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In Search For The Ways Out Of Nowhere: The Critical State Of The Serbian Economy And The Alternatives Before Us

Author

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  • Ljubomir Madžar

    (Alfa University)

Abstract

The dire state of the Serbian economy is a diagnostic finding which no one questions. Conspicuous signs of faltering in the process of growth, unprecedented unemployment volume and rate, persistent and disturbingly large deficits in the balance of current transactions, equally large and unsustainable fiscal deficits, and the highest rate of inflation in the region ranking also among the highest in all of Europe – clearly indicate that the economy is facing grave difficulties without reliable means or coherent strategies of overcoming them. A number of determinants of such a dramatic constellation is identified and discussed in the paper. Significant extraordinary inflows stemming from privatization, increase in foreign indebtedness, external donations and even remittances from abroad have almost exclusively been channeled into current consumption, raising it to irreversibly high levels and thus eliminating savings and undercutting the economy’s growth potential. Foreign direct investment has largely crowded out domestic undertakings. The strategy of privatization was directed towards retaining the unsustainable economic tissue inherited from the socialist past. That amounted to preventing the needed radical reallocation of resources by imposing on the buyers in the process of privatization the obligation to preserve more jobs than it was economically warranted. Huge and heavily bureaucratized government, with accompanying unbearable fiscal burden, drastically reduced the profitability of businesses and forced many of them to exit. The financially exhausted economy faces grave difficulties in meeting its financial obligations, the arrears are mounting, and the system as a whole seems to be heading towards a breakdown. Like in the Greek tragedy, there are alternatives but none of them leads to a satisfactory resolution of the crisis. Drastic steps will have to be taken, but political determination and strength appear to be so far lacking to venture them.

Suggested Citation

  • Ljubomir Madžar, 2012. "In Search For The Ways Out Of Nowhere: The Critical State Of The Serbian Economy And The Alternatives Before Us," Serbian Association of Economists Journal, SAE - Serbian Association of Economists, issue 1-2, pages 1-11, February.
  • Handle: RePEc:srb:journl:y:2012:i:1-2:p:1-11
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