Mr. Pitic, what would be your vision and steps towards establishing a stable economic situation in Serbia?
First of all I want to mention the state this country was in when we started our work. Even the basic economic institutions were completely destroyed, especially through those 10 years of isolation followed by the war and bombing. More than 60% of the whole financial process was under the regimes control, industrial production went down, GDP more than halved, unemployment reached 27%, there were 5-7 hundred thousand refugees, we had an average salary of about 100 DM, the banking system was at the edge of collapse, foreign debts, etc. Even though the old regime knew about all that, but continued to distract the systems in order to preserve the virtual stability of the system
So, the task is obviously challenging and the vision is, of course Europe. We used to be one of the first former Yugoslavian countries closest to the level of the European Union, now we are among the last. This paradox has some positive sides, which show that our country still has the mentality of 40 years market industry development, an industrialized population, and a fairly developed consumer mentality.
How long it is going to take us to reach European standards is very difficult to answer, but we hope to meet them by the year 2010. In the meantime, we have several tasks to do: First we have to open the doors and reach the International Community and all those institutions we have been out of for the last 10 years. We are trying to learn from other countries in transition and act according to that. The first lesson is certainly bringing public finances to order and cutting the link between fiscal and monetary management. Since October the 5th we have had a stable currency, borrowed no money from the central bank, reduced expenditure and increased revenue. The other step is opening the economy, both externally and internally.
Internally, by starting with price stabilisation and currently we have ended up with very few items of the type still under some control with the option to liberalize those prices, energy price, for instance, electricity price has been increased for 150% and yet it is still very low, 2 cents per KH, and the price of bread have been liberalized also. According to that we will have this year's inflation around 40% which is more or less according to our expectations and we will have this year close to the predicted positive GDP growth rate of close to 5% which would be the unique example of the countries in transition that managed to avoid that transitional shock.
On the external side we have abandoned all the import licences and reduced the average customs from 15% to less than 10% and are further working on our accession to the WTO. Another step in the transition is the development of the private sector. We need some changes, we need the privatisation process and we need to give the opportunity to strategic investors. Tenders have been launched and we expect the first privatisation deal either by the end of this year or the very beginning of the next one. There are 16 to 30 companies, we expect the capital to start coming.
As for the legal side of the private capital, we are working on some new laws and right now our main priority is to establish the law on foreign investments, new laws on concessions, international commercial registration, security and transactions, company law and bankruptcy law. We are either revising the old ones or bringing in the new ones, all for the sake of adapting them to the level of the European Community.
What we have achieved is that the confidence has been created, especially from the side of the international observers. With local ones there is a slightly different situation due to the continuing fragile political scene. We are promising certain progress every year, but people need to have enough patience and everyone should take part in this process and understand that it has to be painful. There will be opportunities for those who have something to offer to the market | In order to make these reforms work, where will you allocate the international funds for this and next year?
For the reforms to be sustainable we need certain elements to be in place, although there are some changes that are serious internal reform commitments. Most people believe in us and our strong will to last in those reforms that we have started. Of course, we need support because we cannot replace the lack of capital. There is obviously a good will from the International Community. All me and my colleagues' communication and experiences show that there is a high understanding of what has been happening here and a strong will for supporting us. We expect to have one third of financial pledges disbursed by the end of this year. What is not so visible, unfortunately is that most of the money goes now for the reparation of the energy sector, electricity, social sector, etc. We still need a lot of support in all these sectors although we are trying to invest as much money as possible in economic development and raising opportunities for business growth here. For that we need the good result of the Paris and London Club and the reforms to be continued and then we can really expect a stronger income of private capital which is most important for us right now.
Having all the legislative and financial reforms in place, in your opinion should foreign investors still exercise certain prudence?
It depends on the profile of the foreign investor. Very often do I hear about a large number of foreign investors already coming here. I cannot say that these conditions are the best ones but this country is definitely the last chance for investing in Europe. There were none of the investments done in this area for the last 10 years and therefore there are a number of possibilities for them. The credits have not been decreased because of the political and economic risk and the banking sector. The potential risks are decreasing while the possibilities for high returns either from privatisation schemes or the green field investments. My final answer to this question would be for the foreign investors not to be late with a possibility like this! After all, Serbia is not such a big country.
You have been in this position for about a year now, what has been your major success during your ministry?
We have shown that this government has a professional approach and is the owner of a very comprehensive reform agenda in Serbia. The second would be our work on the legal framework. Currently, we are working on 15 laws on foreign business, related to our neighbours in the region. We also managed to persuade the donors to respect our own priorities in investing. We have also been working on the media exposure with the World Bank and the further development of the Investment and Trade promotion Agency. This is all to prove that we are on the good track. It is normal that people living on the edge of their existence ask us when it is going to be better. It cannot be better overnight, but it will get very good the day after and I expect that once we had all the necessary reforms established by the next spring or summer things will be far better.
Mr. Pitic, thank you very much for your comments.
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