THE EFFECTS OF WORLD FINANCIAL CRISIS ON THE SERBIAN ECONOMY

erovic Slobodan, Ph. D., associate professor, University Singidunum, Belgrade, Serbia Petrovic Pero, Ph. D., research professor, Institute of International Politics and Economics, Belgrade, Makedonska No 25 Sladjana Batic, Graduate Manager in Tourism Abstract: World financial crisis has negative effects on the Serbian economy. Monetary and financial markets are unsettled. National currency has permanent decrease in relation to euro and dollar. Banks credit activity is turning down contemporaneously with price increases credit and reduction in the volume of cross borders credits. Stock exchanges are becoming weaker and reduce dealing volume simultaneously with the reduction of index value of the most liquid shares among the Serbian enterprises. This paper includes the analysis of the question of foreign direct investment (FDI) in the Serbian economy, export slowdown and economy growth, as well as investment reduction. This situation can lead to social problems and tensions caused by forced slowdown of consumption dynamics. The main effects of the crisis manifest by overflow of the effects of financial crisis to the real sector of the economy. The year 2009 will be the period of stagnation and survival for the citizens of Serbia. The questionnaire, which is a component part of this paper, was carried out among the selected sampler of the citizens and regards the influence of the current financial crisis on life standard. Key words: Serbia, economy, finances, capital, crisis

INTRODUTCION

In early 2009, monetary and financial scene of Serbia is changed. Financial crisis, among other things, influenced the effects, caution financial institutions in the region. Banks have reduced lending, increased the margin and raised premiums on the risks. The influx of foreign loans to banks that operate in Serbia is a lot less. Reducing the credit supply situation in respect of supply and demand in the foreign exchange market is changing - the national currency notes deprecijaciju to the euro and dollar. Withdrawal of savings deposits in foreign currency, which is recorded in the serbian banks, the EU has stopped raising state guarantees 1

on the fifty thousand euros, and in some countries of the unlimited amount. In Serbia, the announced measures similar in nature, but it has not been realized, which should be considered as a serious failure of economic policy.. In connection with the overflow effects of world financial crisis on the Serbian economy as the current proved to be two points neuralgine: repo goods and foreign currency savings. However, the main effects will be, in all probability, catch overflow effects of financial crisis on the real sector of economy. Although further development of the crisis in the world is not predictable, it is possible now, with some izvesnou, register its consequences for the Serbian economy: (1) sharply reducing the supply of credit to the level of the famine; (2) reducing the price of all types of financial assets and increase the cost of financing; (3) mogua serija nepredvidivih bankrotstava; The lack of credit, the global crisis of liquidity and reducing the price of financial assets leads to changes in direction of global capital flows. Capital will be in the near future - instead of from the center to the periphery, as until now - to move from the periphery to the dominant center. General financial crisis becomes a crisis nezsposlenosti, with the danger that grown in the social with severe complications.

THE

IMPACT

OF

THE

CRISIS

ON

ECONOMIC

GROWTH

Economic growth will certainly be reduced in comparison to the previous period, but estimates are different (from 0.5 to 3% growth of gdp) in the design budget. However, time has not removed the risk that the budget still be expansive: the dynamics of reduced exports, absence of cross-border credit (tj.problemi companies with working capital for the financing of imports), reducing investment and narrowed the space for internal demand could push down the economic growth rate is lower . World financial crisis obliges serbian carriers of economic policy to iznalaze adequate solutions should predupreti and minimize the effects of the crisis in the serbian economy. These are not short-term effects, but long-term consequences that require the government and monetary measures, as are the risks of loss of capital in the financial sector or the minimum and therefore to the placements in the sector were non-risk (consumer loans, mortgage loans and loans industry in the earlier period) . Do not exist, also risks the loss of savings, which is deposited, because it is not transmitovana through investment funds and risk capital placements in the exchanges. It is about the risks 2

that have accumulated the entire decade (and with the heritage of previous time) and their cumulation accelerated at the end of 2007, when it exploded public consumption. They are manifested prateom off budget spending and public spending in general, and more, and growing trade deficit as platnobilansnim merged courts. To cover the budget deficit of three percent of gdp will need 1.5 billion euros (for the purposes of the state commercial banks in charge of 500 million euros. In this sense, the soon to be "prebijaju" debts between companies and the state, and discusses the possibility of multilateral compensation claims in the triangle of private and public companies and the state. Thanks to the world financial crisis that is tizik increases in the medium term because it is now facing two bad ways: one, conditionally speaking, the - the gap between spending and GDP and the second is some price increases, if not drastic, but reflux, external sources of capital (either credit any investment), which covered the gap, and both the deficit. Therefore, the involvement of international financial institution loans (primarily the World Bank) for investments in basic infrastructure is significant. It should join the new arrangement about financial support for the IMF. In both cases the word is a lower interest than those in the commercial banking, but also improve the credibility of Serbia in the case of debit in these institutions. Arrangement with the IMF would be introduced, and discipline in the conduct of economic policy, and that Serbia does not need IMF financial support was good yesterday, today is the insistence of some officials of the "only savetodavnoj support" reflects a serious lack of readiness to respond decisively and time.

