The new Serbian government is debating making amendments to the central bank law, which are viewed by experts as an infringement on the bank's independence.
By Georgi Mitev Shantek for Southeast European Times in Belgrade -- 07/08/12
National Bank of Serbia Governor Dejan Soskic resigned on Thursday (August 2nd). [Reuters]
The ruling coalition in the Serbian parliament, comprised of the Serbian Progressive Party (SNS) and the Socialist Party of Serbia (SPS), forced National Bank of Serbia Governor Dejan Soskic to resign last week, but will in all likelihood pay for doing so.
The government now has to face the international world of politics and finance. Economists are unanimous in their defense of the independence of the central bank, and urgent warnings are coming from the IMF and the World Bank.
After he initially refused to resign, Soskic's position was threatened by a series of amendments to the law on the central bank. Although the changes were presented as technical in nature, they resulted in parliament's increased control over the bank.
In the middle of the discussion of changes in parliament, Soskic submitted his resignation Thursday (August 2nd) and said he wished to give members of parliament who tabled the amendments a chance to withdraw them to avoid what he called catastrophic consequences on the financial stability of the country.
The governor's replacement will be SNS Vice President Jorgovanka Tabakovic, which has been confirmed indirectly in parliament and statements made by the government's coalition partners.
The action to remove Soskic began last month, with a letter published in the papers from the country's most notable businessmen, including Miroslav Miskovic, chairman of the largest holding in the country.
The businessmen appealed to the central bank to issue a moratorium on the repayment of loans for their overly indebted companies, and accused the governor of not using all of the tools at his disposal, in particular the foreign currency reserves, to help the economy in a period of crisis.
"They were not asking for this because of the economy, but because of their companies which expanded enormously, buying up other companies, and now they lack the funds to repay loans. My only hope is that no one will dare fiddle with the country's foreign currency reserves," Milan Knezevic, chairman of the Association of Small- and Medium-Sized Companies, told SETimes.
The greatest criticism Soskic faced was the drop in the value of the dinar compared to the euro. The dinar, Europe's worst-performing currency this year, traded at 119 against the euro on Friday.
Serbia is unable to get cheap loans on the international market, and it urgently needs money for basic expenses, such as pension payments.
"The state and the central bank cannot intervene financially. As far as control is concerned, you can specify whatever kind of control you want through law, but the only real barrier is the conservative policy of professionals sitting in banks," Dordje Dukic, a former member of the National Bank of Serbia Council, told SETimes.
Jane Armitage, World Bank regional co-ordinator for Southeast Europe and Central Asia, said that the change of governor through the adoption of a new law in parliament is a far from accepted international practice.
Freek Janmaat, EU delegation representative to Serbia, said the European Commission views these amendments as a step backwards in Serbia's harmonisation with European standards. He said the principal of independence of the central bank is a key EU standard.
"We are deeply concerned," said Peter Sano, spokesman for the EU European Commissioner for Enlargement and European Neighbourhood Policy, Stefan Fuele.
The IMF was even sharper in its comments. The fund's director for Europe, Reza Mogadam, warned that amendments to could have "significant implications" for the overall macro-economic stability of Serbia, as well as on its programme with the IMF.