as monetary policy has to receive the necessary help of fiscal policies through that budget, because there isn’t much room to extinguish inflationary fires by monetary measures: these fires are a result of overspending. Please let me repeat that next year’s budget has to make a 180 degree turnaround in terms of expenditure appetites, in comparison to the rebalance of the 2008 budget. This article originally appeared on the CorD website A file photo of Radovan Jelasic (Beta) The protection of state reserves from the consequences of the world financial crisis; the state budget; battling rising inflation; co-operation with world financial institutions - these are just a few of the numerous activities that Radovan Jelasic, governor of Serbia’s central bank, the National Bank of Serbia (NBS), has been occupied with over the last few months. Journalist: Dejan Jeremic "The 2009 budget requires a 180 degree turnaround in relation to this year’s rebalance. If responsibility for the future of the country is not shown now, and if it is not proved by the budget that will be near to a balanced one, Serbia will have a hard time."

C-bank chief: Dinar not overvalued

Jelašić accuses analysts of giving incorrect information and of causing citizens to withdraw their saving deposits from banks, by which they lose rates of interest that they would otherwise receive. He compared the analysts who cause citizens to withdraw their savings with “wailing women”, insisting that “none of their catastrophic prognoses will come true” and citizens who withdraw their money will only suffer losses.

According to the finance ministry, the laws that would enable an increase in the guarantee of savings deposits should be on the agenda of the Serbian parliament in mid- November.

Governor Jelašić wonders if these analysts will reimburse citizens for the 12 to 13 per cent of lost income per year that they will suffer, taking into consideration Euro zone inflation of 3.6% and the savings interest rate of 10 per cent per annum. Accordingly, withdrawing a deposit of €10,000 will result in said citizen losing €100 on a monthly basis.

The governor substantiates his assertions regarding the stability of the Serbian banking system by referring to the details of Deutsche Bank’s analysis of the possible impact of the world financial crisis on the countries of central and eastern Europe, which was declared on 15th October. As part of that analysis, Serbia was ranked second of 26 countries in terms of foreign currency reserves and savings and, according to the adequacy of banks’ capital, it was ranked first and the most financially stable.

“These results show that risk in Serbia is much lower than in Hungary, Bulgaria, Croatia and Baltic states which have been rated as vulnerable,” the NBS governor added.

Governor Jelašić has called on banks not to misuse the present situation by increasing interest rates retroactively. He added that black sheep are being separated from the rest of the fold now and that clients will remember which banks have acted correctly and which haven’t. The governor underlined that the NBS expects commercial banks to continue approving loans

You travelled to Washington to attend the annual assembly of the IMF and the World Bank. How do these institutions rate the economic and monetary system of Serbia?

Unlike domestic “analysts” and constant critics, in the report the IMF published after the visit of its mission in September the NBS received full support for the monetary policies it had been carrying out. The main issue that the IMF warned about referred to the question of whether, and to what extent, already over-pressed monetary policies could compensate for both internal and external challenges that the international financial crisis brings with it.

What do the World Bank and IMF suggest and are there any new arrangements in sight?

In accordance with the situation globally, suggestions are being amended on a daily basis; the amount of money being pumped into financial systems is constantly increasing and so far taboo topics, such as private ownership of the financial sector or ratings of balance categories on the basis of market prices, are no longer considered taboo. One thing is certain: the universal cure for all of these challenges has not been found by anyone yet.

I had an opportunity to talk in person to Mr. Stroskan, head of the IMF, and ask him if he has enough staff members, because there will be an increase in the number of countries, like Iceland, Hungary or Ukraine, requesting an urgent financial support program from the IMF, as well as of those that ask for the program due to the economic reforms their governments are ready to carry out. Unfortunately, that proved to be the case only two weeks after the IMF assembly. Countries are quickly looking for a firm anchor for their macroeconomic policies in the shape of arrangements with the IMF.

I do not wish to sound malicious, but I must remind you that if the suggestions of the NBS had been followed and implemented Serbia would have now had an advantage over others in regard to the creation of a new arrangement with the IMF. Of course, it is not too late even now, and the program with the Fund equates to less turbulence for our macro-economy amid the current global financial instability, as well as an improvement of the country’s reputation from the aspect of monetary value and interest rates.

Serbia expects a loan from the World Bank to fund the completion of Corridor 10 routes through the country. Could the economic crisis affect the amount of that loan and how do the World Bank and the IMF see the world crisis?

At this moment the World Bank, EBRD and ECB should show their true colors and prove that they support their country shareholders not only in good times but also in bad times like those currently being endured. Besides, that is precisely why these institutions were founded. If Serbia proves responsible and establishes a new program with the IMF, we can count on more money from the World Bank too, which, by the way, does not change retroactively approved conditions and interest rates, while the amount of money can be increased.

For years, the NBS has had restrictive monetary policies that have been negatively viewed. Under what conditions would you decrease banks’ obligatory reserves?

