Serbia MPs to Decide Fate of Central Bank Chief

The new Serbian government has prepared the ground to dismiss the chief of the central bank – the move that both the IMF and the EU strongly oppose.The Serbian parliamentarians will be considering changes to the Law on the National Bank of Serbia today.

Draft amendments to the Law on the National Bank of Serbia, NBS, simplify the procedure to dismiss the chief of the central bank.

According to the draft amendments, Parliament’s control of the central bank has been strengthened while the capacity of the bank’s governor and management limited.The existing law, which has been in effect since July 2010, makes it is practically impossible to dismiss the governor because only the NBS Council can propose it and the Finance Committee and Parliament then need to vote on it.

The move follows threatening statements by Prime Minister Ivica Dacic, who recently said that Serbia’s central bank governor, Dejan Soskic, may lose his job if he keeps on “tightening the belt” rather than seeking to stimulate growth.

The nationalist-led government comprised of the Progressives, the Socialists and the United Regions of Serbia, has pledged to reform the fiscal sector, curb the state spending, and improve transparency in public procurement.

However, they have refused to freeze pensions and salaries in the public sector, as the bank wants.

The Socialists also say they want the new government to draw on Serbia’s foreign reserves to stimulate the economy, a policy that Soskic strongly opposes.

The central bank is one of the few state institutions to have so far preserved its independence while maintaining relative stability in the financial system.

In recent months, the bank has succeeded in getting the annual inflation rate below 3 per cent, a record low.

The International Monetary Fund, IMF, and the EU have expressed concern over possible changes to the Law on the National Bank of Serbia.

Bogdan Lissovolik, the IMF Resident Representative in Belgrade, said that the change of the governor might affect the independence of that institution.

“Our stance is that the Serbia’s central bank is, generally speaking, doing its job well as a supervisor and regulator of the banking sector in circumstances of weakness of the banking system throughout Europe,” Lissovolik told Serbian daily newspaper Blic.

According to Lissovolik, violation of the independence of the central bank might have negative effects on the forthcoming arrangements with the IMF.

In February, the IMF froze a 1 billion euro standby loan deal with Belgrade due to broken spending promises.

Brussels is also concerned over the announced replacement of Governor Soskic.

“We are carefully monitoring the situation related to the announced changes in the law and the replacement of the governor and I can say we are concerned,” an European Commission official told Serbian news agency Tanjug.

Last week, the Serbian civil society organizations, institutions and individuals stood against possible sacking of the head of the country’s central bank. The group filed an appeal calling on the new government “not to undermine the rule of law” by dismissing Soskic.