ECONOMY

Analysts warn that Serb political deadlock may threaten economy

BELGRADE (Reuters) – Analysts warned feuding Serb politicians yesterday to form a new coalition government quickly or see the country slide backward into economic stagnation and debt. In grim projections one month after an inconclusive election created political deadlock, they said the price of further delay could be extremely high. The economy had already been stagnating for a year and with prolonged political uncertainty, growth in 2004 would be zero. «The situation is extremely volatile and Serbia finds itself on very slippery ground. It is hard to tell if the politicians are aware of all the problems we face,» said Stojan Stamenkovic, a researcher at the Economics Institute. There would be no more money from the International Monetary Fund (IMF) until it saw a new government and its policies in place, he said, and that sends a bad signal to investors. «Should the IMF lose patience with Serb politicians, the nation could also forget about full 66 percent forgiveness on its debt to the Paris Club of sovereign creditors,» he added. The Paris Club granted Serbia a phased 66 percent write-off on its $4.5 billion debt in 2001, approving a 51 percent relief at the start of the ongoing IMF loan deal and the remaining 15 percent write-off at the expiry of the deal in mid-2005. «The loss of the IMF loan would instantly mean at least $600 million on top of the principal we repay, plus interest rates,» Stamenkovic, also a member of Serbia’s IMF negotiating team, told a news conference. Parties backing Western-style political and economic reforms are under international pressure to forge a coalition, denying power to hardline Radicals, who came first in December 28 elections but fell short of an absolute majority. Without a compromise within the democratic bloc, comprising conservatives, liberals, a center-left party and a royalist alliance, Serbia faces the prospect of prolonged political instability and possibly new elections. Economists at the private IZIT Market Research Institute also advised politicians to pay more attention to the economy, hurt by a burgeoning trade deficit that hit $4.6 billion in 2003 and swelling unemployment, now at 32 percent. They said Serbia faced another year of stagnation at best. «We entered 2004 with very unfavorable trends, including a bad business climate, huge fiscal burden, slowing privatization, declining inflow of foreign grants, inefficient banking system and high interest rates,» IZIT Director Miloje Kanjevac said. According to IZIT research, around 80 percent of Serbian industrial firms planned no investment in 2004. IZIT said Serbia’s industry declined 3.0 percent in 2003 and agriculture fell 10 percent. «That means that 2003 GDP remained unchanged on 2002 or even fell below that level,» Kanjevac said. The institute also warned an incoming government not to jeopardize macroeconomic stability – inflation of 7.8 percent and a relatively stable currency – with populist policies that would only fuel consumption and result in no growth.