Devastating “Free Market” Reforms Imposed on Serbia

Published on Global, by Gregory Elich, Oct. 28, 2009.

… The Foreign Investors Council (FIC) represents the interests of Western corporations in Serbia. Its purpose “is to assist Serbia in fully accepting and nurturing market economy and introducing a system of European values and standards.” In order to “improve the investment and business development climate in Serbia,” the Foreign Investors Council makes “concrete reform proposals.” (29) In other words, it meddles in the Serbian regulatory and legislative process just as the American Chamber of Commerce does.

Each year the Foreign Investors Council produces a White Book, which includes “proposals for improvement of the business environment in Serbia.” The aim of the White Book is to “point out the desired changes so as to improve conditions for doing business, and to provide concrete suggestions [to the Serbian government] on how to improve them.” As the FIC notes, the organization “has always worked in close partnership with the relevant government authorities.”  

Not to be left out, the World Bank has its own set of prescriptions it is furnishing to the Serbian government in addressing its fiscal crisis. The Ministry of Finance asked the World Bank to provide advice on constraining expenses, a request the bank was all too happy to comply with, stating that the Serbian “public sector is already oversized.”

The World Bank, while acknowledging the cuts that Serbia has already made in public services, feels that more can be done. Current pension benefits are frozen for a period of two years, an action that the bank deems “highly desirable,” yet the government of Serbia “should also consider other methods for reducing benefits on a permanent basis.” Pension benefits are “too high,” the bank complains, explaining that “the pension due to a new retiree in Serbia is equal to nearly 60 percent of the net average wage.” Something has to be done about such a state of affairs. After all, a person might survive on such a sum. The solution? “Freeze pensions, then index to inflation.” But one has to be careful not to overdo it, lest it cause a popular backlash. “Over the longer term, however, indexation based solely on inflation will reduce pension levels to socially unacceptable levels. Employees would be asked to contribute 22 percent of wage over a lifetime of employment to support a pension equal to 9 percent.” What to do, then? Serbia should move to a mixed inflation and wage based system in which benefits would drop substantially but not catastrophically. Another desirable reform would be to reduce pension benefits for early retirees “even if they meet the years of contribution criteria.” Raising the retirement age for women would be another improvement, from the bank’s standpoint. The goal of pension reform, the World Bank states, is to turn the pension system “into a surplus-generating system which pays very low benefits.” What is the point of such a pension system? Simply, to vanish. And in its place? “The Government will also need to further develop the private pension sector.” (31) … (full long text).

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