How Macroeconomic Policies Erode Business Competitiveness: Serbia’s Experience

Current economic crisis in Serbia is not only a consequence of the last global economic crisis, but also a consequence of pre-crisis structural instabilities and uncompleted transition, both geopolitical and economic. Actually, ever since the transition in Serbia offi cially started in 1990, the country has never left the crisis. Namely, the output gap is still signifi - cant, both transitional (GDP in 2011 is around 30% lower than GDP in the last pre-transition 1989 year) and factual (Serbia lives far beyond its transitional peers and its potential). The fact that macroeconomic policies did not manage to fi x these problems forces us to question weather the orthodox policy framework followed by Serbia’s macroeconomists gave best possible results. This paper analyses the infl uence of macroeconomic policies on performance and competitiveness of Serbia’s economy. The accent will be on monetary policy with respect to its role during transition and subsequent policies considering prime rate, FX rate and infl ation, as well as other impediments and functional distortions faced and borne by the economy. The paper shows that continuing policy of gradual infl ation and real FX rate appreciation constantly erodes competitiveness of Serbia’s enterprises and their profi tability. Additionally, it provides recommendations for overcoming current situation in the light of double-dip crisis in Europe.