VZCZCXRO1201
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHBW #0216/01 0710935
ZNR UUUUU ZZH
R 110935Z MAR 08
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0013
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBW/AMEMBASSY BELGRADE 0031

UNCLAS SECTION 01 OF 02 BELGRADE 000216 
 
SIPDIS 
 
SIPDIS 
 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN SR
SUBJECT: SERBIAN ECONOMISTS WORRIED OVER FUTURE--AS WELL THEY SHOULD 
 
 
BELGRADE 00000216  001.2 OF 002 
 
 
Summary 
 
------- 
 
¶1.  The most prominent Serbian economists, business and economic 
leaders, and some government officials expressed concern about 
the country's economic future at the traditional winter 
conference of the Association of Economists of Serbia.  A 
majority of the participants criticized the slowdown of economic 
policymaking, agreeing that Serbia must speed up reforms and 
that Serbia has no other future than the EU path.  Some 
suggested that Serbia could simultaneously pursue two paths - 
the west and the east.  Foreign investors expressed satisfaction 
with their results so far, carefully avoiding comment on the 
current political situation.  End Summary. 
 
Economists: Transition Must Speed Up 
 
------------------------------------ 
 
¶2.  Econ FSN attended the traditional winter gathering of 
prominent Serbian economists, business leaders, and government 
officials at the Kopaonik mountain resort at from 4-6 March, 
under the headline "Transition, Reaching EU and Linked Topics: 
The Role of Investors from Slovenia, Russian Federation and 
Austria."  At the unusually well-attended conference, the 
majority of speakers agreed that economic reforms must speed up 
and that Serbia's future was in the EU.  However, those close to 
PM Kostunica, led by Trade Minister Bubalo, claimed that Serbia 
should turn to both - the west and the east. 
 
Some Speakers Bluntly Warned, Other Avoided Crisis 
 
--------------------------------------------- ----- 
 
¶3.  Most participants criticized the current economic policies 
as "unsustainable in the long run" since the lack of 
coordination between relaxed fiscal and tight monetary policy 
had led to appreciation of the dinar making imports cheap and 
exports expensive.  This imbalance created the high current 
account deficit of 16% of GDP in 2007.  This deficit makes 
Serbian economy extremely vulnerable to decreases in foreign 
capital inflow and thus political instability could cause 
serious shocks in the economy.  While some of the key speakers 
-- Slobodan Ilic, State Secretary in the Finance Ministry; 
Vladimir Cupic, President of the Board of Hypo Alpe Adria Bank 
-- emphasized that decisions on Serbia's direction would 
directly influence quality of life of Serbian citizens for the 
next decade, others -- Finance Minister Cvetkovic -- remained 
calm and claimed that economy is functioning well and budget 
would run a surplus. 
 
Financial Sector Unhappy With NBS Restrictiveness 
 
--------------------------------------------- ---- 
 
¶4.  Financial sector representatives - banks, insurance 
companies, and investment funds, expressed their unhappiness 
with restrictions from the National Bank of Serbia (NBS), which 
they said were even more restrictive than the European Central 
Bank and thus were obstructing the economy's development.  Most 
of them agreed with Veroljub Dugalic, Secretary General of the 
Association of Banks of Serbia, who said that the monetary 
policy had reached its limits and it could not fix problems that 
resulted from pressures in the economy - fiscal relaxation, poor 
competitiveness of Serbian companies, low productivity and 
inefficiency.  Further monetary tightening would only hurt the 
economy further and the price of keeping low inflation would be 
much higher than its benefits.  Vice-Governor Diana Dragutinovic 
defended NBS claiming that the Bank had yet to build its 
credibility, unlike the European Central Bank. 
 
Russian, Slovenian & Austrian Investors Happy Here 
 
--------------------------------------------- ----- 
 
¶5.  Foreign investors seemed satisfied with their business 
results in Serbia.  They avoided discussing the current 
political instability and its possible consequences, but instead 
presented their plans for expanding their businesses.  A 
representative from Slovenian-owned JUB Paints stated Serbia had 
great potential.  He said that the empty land near their 
factory, located 15 kilometers west of Belgrade, increased its 
value over 50 times in the period 2002-2008.  Russian companies 
Lukoil and Gazprombank representatives, supported by Russian 
Ambassador Alekseev, explained that they wanted to become a 
reliable long term partner, bringing new technology and know how 
to the Serbian market. 
 
 
BELGRADE 00000216  002.2 OF 002 
 
 
Comment 
 
------- 
 
¶6.  Participants at the conference expressed much more concern 
over the current political situation on the margins than on 
stage.  The overall message from the conference was not 
optimistic: reforms have slowed down, economic policies leading 
to an unsustainable current account deficit, and political 
developments could lead to an economic crisis that would rival 
the 90's and leave Serbia even further behind.  Perhaps more 
important than who actually governs, political uncertainty 
remains the bigger concern for investors and businesses.  End 
Comment. 
MUNTER