Serb industrialists say focus on inflation, not fiscal reforms

BELGRADE (Reuters) – Serbian inflation may hit 17 percent this year and the government must focus on reining in prices instead of trying to impose painful reforms on the fragile economy, a Serbian industry group said this week. Energy prices are driving the spike in inflation and the energy ministry asked the government this week to approve a new 16-percent fuel price hike. «With forthcoming crude oil and products price hikes, and resulting energy-related price hikes, it is clear that 2005 inflation will be between 16 and 17 percent,» chairman of the Chamber of Commerce and Industry Slobodan Milosavljevic told reporters. Gasoline and diesel fuel prices went up by 12 percent in July, translating into a 2.1 percent one-off rise in monthly inflation. Serbia had been aiming for an inflation rate of 9.1 percent this year but is now targeting a level close to the 13.7 percent recorded in 2004. The government is considering whether to lower the excise tax on petrol to avoid a massive retail price increase. But central bank governor Radovan Jelasic cautioned against state meddling, telling Glas Javnosti daily that «administrative measures send a bad signal to the entire business community.» The government’s reluctance to allow domestic fuel prices to track the skyrocketing global cost of crude oil has resulted in shortages of diesel and unleaded gasoline. The nation is still haunted by memories of fuel being sold by peddlers rather than filling stations when Slobodan Milosevic was president of Yugoslavia in the 1990s. Milosevic’s rule was also marked by hyperinflation and sharp currency devaluations. Reformers who toppled him in 2000 brought inflation down to single digits by 2003, but Prime Minister Vojislav Kostunica’s government has failed to tame it. The government has been pushing through reforms sought by the International Monetary Fund including to the energy sector and pensions system. But Milosavljevic said inflation was the more pressing issue. «The government had better start handling inflation, which brings back memories of the past, rather than reform the oil monopoly or the pension system. The situation in Serbia is too fragile for such tough reforms,» Milosavljevic said. Serbian pensioners have pleaded with the government not to push through plans to slash their already depleted incomes under the reforms. But the IMF told Serbia in July there could be no backing off from the reforms, which are key to completing a three-year loan deal.