The International Monetary Fund urged Serbia not to allow legislation directing the central bank to buy government securities on the secondary market, a day after Governor Dejan Soskic resigned.
Parliament’s finance committee today proposed scrapping the article, which was filed as part of a larger government plan to curtail the central bank’s independence. Bogdan Lissovolik, the IMF’s representative in Belgrade, said in a statement that the entire draft law, which will be debated by lawmakers over the weekend, is “damaging in many respects.”
“We heard that the provision that permits” central bank “purchases on the secondary market of securities issued by the public sector may be deleted by a further reverse amendment,” said Lissovolik. “This would be a step in the right direction.”
The European Union, the World Bank and the IMF have criticized newly appointed Prime Minister Ivica Dacic’s proposal to limit the autonomy of the central bank, which has the support of more than 100 lawmakers in the 25-seat legislature. Serbia needs the IMF to release a suspended $1.3 billion precautionary loan to secure financial support from other lenders, such as the World Bank, which has booked $400 million for projects in the Balkan country and will make the funds available only if Serbia has an IMF agreement.
The IMF sent a letter to Dacic yesterday expressing “serious concerns that the amendments undermine NBS independence and effectiveness, and create significant risks for macroeconomic stability.” Soskic’s resignation from the on the same day was the result of pressure by the government, said Lissovolik.
“The governor resigned, but this does not change the fact that the amended law is damaging in many respects,” he said. “It would still be important to stop, or at least delay, its consideration. We note with regret that some damage to the NBS independence has already been done.”
The draft law aims to restore parliamentary control over the National Bank of Serbia. The bill proposes creation of a supervisory body to take an “active role” in monetary decision-making and have the power to “prevent any banks from abusive international-payment operations” and “money laundering” activities, according to the draft.
It also calls for the central bank governor and vice governors to step down. Debate on the law continues tomorrow.
Serbia has also asked the IMF to carry out a fact-finding mission in the country, Lissovolik said. “a decision on this is pending,” he added.
The IMF suspended the loan program in February after it became clear Serbia would slip on agreed fiscal deficit and public debt targets.
Dacic’s Cabinet is trying to live up to a pre-election pledge and avoid having to freeze public wages and pensions to curb the budget gap, which rose to 7.3 percent of GDP at the end of March amid a contracting economy and rising unemployment.
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