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Public Policy Making in the Western Balkans pp 171–196Cite as

Managing the Financial Crisis: Credit Crunch and Response in Serbia

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Abstract

Recent slowing down in credit activity in Serbia followed years of an upward trend in lending to the private sector. The credit boom raised the debt and made the costs of borrowing increasingly dependent on future exchange rate and borrowing conditions in the global economy. The entire local economic system gradually became more vulnerable to currency risk, which made the solvency-type of disturbance a plausible scenario. Was this a case of bad luck or bad policy? There are many economic fundamentals that could possibly drive credit market conditions. In emerging markets none of the fundamentals is purely market driven. They are strongly managed by policy makers, so that economic failure is most plausibly explained with reference to policy failure argument rather than by blaming market forces. This chapter addresses wrong policy choices and the process through which the choices were made, with a close look at the role of specific policy actors. The study underlines that policy makers created and/or tolerated huge misalignments in country’s external position in order to externally finance growth, ignoring that credit activity had been bubbling away for years. They were recklessly taking chances, hoping that international financial environment would never turn hostile. The assessment is based solely on published data and the role of specific actors analysed by carefully reviewing official statements and some policy documents. Additional data were collected through interviews with a group of officials that were formerly occupying high executive positions in the Government and/or National bank.

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Notes

  1. 1.

    The construction of the table needed some recalculations. Negative values indicate negative influence of the specific element on the rise of BCPS. In the case of ‘bank credit to the public sector’ or ‘claims on NBS’, as it is a bank asset item, negative figures mean positive contribution to the growth of BCPS. Other items, which are (generically or in net amount) sources of bank funds; positive values indicate rise in specific source and consequently its positive contribution to financing growth of BCPS.

  2. 2.

    The effect of banks’ capitalisation is reported in the position Other net liabilities (Table 9.2, line 5) jointly with loan loss reserves, investment in fixed assets and some other positions.

  3. 3.

    Starting from beginning of 2004, in the following ten quarters NBS was almost regularly present on the exchange market. In this period NBS net interventions from the selling side of the market reached 84.5 % of total interbank turnover. This means that almost half of total reserve currency supply was provided by the intervenient.

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Author information

Authors and Affiliations

  1. Faculty of Economics, University of Niš, Niš, Serbia

    Srdjan Marinkoviċ Ph.D.

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  1. Srdjan Marinkoviċ Ph.D.
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Correspondence to Srdjan Marinkoviċ Ph.D. .

Editor information

Editors and Affiliations

  1. International Finance Corporation, World Bank Group, Washington, Washington, USA

    Margo Thomas

  2. Department of International Development, London School of Econ. and Pol. Science, London, United Kingdom

    Vesna Bojicic-Dzelilovic

Appendix

Appendix

Table 9.2 Sources of financing the growth of the BCPS (EUR) in Serbia
Full size table
Table 9.3 Change of foreign debt levels for banks and enterprises
Full size table

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Marinkoviċ, S. (2015). Managing the Financial Crisis: Credit Crunch and Response in Serbia. In: Thomas, M., Bojicic-Dzelilovic, V. (eds) Public Policy Making in the Western Balkans. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-9346-9_9

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