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Prime Minister of Serbia defends his radical Spending Cuts

The Prime Minister of Serbia has admitted that radical spending cuts he has proposed will be “painful and difficult” but has defended them “because I don’t want to lie to people.” Serbia has long been mired in a deep economic crisis, and faces further painful reforms as a condition of EU membership.

In an interview, Aleksandar Vucic said the €700m cuts were necessary to cure the ills of a “deeply country.”

“If we succeed in implementing those measures, in 2016 we will be a good, stable country with high growth,” he declared.

“However, people have to bear in mind we didn’t board the Titanic in Southampton so that we can change the course. We boarded the Titanic after it had already struck the iceberg, while the people were jumping ship. We have to brace ourselves now before we go to America and try to make something new, something different and something better.”

The 44-year-old, premier, since 27 April after his centre-right Progressive Party won a landslide victory in parliamentary elections, said fiscal consolidation measures were needed in order to ensure growth and competitiveness.

Vucic’s government is looking to curb a rising deficit and public debt, seen reaching 8.3 percent and 73 percent of national output respectively by the end of this year.

But halting the debt spiral would require measures including cutting public sector wages and pensions and public sector job cuts.

The government had initially planned to pass a revised budget with spending cuts in June, but pushed that back to September due to floods in May which inflicted €1.5 billion of damage.

The International Monetary Fund says it will resume talks on a potential arrangement with Serbia in October after its parliament adopts a revised 2014 budget.

Peter Stano, spokesman of the EU enlargement commissioner, said last week that the EU “welcomes” the wide ranging modernisation programme and the Serbian government´s efforts to put the country on a path to long-term economic sustainability.

Vucic, also leader of the Serbian Progressive Party, said the austerity measures were “merely a small bit” of plans to help pave the way for Serbia to join the EU by 2020. Accession talks with Serbia, which already enjoys visa free travel to the Schengen area, formally opened in January this year.

He is blunt in his assessment of what is needed, saying, “During the election campaign I didn´t promise milk and honey to the people. I told them we will have painful and difficult reforms. I said it because people elect politicians that can make hard decisions, decisions that will be contrary to the wishes of the majority, in order to ultimately bring good results. I don´t want to buy anyone´s love or votes. I want to command respect for decisiveness.”

He said, “People always ask me ´how much are you going to cut the salaries and the pensions?` We will try to make these cuts the least possible but the Fiscal Council will have been right when saying that it’s not enough. We want people in Serbia to do other things that are more important and challenging. If you want us to make a normal country, normal public finances and to build a normal country…

“We have never asked ourselves how much do we actually work? Did we deserve it? I have to tell you that we spend much more than we have deserved and earned.”

He also offers reassurances, saying, “Serbia is a thousand miles away from bankruptcy, primarily owing to the responsibility of the government and the measures it has introduced, including new laws on labour, privatization and bankruptcy, all of which have boosted on position on international financial markets

“People should not be concerned. Serbia is far away from bankruptcy, it’s liquid, we have enough money without taking new debts. If we get a good opportunity, we have no problems in taking loans at a low interest rate.”

Vucic, who has led the Progressives since 2012, pins the blame for Serbia´s economic woes on “some irresponsible people that thought they know more than they actually do.”

“It’s all due to the disastrous decisions made in 2007 and 2008, artificially increasing the salaries and pensions in the public sector and companies. In the public companies, the salaries were raised by 68% between 2007 and 2013.”

When asked about the extent to which salaries and pensions will be reduced, he says, “One of the biggest challenges we have faced during the 130 days I’ve been at the helm of this government is the unemployment rate. Between 2005 until 2013, the overall number of employed people shrunk by 354,000, of whom 318,000 were in the private sector. Unbelievable.

“This shows the extent to which we are a deeply sick country economically speaking and we cannot get healthy by taking aspirins but by engaging in deep and difficult cuts in order to survive and have a normal future. There are people that will tell you otherwise, geniuses that promised they would scrap solidary taxes because they have some kind of magic solutions – they don’t and such solutions don’t exist.”

He also spoke about government efforts to lower interest rates for loans Serbia has received to help tackle its economic problems.

In fact, it has been cut from a high of 13.5 per cent in 2012 to 9.5 per cent today.

“So we have a high debt and a higher deficit, but we have lower interest rates for our debts. Why? Because people are pushing serious reform measures.

“The higher the rate, the more the state pays. We have managed to lower substantially the interest rates for the loans we take, but the problem is we still take many loans due to the things I have talked about. Our plan is how to stop this trend by 2017, to lower public debt and have the fiscal deficit at about 3.2 or 3.1 or even 3%.”

Vucic, First Deputy Prime Minister from 2012 to 2014, added,”We are trying to earn more money for our budget by creating a more favorable business environment. In a budget you have earnings and you have expenditures. On the expenditures side, we have to save as much as we can, to stop wasting money on stupid things like in the past, prevent embezzlement and corruption and on the income side, to enable the increase of the GDP.

“I know life in Serbia is difficult. We have tried to find the best option to protect the poorest citizens. To find a mode where people will not have it easy, but will ultimately be able to make ends meet.”

He reassured workers the government would “not touch” salaries below 25,000 Dinars. “That’s 112,000 people out of a total of 683,000 working in the private sector and almost 113,000 of our poorest people working in the public sector.”

On pensions, he said the Government had “managed to protect a much greater number of people.”

“We have a total of 1.7m pensioners, of whom794,000 receive below 20,000 Dinars. We will not touch them. The hardest hit will be 41,000 pensioners earning more than 60,000 Dinars.”

Vucic said he expects an IMF loan to be approved next month which would “make our country a healthier place.”

“We have to save as much as possible and I believe we will show that, with the help of the IMF, we are committed to reducing expenditures. We have reduced all the expenditures of all ministries, as well as for the army and the police, as well as for train tickets. We will save 20m in procurement of goods and services.”

“We have to talk to the IMF, we want to obtain their support and I dare say I hope we will get it. I cannot say I expect it, but I’m hoping for it, it would be an additional signal for the investors and for the financial markets. Serbia would thus become the first country to have implemented these measures on its own.”

Despite the cuts, opinion polls show his personal support is actually growing.

“I am trying hard, but I know that not everybody can like you. I know that people will not understand my arguments and why would they, even if they knew what I know.”

He asked, “Why do you think I am doing all this, to be thanked? They will thank me in five to six years, when this becomes a normal country. I want to help Serbia. I believe this to be the boldest move in Serbian history, a move that will heal this country and make it a normal country in 3-4 years.This is my motive.”

His sole motivation, he said, was the “honour and responsibility of my people” adding, “nothing else matters to me.”

“People need not worry. At least they have a leadership that delivers on its promises and to which the interests of Serbia are the most important. We will defend our country and protect its interests and I believe we will be successful.”

Martin Banks