On Balance of Payments Crisis in Serbia: If it ain’t broken, why fixing it might still be a good idea?

Malović, Marko (2008) On Balance of Payments Crisis in Serbia: If it ain’t broken, why fixing it might still be a good idea? Economic analysis, 41 (1-2). pp. 24-47. ISSN 0013-3213

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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 unravel 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 authorities manage to coordinate real exchange rate depreciation with urging reforms on a wider macroeconomic front, capital flow reversal does not necessarily have to bite into long‐run  economic growth and employment. 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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