Monday, November 17, 2008

Serbia Reaches Standby Agreement with IMF as Balkan Neighbors Respond to Crisis

Sources: Associated Press, Serbia Reaches Deal with IMF; Bloombeg, Serbia Secures $516 Million IMF Standby Agreement; Forbes, Croatia Promises Zero Deficit, Wage Freeze; New Kosova Report, Six Point Proposal Destroys Kosovo Economy; Guardian, IMF Sees Albania Growth at 3.4 to 4 Pct Next Year

On Friday, Serbia reached a 15-month standby agreement with the IMF, allowing for a $516 million loan in the case of a situation where foreign investors suddenly stop investing. Serbian officials say that they don't need the money now, but it will increase Serbia's creditworthiness and bolster investor confidence. The agreement is also expected to slow and eventually stop the falling currency and curb inflation.

In exchange for the agreement, Serbia needs to decrease the budget deficit from 2.7 to 1.5% GDP in the 2009 budget. The Serbian central bank has already taken some measures to curb inflation and stabilize the currency, including an increase in the benchmark interest rate and lowered reserve requirements for commercial banks. The IMF Board of Directors still has to approve the loan before the agreement goes into effect.

Meanwhile, other countries in the Balkans are taking their own steps to address the financial crisis. On Thursday, Croatia pledged to balance its 2009 budget and enact a general wage freeze in the face of major government indebtedness. The government hopes that by taking these steps, it will not be forced to ask for a major IMF loan in the future.

On Wednesday, responding to Ban Ki-Moon's six-point plan to amend the mission in Kosovo to be more acceptable to Serbia, the President of Kosovo's Chamber of Commerce warned that the plan would have devastating effects on Kosovo's budget and investor confidence by encouraging organized crime. On a more positive note, an IMF mission in Albania expressed optimism that by following policy recommendations Albania could see 3.5 to 4% growth in 2009 without inflationary consequences.


1) What effect do you think continuing tensions between Serbia and Kosovo will have on the economic stability in the region?
2) What are the advantages of pursuing independent strategies to stabilize the economy, as Croatia has, rather than looking to IMF support?
3) Do you think borrowing by Eastern European countries in recent weeks has had a positive effect on the economic policy of other countries in the region by serving as a warning?

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