Serbian central bank Vice Governor Bojan Markovic became the second National Bank of Serbia official to quit over a law that cuts the bank’s autonomy, risks European Union entry and threatens a $1.3 billion bailout.
Markovic resigned today in Belgrade after lawmakers on Aug. 4 passed a law that hands Parliament control over the central bank and was criticized by the EU, the World Bank and the International Monetary Fund. It “leads to long-term uncertainty” and the central bank’s “professional degradation,” he said in a letter following central bank Governor Dejan Soskic’s departure on Aug. 2.
Serbia, which won EU candidacy status this year, has been ruled since July 27 by a coalition led by former colleagues of Slobodan Milosevic, who took the country into isolation during the Balkan wars of the 1990s. The EU, World Bank and IMF warned against clipping central bank powers by a government that wants to boost spending, stabilize the dinar and cut interest rates.
“We are more concerned about the populist nature of the new coalition government,” Abbas Ameli-Renani, an emerging- market analyst at Royal Bank of Scotland Plc, said in a note today before the Markovic resignation. “This has important implications for Serbia across the board, ranging from the issue of central bank independence, to EU accession talks and a much- needed deal with the IMF.”
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 economic activity in the first three-month period of 2012.
The dinar, which fell to a record low last week, was trading 0.2 percent stronger at 118.3461 to the euro at 2:46 p.m. in Belgrade, according to data compiled by Bloomberg.
The law establishes a supervisory body to take an “active role” in monetary decision-making and have the power to “prevent any banks from abusive international-payment operations” and “money laundering” activities.
“It will jeopardize the credibility of monetary policy in Serbia in the long run, even if the most competent people were in charge, because there will always be doubt that in a week an entirely different monetary policy will be put in place,” Markovic said in the letter read to the parliamentary speaker. Giving in to pressure from “some business or state entities” would “make pointless the efficiency of monetary policy and lead to concrete, long-term cost for the Serbian state and its people.”
Lawmakers appointed Jorgovanka Tabakovic, vice president of the ruling Progressive Party, to the top post. Speaking to reporters today before the 131-34 parliamentary vote confirming her, Tabakovic said that whether an Aug. 9 rate-setting meeting takes place as scheduled depends on how fast she takes over. She also said the IMF “is welcome” in Serbia as the nation may “need a loan agreement.”
“We will talk with the IMF and we must make sure that the outcome of those talks, the measures agreed to, in no way imply negative consequences for the people,” Branko Ruzic, a spokesman for the Socialist Party, said in an interview.
Tabakovic and President Tomislav Nikolic were members of the Serbian Radical Party between 1991 and 2008, which ruled together with Milosevic’s Socialists and led the country through bouts of hyper-inflation and currency devaluation.
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