A sequenced reforms agenda for Serbia: Tailoring the concepts and instruments

Abstract

Impotent, import and debt-dependent Serbia's economy is the legacy of the geopolitical crisis in the 1990s, as well as of the misconceptions of the policy framework after the political changes in 2000. In a rapidly changing environment and without adequate remedies for failures, structural imbalances from socialism accumulated during transition. Namely, when the new normality and megatrends come into play, the existing structural imbalances are deepened. As a consequence, the risk of staying in regression is not mitigated yet, despite one-quarterof-century intention to escape the middle-income trap through radical reforms toward democratic capitalism. However, in 2017, the chances to escape from the long-term freefall are greater than ever before. After fiscal consolidation, which was the result of a four-year-long implementation of hard macroeconomic policy regime, Serbia has reached a strategic inflection point on the path from crisis to recovery. Even though the current Government is agile in terms of creating a balanced economy capable of growth (sustainable and inclusive), there is no smooth and painless movement away from import and debt dependence. Breaking away from the structural crisis requires a complex reform agenda with three sets of activities: a. quick annulation of past failures, b. adaptation of the new policy framework to the paradigm change in theory and policy, as well as to the new normality, and c. investment in structural changes in accordance with megatrends. Our intention is to offer a conceptual paper. The leitmotif is to provide evidence-based answers to key questions by discussing all relevant details from both macro and micro (or business) perspective, particularly regarding their interconnections. However, it is an attempt to create a framework from the ground up, primarily from the microeconomic (or business) viewpoint. There is no intention to offer a diagnosis on lacking policy targets and unsolved challenges, or the repeated arguments 'for and against', but rather to consider explanatory details and set up the problem-solving platforms. After all, the devil is in the detail. Proceeding from the new vision, through its macro (monetary and fiscal) articulation, we reach the industrial policy program for tradable sectors. While macroeconomic stability is maintained, the focus will be on the business perspective. We hope that the arguments offered will zoom out a more profound view to the problem of transitionism in Serbia, with the intention to avoid repetition of misconceptions and overestimations. By doing this, we strive to extract value from past failures. Namely, our attention is to bring some explanations for Serbia's transition pattern of failures with the purpose to release some thoughtful ideas for repairing hidden fractures of the system and propose solutions compatible with the new normality and megatrends. In order to do that, analysis is structured in five sections, besides the introduction (the way backward) and the conclusion (the way forward). To get everything on the radar, in the first section we talk about Serbia's macroeconomic fact sheets. After observing the lessons learnt from previous mistakes in the second section, in the third and fourth section we are discussing the new normality emerging from the global economy and megatrends influencing the economic framework, respectively. Finally, in the fifth section we are dealing with the heterodox policy framework as a valuable alternative to the neo-liberal (or orthodox) policy framework.