Serbian Progressives seen winning strong mandate for reforms

By bne IntelliNews February 18, 2014

Nicholas Watson in Prague -

Few doubt the Serbian Progressive Party will win the snap elections to be held in March - the question is by how much. Latest opinion polls suggest it should be able to rid itself of current coalition partner the Socialist Party, but may nevertheless bring onboard smaller parties to build support for the deep reforms it says it's looking to undertake.

According to a new Faktor Plus Agency/Politika poll, 43% of those sampled plan to vote for the Progressives. This would be a significant improvement on the 23% the new party won in the May 2012 election, and a vindication of Deputy Prime Minister Aleksandar Vucic's decision to call an early election.

Coming in second would be a coalition comprising the Socialists, the Party of United Pensioners of Serbia and United Serbia with 13.1%. This would be followed by the Democratic Party, the current main opposition party that is beset by infighting, with 11.6%. Part of that disarray has been caused by a squabble between its current leader and the recently ousted Belgrade mayor Dragan Djilas, and its previous leader, former president Boris Tadic. The latter has since quit the party he helped found and dominated for the past decade to form a new bloc called the New Democratic Party, which the poll suggests would get 6.8% of votes.

The final two parties that would cross the 5% threshold to enter the 250-seat parliament would be the hardline Democratic Party of Serbia with 7.0% and the Liberal Democratic Party with 5.2%.

Great power, greater responsibility

The parliamentary election on March 16 will coincide with the municipal elections in Belgrade, which should result in the Progressives dominating Serbia's political landscape with control of the parliament and the capital, as well as the presidency and central bank; President Tomislav Nikolic is a founder and former president of the Progressives, while National Bank of Serbia Governor Jorgovanka Tabakovica is a former deputy president of the party.

Such a result would give Vucic the premiership and the mandate to push through the economic reforms he feels are vital to securing the type of sustainable recovery that Serbia has lacked since its period of international isolation ended when the late and unlamented strongman Slobodan Milosevic was ousted in 2000.

To gain a broader mandate, analysts believe the Progressives will bring on board some of the smaller parties. Otilia Dhand of Teneo Intelligence notes that the ethnic minority Union of Vojvodina Hungarians (VMSz/SVM), which does not need to cross the 5% threshold to enter parlaiment, has no political ambitions beyond those relevant to the Hungarian minority and would make a convenient junior ally for the Progressives.

The Progressives' march toward the domination of Serbian politics in little more than five years since its split from the ultranationalist Radical party has been a combination of a variety of factors. It is led by a group of strong and popular leaders like Vucic and Nikolic, who have mined the rich seam of disgust many Serbs have with the country's venal and incompetent politicians, and the attendant corruption that was associated with them.

A broadening anti-corruption campaign that has snared many of the figures perceived to have done too well out of the post-Milosevic years, such as the country's richest man Miroslav Miskovic, together with a too-rare period of straight talking to the electorate about the problems that need to be fixed, has won praise from many quarters, including foreign investors. Serbia has proved an appealing destination for large investments from Russia, China and the Middle East over the past few years, the credit for which Vucic is not shy to take.

In the first 11 months of 2013, the net inflow of foreign direct investment (FDI) amounted to €643m, which followed about €2bn the previous year. Invest in Serbia estimates the country has received around $26bn of inward FDI since 2000. However, the economist Stojan Stamenkovic estimates that Serbia needs €1.7bn-2.0bn of FDI annually to stimulate sustainable growth - and warned that an election will only hinder this effort.

To create a better investment climate, the Progressives need to tackle major structural and fiscal reforms that for too long were put off by craven politicians.

With the budget deficit running at 6-7% of GDP and the public sector debt/GDP ratio at just under 60%, the fiscal consolidation effort needs to be continued and stepped up in order for the government to secure another stand-by loan deal with the International Monetary Fund (IMF).

Central to this is sorting out the myriad of loss-making state-owned enterprises (SOE) that are sucking money out of the budget. New laws on bankruptcy, privatisation and labour have all been tabled in parliament and are central to a restructuring programme that envisages closing or privatising a list of 179 SOEs this year and cutting as many as 60,000 jobs from the public sector. Unfortunately, the widely-admired and technocratic minister of the economy, Sasa Radulovic, who was instrumental in drafting the laws and steering them through the legislative process, resigned in January, complaining that Vucic was "the chief obstacle to all reforms".

This has given rise to worries that once Vucic ascends to the pinnacle of Serbian politics, he will step back from making the difficult reforms in order to prolong his stay there. Thus, the IMF deal is considered a key indicator on whether the government intends to maintain its reformist zeal. "Besides offering the necessary financial backing, an IMF program would also provide an external constraint to keep the agreed structural reforms on track. The two [Progressive] priorities in this regard are to increase the flexibility of the labour market and to cut the red tape hampering investment and the development of small and medium-sized enterprises," says Dhand.

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