Serbia to lift salary freeze

08/09/2010

The Serbian government and the IMF have agreed to boost some salaries in January, but unions say it's not enough.

By Igor Jovanovic for Southeast European Times in Belgrade -- 08/09/10

Serbian unions are promising strikes. [Getty Images]

Public sector salaries in Serbia, frozen since late 2008 as a result of the economic recession, will be going up slightly at the start of next year. The government and the IMF's mission to the country agreed on the increase earlier this month.

Serbian unions, however, are not happy with the arrangement. They say the raises planned for 2011, totaling 7%, will not have a positive impact on standards of living. The average salary in Serbia, due to the dinar's weakening against the euro, has dropped to just 310 euros and is the lowest in the region.

The strength of the euro has triggered a price hike for basic goods, lightening consumer pocketbooks further.

The government did not present a united front when it started talks with the IMF. Deputy Prime Minister Mladjan Dinkic demanded that salaries and pensions be raised immediately, arguing that growth in domestic spending would accelerate economic recovery.

Finance Minister Diana Dragutinovic, on the other hand, said the state budget could not support unfreezing salaries until April 2011. A compromise was eventually reached.

In addition to their displeasure with the announced raises, public sector unions complain that the government's talks with the IMF have led to a damaging law on pensions and disability insurance. The unions have announced a series of strikes.

Leonardo Erdelji, head of the Association of Teachers' Unions, told SETimes that the fight is not just about salary raises, but rather about the overall investment in Serbian education.

"We know this cannot be resolved overnight, which is why we have given the government time to consider our demands. After that, we will decide on the potential resumption of protests," Erdelji said.

Economist Sasa Djogovic, however, told SETimes that the government would not be rattled. "Serbian unions are relatively weak and I do not think they can jeopardise the government's positions, or prevent the adoption of certain laws," he said.

According to Djogovic, although the raise planned for January will not do much to improve conditions for the average citizen, it is in line with the economic realities facing the country.

"Forecasts regarding economic growth in Serbia are not too optimistic, hence the arrangement with the IMF is a reflection of the real state of the Serbian economy," he said.

Meanwhile, IMF Mission to Serbia Chief Albert Jaeger said that next year will be difficult for the public, because slow economic recovery and a rise in unemployment are expected.

Jaeger also said the agreement with Belgrade authorities would come into force only after the government forwards the Fiscal Responsibility Bill to parliament for adoption. The measure limits Serbia's budget deficit in 2011 to 4% of GDP.

The IMF Board of Directors will review the arrangement with Serbia on September 27th. If its assessment is positive, Serbia will be able to draw a new credit instalment of 380m euros.

Serbia and the IMF made the current credit arrangement, which amounts to about 3 billion euros, in May 2009. The arrangement ends in April 2011, and so far Serbia has used 1.45 billion euros to strengthen its foreign currency reserves.