Causes and Impacts of Economic Crisis in Serbia

Abstract

In this assignment the case of Serbia is going to be examined. The reason of choosing Serbia was due to the fact that it presented the European Union with a challenge since from January 2014 talks will begin towards accession due to their candidate status.

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Entering Europe was very important for Serbia’s initially because of Serbia’s foreign policy and security-building future. The integration to Europe was essential to able to survive and develop its economy. Meaning its independence, democracy and also social development was vastly depended on belonging to EU and being part of how EU was shaping politics and global economy.

Justification

The reasoning to include the discussion of integration is according to the author’s beliefs important since it shows how the causes, the management and impact of economic crisis in Serbia have been handled because of the country’s plans to be integrated.

More importantly while it can be claimed that due to the country’s position (geography, economy) was not near the center of the crisis it was still affected greatly by the crisis. This was due to the crisis that had already hit the country in previous years (decades) leaving their economic and political systems somehow open and vulnerable.

Serbia is not a country that has not been affected by the financial crisis that hit the world in last 5 years. This whiles a strong statement it is true if we see its negative effects on the economy. Initially the financial markets are unsettled and the national currency has permanent decrease in relation to euro and dollar. As it is clear from the previous comment this is making the Stock exchanges to be weaker and have a reduced dealing volume among the Serbian enterprises.

Since crisis hit Serbia the banks have reacted like in every other country in Europe by reducing lending, increased the margin and raised premiums on the risks. Slobodan ,Petrovic Pero , Sladjana Batic (2009) mention that “Withdrawal of savings deposits” in foreign currency also was recorded in the Serbian banks.

Serbia in order to react to this have decided to act as:

“The EU has stopped raising state guarantees 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.”[1]

Below (figure 2) we can examine some indicators called the ten economic freedoms and how they changed since 2009. At this point i want to make some assumptions based on the assignment which we had to carry forward. It is my personal belief that comparing this region before and after the crisis or between Serbia and other countries won’t provide accurate results or conclusions especially when it compares regions with so many differences and level of economic activities.

Moreover the population among European countries is not similar and especially when we consider that we compare a small region of Europe to bigger neighbor countries. Therefore the author of this assignment will try to make assumptions concentrating in the chosen area currently rather than comparing it to other regions or aim directly of how it was before and after the crisis.

Ignoring the above assumptions and limitations we are turning our focus to our region and an attempt will be made to provide a view of how economic crisis affecting our region how expected evolution of regional inequalities in Serbia and Europe are being affected. I won’t break factors down but trying to give an overall picture of the region with what I believe is important showing how this region should shape up and operate in following years to improve the region’s integration procedure.

Government should acknowledge that link when it formulates any policy initiatives to promote competitiveness and prosperity. It should coordinate actions to adapt them to local conditions. There are specific mechanisms that can be used for these purposes. But independent of what form of governments are established, the aim should be to increase the flexibility of the local management programs, maintaining and ensuring the best use of the funds or resources invested.

In simple words while growth opportunities should be able to be found everywhere they tend to help larger and more advanced regions making smaller and less developed regions in Serbia country depending on government policy (or depending on policy generally) to be able to fully compete and be able to compare with other more developed regions from neighbor countries . This is something that has greatly shaped Serbia in general and also influence other Balkan countries as well.

Geography does play a vital role in the process of development but as Petrakos (2003) is stating geography “may be an asset facilitating the right type of interaction with large markets and advanced economies, while for some others it may turn out to be a barrier”. In our case while geographical position of our region is not hinder the region’s growth is also causing problems with high level of criminal activity due to immigration (illegal or not) problems in the area.

Another issue that needs to be mentioned is the decrease of entrepreneurial activity in the region. This act, as weakness and barrier to starting or expanding a business. These barriers can be lifted at the local level (besides capital city) as part of broader strategies to help different region in Serbia to attract investors.

In addition the author feels the need to actually mention few factors that should be seen or examined to reduce inequalities of Serbia region and can be seen below:

• Infrastructure associated with the stimulation of productive activities, attracting new investment and modernization of existing businesses.
• Infrastructure administrative, social, technical, cultural, which will improve quality of life for both residents of the cities to be developed, and the residents throughout the region.
• Infrastructure associated with organized waste management like recycling or wastewater treatment. Much of the water supply needs replacement or constant upgrading
• Infrastructure to promote alternative forms of tourism areas of ecological interest.
• Renewable energy infrastructure, exploiting the possibilities presented by the exploitation of natural resources (wind, sun, water) due to the geographical position of the region
• Improving human skills potential of all sectors of economic activity and design and implementation of training programs workers and unemployed.

Corruption is a big issue as we have seen earlier in Serbia this is also affecting foreign direct investment since political instability (which corruption is affecting) can influence a country to “both economic transition and political instability significantly reduced FDI inflows into the transition economies of Central Europe and the Balkans. Also the costs of lost FDI to the Balkan economies are much greater than the shortfalls in FDI”(Brada)

Inequalities in Serbia and Europe will continue to increase since European integration will drive economic activities to be concentrated together in few core areas and can’t be described any better than in my opinion with what Petrakos, Rovolis and Rodriguez(2003) are saying in their paper that “a positive relation between growth and inequality implies that no matter what other factors may affect the evolution of inequalities, economic growth will always generate new inequalities”.

Therefore the necessary skills need to be created that will increase innovation activities in region. Education plays an important role in here by supporting and train people by providing them with necessary education. Improvements in technology also can assist in sharing explicit knowledge and as mentioned in the case of companies above a regional development knowledge platform will greatly help in sharing and exchanging explicit knowledge. Linking what we said above about networks is also applied here. As Enkel, Rumyantseva,Gurgul (2002) say “wide-ranging experience with knowledge management systems in the world of business shows that this function cannot simply be replaced with electronic knowledge systems” so it is important various actors establish contact between them through successful network management.

Passing on and sharing knowledge and creating skills means learning. Learning can, in principle, pursue two aims in the area of regional development: on the one hand is the learning of content which is communicated to help individual actors conduct successful business activities themselves and hence contribute directly towards adding value and towards economic development. On the other hand the learning of content can be communicated in order to enable persons and institutions to initiate and supervise the projects and activities of other regional actors.

It is the lack of capital and the global crisis of liquidity that is possible going to cause Serbia to slow down their development due to the fact that balance of payments with foreign countries will decline (or be weaker) this . In addition this will also affect towards national currencies (depreciation) which will increase the risk of investing in the country. So correct management, of macroeconomic policy in Serbia is necessary to continue especially due to the candidate position of the country towards EU integration.

Due to the word limitation of the question and as we should examine our region, we turned our attention to specific issues rather than examining each region under the same conditions I wanted to share my personal opinion which while it was influenced by studying the drivers of growth and how they are affecting the region’s growth it was not merely based on them but on issues the region is encountering in recent years.

In conclusion this assignment should have also consider the importance role of integration (EU) of countries which is not discussed but mentioned in some parts of this assignment in relevance to when integration is rising territorial issues . This is quite important to be discussed especially since specific countries are being examined. On the author defense I will use what Faludi (2009) is saying that “this is a confusing prospect, but no more confusing than our splintering reality. EU territorial cohesion policy should not resist this complexity. Rather, it is to promote territorial coherence and cooperation”.