On Balance of Payments Crisis in Serbia: If it ain’t broken, why fixing it might still be a good idea?
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Abstract
Contrary to mainstream opinions, with external deficit of more than 16% of GDP and foreign debt of 16 billion €, Serbia is at the verge of balance of payments crisis. It is most likely going to un‐ ravel as a sudden stop phenomenon, after which considerable real depreciation of national currency will be finally forced by both domestic and international portfolio adjustment. However, if Serbian monetary au‐ thorities manage to coordinate real exchange rate depreciation with urging reforms on a wider macroeco‐ nomic front, capital flow reversal does not necessarily have to bite into long‐run economic growth and em‐ ployment. In fact, it might prove to be a starting ingredient of bottoming out. One thing is for sure: Serbia won’t be able to maintain the present level of spending for much longer. Hopefully sooner rather than later, irrational or morally hazardous exuberance shall dissipate and leave room for inevitable rebalancing along the national saving‐investment axis.
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Fernandez‐Arias, E.‐Hausmann, R. (2001), “Is Foreign Direct Investment a Safer Form of Investment?”, Emerging Markets Review No. 2, pp. 34‐49.
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Jelašić, R. (2007), “Current Monetary Developments”, National Bank of Serbia, Belgrade (December), passim.
Kalantzis, Y. (2004), «Balance of Payments Crisis in an External Debt‐led Growth Regime», mimeo.
Kiss, G.‐ Nagy, M.‐Vonnak, B. (2006), “Credit Growth in Central and Eastern Europe: Trend, Cycle or Boom?», Prepared for the Finance and Consumption Workshop: Consumption and Credit in Countries with Developing Credit Markets, Florence, (June).
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Krugman, P. (1987), «Adjustment in the World Economy», Group of Thirty Occasional Papers No. 24, pp. 1‐40.
Krugman, P. (1989), «The J‐curve, the Fire‐sale and the Hard Landing», AEA Papers and Proceedings 79, 2, (May), pp. 31‐35.
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Krugman, P. (2007), “Will there be a Dollar Crisis?”, Economic Policy, (July issue), pp. 435‐455.
Krugman, P.‐Obstfeld, M. (2006), “International Economics – Theory&Policy”, Pearson International Edition, Seventh Edition.
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Loungani, P.‐Razin, A. (2005), “Globalisation and Inflation‐Output Trade‐offs”, NBER Working Paper 11641.
Milesi‐Ferreti, G.‐Razin, A. (1996), “Sustainability of Persistent Current Account Deficits”, NBER Working Paper 5467.
Muellbauer, J.‐Murphy, A. (1990), “Is the UK Balance of Payments Sustainable”, Economic Policy, Vol. 5, No. 11, pp. 347‐395.
Nachane, D. (2007), “Capital Account Convertibility in India: Revisiting the Debate”, ISAS Working Paper 24, National University of Singapore.
Nason, J.‐Rogers, J. (2003), “The Present‐Value Model of the Current Account has been rejected: Round up the Usual Suspects”, FRB International Finance Discussion Paper No. 760, (February).
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Obstfeld, M.‐Rogoff, K. (1998), “Foundations of International Macroeconomics”, The MIT Press, Cambridge, Massachusetts – London, England, Secon Edition.
Petrović, P.‐Vasiljević, D. (2007), “Nova inflacija u Srbiji: Da li će šok na strani ponude biti akomodiran rastom tražnje? “, NDE, Beograd, mimeo.
Prasad, E.‐Rajan, R. (2005), “Controlled Capital Account Liberalization: A Proposal”, IMF Policy Discussion Paper 05, Washington DC.
Reisen, H. (1998), “Sustainable and Excessive Current Acount Deficits”, Empirica, Volume 25, No. 2, (January), pp.111‐131.
Roubini. N.‐Setser, B. (2004), “Bailouts or Bail‐ins? Responding to Financial Crises in Emerging Economies”, Insitute for International Economics, Washington, DC.
Sanfey, P. (2007), “Deficit tekućeg računa u Srbiji: uzroci, razlozi za zabrinutost i posledice», Quarterly Monitor No.10, July‐September, FREN, Belgrade, pp. 76‐83.
Sbordone, A. (2007), “Discussion of Michael B. Devereux and Charles Engel «Expectations, Monetary Policy, and the Misalignment of Traded Goods Prices»“, mimeo.
Sorsa, P. et alia (2007), «Vulnerabilities in Emerging Southeast Europe‐How much Cause for Concern?»; IMF Working Paper 236.
Tornell. A.‐Westerman, F.(2003), «Credit Market Imperfections in Middle Income Countries», Working Paper No. 165, CENTER FOR RESEARCH ON ECONOMIC DEVELOPMENT AND POLICY REFORM, Stanford University.
Yarborough, B.‐Yarborough, R. (2000), «The World Economy‐Trade and Finance», A Division of Harcourt College Publishers, Fifth Edition.