The precise parts that were viewed negatively are now actually being lauded because the policy has proved to be one of the key anchors at a moment when we’re lacking an arrangement with the IMF, and the moment when there is an internal lack of political stability. The National Bank took more measures towards the end of last week, measures through which the banking sector’s solvency has been increased. Additional measures will be taken in co-ordination with fiscal policies and depending on the stability of the financial sector.

You have been critical of the rebalance of the budget. Has the government contacted you in connection with the 2009 budget and what specifically will you insist upon?

The 2009 budget requires a 180 degree turnaround in relation to this year’s rebalance. If responsibility for the future of the country is not shown now, and if it is not proved by the budget that will be near to a balanced one, Serbia will have a hard time. If the budget deficit is similar to this year’s there will not be a program with the IMF and I daren’t wonder what impact that would have on our macro-economic stability.

To what extent has the new government coordinated its moves with the NBS during its first 100 days?

Co-operation with the government has been good, but that does not mean that our remarks are reflected through concrete moves, such as a decrease of the deficit or expenditure. The government’s task is to govern, while the NBS can point out consequences and take precautionary measures. That is not a desirable role, because when the situation worsens the National Bank cannot withdraw and say “we warned you on time”. Rather, it has to take part in saving and repairing the affected stability.

Which will have the decisive influence over forming next year’s budget: reason or political promises?

Everything will be shown through the level of the budget deficit, and more reason means less deficit. Not only that, it also means proof of responsibility and readiness to finally sacrifice current spending for the following two or three years for the long-term benefit of the country.

Macroeconomic policies will be sustainable if the country receives direct investments of €3 billion. How is it possible to achieve that, considering that the world economic crisis is set to continue? Much more active lobbying will be needed on both state and bilateral levels. I hope that Fiat’s investments will encourage other multinational companies to invest in Serbia. As for privatization, it is necessary – unless a sale is possible – to complete the reorganization and preparation of these enterprises during 2009, for privatization in 2010. I hope the unfavorable circumstances on the international market will not contribute to our reorganization of these enterprises.

What impact will the world financial crisis have on Serbia?

The real question is to what extent economic growth will be affected, if the total economy receives loans with double figure interest rates and there are not enough of them. If we do not succeed in finding enough capital from abroad, and based on the increase of domestic deposits, the question would arise as to what our anchor is from the aspect of macroeconomic policies, while commercial speculators and debt traders could start creating chaos for Serbia.

To what extent can the NBS intervene financially without affecting foreign currency reserves significantly?

Both as a man and as a governor, I am a great miser, and in these turbulent times I think this characteristic of mine should be made even more popular. As a citizen I would only be worried if I saw that the National Bank spending foreign currencies reserves in order to maintain a particular level of value. However, the National Bank is not, and will not be, doing this, as we will be entering a period of great suspense in the coming weeks, during which only high foreign currency reserves will provided the necessary stability.

At what price is the NBS protecting the value of the dinar within the weak economy of Serbia?

The NBS is not protecting any level of value, which it has proved over the last few days. What we did do was to prevent serious oppressions that were occurring over the course of a single day.

Could the real price of the dinar be achieved on the world’s monetary markets?

This story about world and domestic markets is only discussed in circles that do not understand at all how capital is traded in the 21st century. Just as the florin is used as the currency of first instance in Budapest and the kruna in Prague, the dinar is used in the same way in Belgrade. As for the rating of our currency, one should take a look at websites of some central banks and you will see that the dinar is rated alongside all other currencies.

How would you rate the stability of banks in Serbia?

The banking sector in Serbia is a few times more solvent than those of countries that are currently pumping thousands of billions of dollars into their systems. All of those who know our financial system “admit” that fact. This is a result of the restrictive measures that the National Bank started taking even before the world financial crisis broke out. Of course, we have serious challenges ahead of us, just like many other countries, but unfortunately we have something else too and that is a weakness to cause ourselves much bigger problems than there are objective reasons for that, by stirring up public negative psychosis and fears from the past. Some media, so-called “analysts” in Serbia and irresponsible politicians are working on that.

Are we too indebted as a state and as individual citizens?

Serbia is not too indebted as a state. However, private debt has significantly increased over the last few years – though neither the state nor taxpayers guarantee that debt. That is the risk of enterprises, banks and private investors. As for citizens, they were the first to realize the seriousness of the time approaching us, hence their debts are decreasing – with the exception of mortgage loans. Whether the citizens of Serbia are too much in debt or not will depend on economic perspectives, first of all on keeping stability of prices and macroeconomic stability, maintaining existing job levels and creating new ones.

Inflation is significantly higher than was initially projected?

The National Bank has been leading restrictive monetary policies since the beginning of the year, while many other countries only started doing that after they had faced the world financial crisis. The future of inflation levels will depend on the 2009 budget decisively, as monetary policy has to receive the necessary help of fiscal policies through that budget, because there isn’t much room to extinguish inflationary fires by monetary measures: these fires are a result of overspending. Please let me repeat that next year’s budget has to make a 180 degree turnaround in terms of expenditure appetites, in comparison to the rebalance of the 2008 budget.

This article originally appeared on the CorD website