Serbian lawmakers will debate a draft law tomorrow that increases Parliament’s control over the central bank and limits its governor and management.
The proposed legislation, posted today on the Belgrade- based assembly’s website, calls for the establishment of a supervisory body that would take an “active role” in monetary policy decision-making. It also calls on the central bank governor and vice governors to step down.
The draft law “raises deep concerns” and may “jeopardize the independence of the central bank,” Adriano Martins, deputy head of the European Union’s mission in Serbia, said today in an e-mailed statement. Serbia in March became a candidate to join the 27-nation bloc.
Prime Minister Ivica Dacic’s Cabinet, sworn in on July 27, said it will replace Governor Dejan Soskic if he resists government efforts to stimulate economic growth through expansive fiscal policies. Soskic vowed on July 16 not to resign, while economists, educators and former central bankers criticized the move.
This shows that the “political elites can draft any law they want,” said Djordje Djukic, a central bank board member between August 1993 and July 1998, and will lead to “multilayer decision-making,” making it difficult to “pin down the responsibility to any one entity.”
Dacic’s Socialists, who rose to power for the first time since the 2000 ouster of Slobodan Milosevic, lead a coalition with the Progressive Party of President Tomislav Nikolic, the United Regions of Serbia of Finance Minister Mladjan Dinkic and the Social Democratic Party of Serbia of Deputy Prime Minister Rasim Ljajic.
The dinar, trading near a decade low to the euro, was at 118.6578 at 4:16 p.m. in Belgrade.
While the European Commission expects Serbia to align itself with EU legislation on economic and monetary policy, the draft law “would be a considerable step back” in that effort, the EU’s Martins said. The commission was not consulted on the legislation, he added.
The International Monetary Fund is also “very concerned” about possible changes to the law, which may end up being reflected in Serbia’s bailout-loan program. IMF representative, Bogdan Lissovolik, told the newspaper Politika yesterday.
The law would give a new body all financial industry supervisory powers and is designed to “prevent any banks’ abuse of international-payment operations” and “money laundering” activities, according to the draft. A new central bank council will be in charge of managing foreign-currency reserves.
The central bank will be banned from directly financing the government, while the new law introduces “a possibility of indirect lending to the state” through the purchase of government securities in secondary markets, the draft said.
Djukic, a lecturer at the Belgrade School of Economics and board member at AIK Banka AD (AIKB), said the introduction of central bank lending to the government “mimics quantitative easing in the U.S. and some other developed economies in the West,” where central banks don’t need to fight inflation.
“Quantitative easing has nothing to do with Serbia’s structural problems,” Djukic said.
Parliament will elect the governor, vice governors and the chairman of the new regulatory body. It already appoints members of the central bank’s council. Lawmakers meet tomorrow at 11 a.m. in Belgrade to debate the law.
The change “can lead to a credit-rating downgrade for Serbia,” Beta newswire cited former Deputy Prime Minister Bozidar Djelic as saying.
The central bank’s independence is “the best guarantee to the citizens for the protection of foreign-exchange reserves, which belong to them, not to political elites,” Djelic told Beta in an interview, published today.
Serbia is struggling to avoid a second recession in three years, after the economy contracted 0.6 percent in the second quarter, following a 1.3 percent decline in activity in the first three-month period of 2012.
The new government is trying to halt a further increase in unemployment, already at 25.5 percent, while curbing any further expansion in the fiscal deficit, which reached 7.3 percent of gross domestic product at the end of March.
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