THE PROBLEM OF CAPITAL INFLOWS

The problem of inflow of capital will not only keep the issue of balance of payments capital works and balancing the overall balance of payments, but will cause a significant slowing of exports and economic growth (and perhaps recession), and the reduction of investment - to social problems and tensions caused by forced slowing down the dynamics of real consumption. For bringing down foreign exchange markets, to prevent oscillation preteranih daily exchange rate of the dinar and the provision of liquidity and nesmetanog functioning foreign exchange markets, central bank intervenes on the side of the bid. <br> While the repo stok represented real &quot;mine&quot; for the outflow of foreign exchange reserves (in the event that the bank of its liquid assets they want to transferiu abroad), with the savings, in Serbia, it is not the case. The decrease (according to estimates about 15 percent) is the result of psychological factors. Part of the savings tezauraciju moved in, and the consequences will 3

be seen in the assets of banks, the investments. State guarantee is activated only in case of bankruptcy of an individual bank, and therefore the limit of the guarantee (as a psychological plane) should increase earlier, at the same time when they are made, and other European countries. <br> Credit channels influx of additional capital will be empty. So far, hard prohibitivni system required reserves must be changed in order to enable further development of sector and maintain a sufficient level of credit activity. This fact means reducing the level of compulsory reserves. To stimulisala bank in the withdrawal of additional credit lines from abroad, the National Bank of Serbia has abolished mandatory reserve banks to increase inoobaveza in relation to the average state inoobaveza. Seriousness of the situation, in addition to signs and events in the international financial markets, especially dramatically illustrate and statements of some officials who deal with the economy and finance - that Serbia is a country with the best conditions for investment, the safest destination in the capital region, and so on. At least, that is pushing the problem under the carpet. <br> The influx of investment, from 3.5 to 4.5 billion dollars per year and lower the risk of investment that would ratification of the Agreement on Stabilization and Association Agreement Serbia European Union would continue to allow the financing of payments deficit. In government, if the deficit is covered from the foreign exchange reserves would quickly lead to serious financial crisis.

INTEREST RATE AND GROWTH RATE OF NATIONAL CURRENCY

The lack of offers of credit and liquidity crisis caused rapid increase in interest rates. Consequences of growth, interest rate and maintenance of their structure at higher levels of current will undoubtedly affect the dynamics of activities in the real sector. The expected outcome is a slowing down of growth. Economy of Serbia zatie this situation with high interest rates. Domestic economic policy can be adapted to this change reducing the cost of sterilization of money and reducing the level of restriktivnosti monetary policy. Weakening exchange rate of the dinar has been removed by the possibility of arbitration in the repo transactions. On the other hand, the growth of inflation may affect the growth of energy and agricultural products, in a situation where it is certain that the budget be expansive entire burden of the fight against inflation fell to the National Bank of Serbia, which is to increase the reference interest rate. The question is where the limit of the method when the inflow of investment almost stopped. One of the measures to improve liquidity is refinansiranje loans for jeprivatni external debt at the end of 2008 amounted to 15.4 billion euros, and two and a 4

half times higher than the national debt to foreign countries. Besides, the private sector should be in the year 2009 payable foreign kreditorima 5.5 billion, and only in the first quarter of 1.7 billion euros. In this year, many experts believe, the most important is to provide credits to the economy and strengthen foreign exchange reserves.

OPINION OF THE CITIZENS OF SERBIA ON THE IMPACT OF THE CRISIS

The research carry out the method of interviews &quot;face to face&quot; on a national representative sample of 1000 adult citizens of Serbia. The basic question is whether they are citizens of Serbia familiar with the situation on the world economic and financial scene, and what will be, in their opinion, the effects of the crisis in Serbia. <br> The greatest number of citizens of Serbia (87%) is aware of the financial crisis that took hold the world market, while every tenth citizen not heard of these events. And, most citizens believe that the world economic crisis affect the situation in Serbia, some (46%) nor to a great extent (36%). Only 6% of citizens believe that the world economic crisis will reflect on Serbia. <br> Strongest negative expectations related to loss of CSD in relation to the euro, which provides over 60% of the citizens. States that half of the world crisis will cause growth of bank credits, while less than half of citizens are expected and expected growth of retail prices. Every third citizen said that the world crisis in Serbia came less investors, while some believe (14%) to be able to get to the closing of banks. Half of citizens think that things in Serbia is currently moving in the wrong direction. Less those who think that things are moving in the right direction (37%), and some can not be evaluated (15%). Among the youngest and oldest citizens is more of those who are dissatisfied movement of things in Serbia, while the middle years of a person pozitivnijih views. Highly educated are more convinced that Serbia is moving in the right direction, while the person or lower secondary education or hesitantly discontent on this issue. Students and staff often perceived something to move things in the right direction, and pensioners are considered to move in the wrong. <br> The greatest number of citizens of Serbia describes their situation as tolerable. A third of his funding mainly good, very good 7%, while the financial situation is bad for 16% of citizens. In the previous year, half the citizens are not yet perceptive change your financial situation in the household, every third perceives deterioration, and only every tenth improvement. Usually emphasize the deterioration of older people (over 50 years), pensioners, lower educated, unemployed and residents of rural settlements. Regional, the biggest deterioration seen citizens centrlnowestern Serbia. Belgraders generally state that the improvement of the citizens felt that the 5

material loijoj situation. Financial expectations of citizens are similar throughout the whole year 2008 - the highest number of expected change in the financial situation in the household.

INSTEAD OF A CONCLUSION

The lack of capital, the global crisis of liquidity and price reduction of financial assets leads to changes in direction of global capital flows. In the case of Serbia, this process will cause further deterioration in the balance of payments with foreign countries and the slowing down of development. Another consequence of this is depreciation of national currencies. Rational reaction control in the sphere of this change may be reducing the risk of investing in the country and the activation of all sources of domestic savings. Management of macroeconomic policy in Serbia, it is necessary to do this year. In the study done most citizens believe that the world economic crisis affect the situation in Serbia. Expected effects of the crisis are related, primarily, to the weakening of local currencies in relation to the euro, and the growth of bank credit, growth of retail prices, as well as the decrease of foreign investments. Although the financial crisis in Serbia, only to pray, the citizens of Serbia more and more to beware of the "your skin" feel the consequences in the coming period.