Helen Goodman

Economy and employment in Serbia: current policies and challenges ahead

The conference was opened by Jan Wiersma (Vice President – PES) who said great progress was underway. The Region, Bulgaria and Romania were scheduled to join the EU in 2007 with Croatia beginning talks. The EU had confirmed in Thessaloniki that all countries were potential members. Here in Serbia/Montenegro and Kosovo he saw a need for reform of institutions and legal frameworks to build trust essential for attracting foreign direct investment (fdi). Infrastructure investment in roads and education were vital, as was a better image and increased trade within the region.

Radmila Katic (Ministry of Labour, Employment and Social Policy) said that improvements in growth, trade and cutting inflation still left serious problems: inflation running at 13%, a trade deficit of $5 billion and a high debt service ratio. Legal changes had been made, but privatisations were still underway. The major problem was unemployment running at around 30%. She hoped to see investment in education, liberalisation of the monopoly employment service and decentralisation to local councils lower unemployment would contribute to poverty reduction, but economic reform required political consensus.

Slavoljub (Trade Unionist) said they were excluded from dialogue and decision-making. He wanted a strategic approach and felt it was necessary to engage the public so they would understand that pain now would provide gain later. He wanted changes speeded up.

Jevtic (Int.sec Dem Party) said that following the Montenegro referendum; given the ‘final status’ negotiations in Kosovo and the conflict with ICTY he saw political change as vital for building trust and stability necessary for fdi; legal changes had not always met EU standards or been consistent; the administration was slow and dysfunctional; infrastructure needs – roads, education, power generation and land fill – would take 10 years to build. The privatisation had been through a stop/start process for 17 years and social safety nets were needed to cope with restructuring.

Olga Knezevic spoke of the impact of the loss of the automotive industry in Vojvodina. She had been involved in a project for women to build SMEs, but felt the tax system didn’t give adequate incentives and the law preventing foreign investors buying land hindered the development of Greenfield sites.

Omerovic (Social Democratic Party Serbia) was highly critical of the government’s handling of EU negotiations and privatisation, receipts had been used to subsidise current spending and corruptly pay off political supporters. Inadequate attention was paid to the social consequences of economic change. They were populist and short-term.

In discussion the following points were made:
1) SME growth should be a priority
2) Privatising banks had been a spur to commercial decision making in Albania
3) Privatisation should produce restructuring as well as ownership change
4) One advantage was the relatively well educated workforce. This point was disputed.

Regional Co-operation in the Western Balkans and the Stability Pact

The session was opened by Vlatko Sekulovic (Serbian Deputy Minister for International Economy nel’us, formerly member of Social Democrat Party) who gave an upbeat assessment. The region was doing well, in Serbia growth was 5-6%, exports rose 25% last year. Currently they had 31 bilateral trade agreements, these would shortly be nationalised into one South East Europe Free Trade Association (Sefta) which would tackle non tariff business and help a great deal. This was an essential and useful part of the SAP. The IFIs had been supportive. IBRD had commended Serbia’s progress and the main risk was protectionism. Commenting from the perspective of Bosnia, Nina Stevanovic was more pessimistic. BH unemployment was 45%, the 13 cantons all had separate administrative structures and there was a serious lack of mobility of all factors of production across FYU. Komic (Banja Luka) agreed and added that fighting organised crime and securing refugee return were important. Police, broadcasting and the judiciary all needed reform and the BH status needed to be secured. Currently, his local economy was too fragile to join or benefit from a regional customs union.

Klosi (Albania) was positive. Progress on stabilisation, ftas, trade and inflation had been made. The IFIs were helpful, investment in infrastructure was important and explaining to the public the meaning of reform vital in order to enforce it. A regional energy grid, property reform and customs reform were needed. Banking privatisation was helpful, but there was a question mark over the sequencing of privatisation and restructuring. IFI and EU support were helpful and lessened the protectionist threat. But the new right wing government was a disaster, would slow reform and privatisation and politicise the civil service.

In discussion it was felt it was important to
a) concentrate on effective implementation and
b) acknowledge that there would be winners and loser and put in place effective support mechanisms for the latter,
c) there was a risk of losing momentum if reforms were too slow and economic change was held up by political disputes.
d) EU trade unions were not learning the lessons of previous SAPs in order to do (b) above and build social capital
e) looked at from within problems were more complex, fragile and difficult than they appeared from outside eg BH/Albania where constitutional arrangements and administrative capacity were still lacking.
f) EU processes were sometimes too bureaucratic, slow and burdensome and monitoring could deter fdi,
g) A capacity to build joint ventures was needed.

The role of the EU in bringing about economic reform in the Western Balkans

Hannes Swoboda (Vice President of PES) said
1) It was in the interest of both the EU and the Western Balkans to see them develop and join EU
2) There were 2 tracks: economic and values
3) The EU provided a framework and ideas, but they should use this as a guide to make their own development path which suited their needs
4) Transfer of skills was at least as important as finance
5) More investment in public infrastructure, taking account of their strategic position vis a vis Turkey and The Black Sea would pay dividends
6) Social investment was needed to avoid a backlash against reform
7) The role of law and fight against corruption and organised crime were essential for fdi, as was better administration
8) Education was a priority
9) The real challenge came from India and China, so delays would be costly.

Dulic (Serbia Democratic Party) said they wanted
1) Financial assistance. The loss of territory would be a political problem for Serbia for 100 years
2) Serbia’s image problem needed external help
3) The current visa regime was overly restrictive and caused much ill feeling.

Juratovic (Croatian IDP) was critical of the lack of transparency in Serbia. He felt it was important to remember the Western Balkans were not a priority for EU people. He also criticised the visa policy from the perspective of young people and said travel restrictions were greater now than in 1980. He wanted to see a more ‘social’ model.

There was some discussion as to whether Slovenia or Slovakia provided the better model. There was also a discussion as to whether the costs of EU membership were as great as conflict in Western Balkans to the EU. This was rather unrealistic, since some held out hope for joining without meeting conditions.

Economic challenges in SE Europe and social democratic answers – jobs, jobs, jobs

Shapiro (LSE) presentation attached, jobless growth was political dynamite, especially when concentrated among young people. Supply side measures would not be adequate: demand management and fdi mattered too. The high recorded rates of unemployment indicated a large grey economy.

Pfaller discussed the benefits of the Nordic social model over the French. He expected to see continued migration across the region.

Grader did not think there was a pool of high skilled low wage labour or that low wages would necessarily bring fdi. He opposed reliance on active labour markets policy and argued for a stronger social dimension.

Goodman argued that political reform and uncertainty need not hinder economic growth eg. House of Lords, Scotland and despite earlier problems Northern Ireland.

I concentrated on describing the New Deal for young people especially the voluntary sector and energy efficiency options, pointing out the success we had in reducing youth unemployment.

I point out that introducing the minimum wage and strengthening union rights had not hindered employment growth.

I also described the IB reforms and voluntary sector role in path finders.

In the margins: the Serbian left is divided but will fight the election as a coalition and does not feel confident to present an economic reform programme to the public as an alternative to the right wing government’s focus on the nationalist issues. Swoboda and Wiersma had had meetings with the government on Friday to discuss the Montenegro and Kosovo situations. They reported a total lack of realism and continued sabre – rattling which could foreshadow more conflict especially in Kosovo.

Action – to circulate papers on New Deal and IB via European Forum to all West Balkans partners and provide information on role of voluntary sector in the UK.

Report from a conference held in Belgrade, Serbia, 24 June 2006