Transition Strategy Flaws: Privatization and Restructuring

Under the surface of remarkable progress in most areas of economic reform, there are fundamental problems remaining in the Serbian economy. The post-2001 transition strategy has not conduced to adequate restructuring of productive capacity within enterprises, nor to sufficient redeployment of human and capital resources across sectors. In a nutshell, a substantial part of the real sector of the Serbian economy has not been restructured, greatly contributing to slow and inadequate structural changes. This is to a large extent due to the chosen privatization model, and the neglect or postponement of other crucial reforms — such as the general hardening of budget constraints, facilitating the entry of private enterprises, effective competition policy, or efficient mechanisms of corporate governance. These accompanying reforms, complementary to privatization, are just as important for changes at the microeconomic level, as stressed by the ‘post-Washington consensus’ which emerged in the second half of the 1990s (Kolodko and Nuti, 1997).1 These reforms on their own could have delivered many of the advantages expected of privatization. Although the first decade of transition in CEE has produced important lessons on neglected areas and the sequencing of reforms, the mistakes of other CEE countries seem to have been forgotten too easily in countries like Serbia, embarking on transition later (Nuti and Uvalic, 2003, p. 13).