The Serbia parliament adopted a law on August 4 that increases parliamentary control overthe National Bank of Serbia, despite warnings from the EU and International Monetary Fund over threats to the central bank's independence.
NBS governor Dejan Soskic resigned on August 1 over the forthcoming legislation, saying that the proposed amendments "significantly undermine the bank's independence and pave the way for professional degradation and adoption of decisions ... which may give rise to economic and financial instability."
The bill, and Soskic's resignation, are part of a battle between the former governor and the new government. Appointed by the previous Democratic Party government, Soskic gave up after a long-winded fight with Serbia's new administration, led by the Progressive Party of President Tomislav Nikolic and the Socialist Party of Serbia led by Prime Minister Ivica Dacic. "The new political leaders, in particular, have been notably vocal about their displeasure with the central bank in its reluctance to ease monetary policy," said analysts at RBS.
Dacic, a one-time foul-mouthed political bruiser in the former dictator Slobodan Milosevic's government of the 1990s, has made it plain he supports loosening the government purse strings to try to get Serbia's faltering economy moving again. In the second quarter, GDP shrank 0.6% from the same period a year earlier, after a 1.3% decline in the first quarter.
However, to embark on expansive fiscal policies, the government needs the cooperation of the NBS. However, Soskic insisted on running a restrictive monetary policy aimed at holding down inflation. He and others warn that Serbia's public finances are moving in the same direction as Greece's, and have called for fiscal restraint.
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