bojan markovic : macroeconomic developments in serbia speech by mr bojan markovic, vice governor of the national bank of serbia, at the presentation of the november 2011 inflation report, belgrade, 16 november 2011. * * * ladies and gentlemen, esteemed members of the press and fellow economists, despite repeated media announcements about the “ waves of price hikes ”, inflation continued down over the past several months and settled at 8. 7 % in october. we expect this downward trend to persist and inflation to retreat within the target tolerance band in the first quarter of 2012. at the same time, pessimism over global growth prospects intensified, particularly in the euro area prompting us to revise the economic growth forecast for serbia down to around 2. 0 % in 2011 and 1. 5 % in 2012. in response to subsiding inflationary pressures, the national bank of serbia cut the key policy rate during the last six months. the key policy rate currently stands at 10 %, and its further cautious lowering is likely in the coming period. chart 1 inflation projection ( y - o - y rates, in % ) chart 2 gdp growth projection ( y - o - y rates, in % ) - 2 - 4 12 3 12 3 12 3 12 3 iii iv i ii iii iv i ii iii iv i ii iii iv i ii iv today we will present in more detail our view of past macroeconomic developments and our expectations for the period ahead. * * * mounting doubts about the sustainability of public debt in advanced economies and unfavourable growth indicators for the second and third quarters have led to a downward revision of the global economy growth forecasts, particularly that of the euro area. the third quarter witnessed a drop in share prices and a rise in interest rates on public debt in a number of countries. the prices of primary commodities, such as oil, base metals and agricultural products, also declined in the third quarter. though financial markets showed some recovery in october, global economic growth will no doubt be slower than expected until recently. also, the governments might not be able to respond with fiscal stimuli as they did during the first wave of the crisis, primarily due to high public debt. turbulences in the global financial market led to an increase in serbia ’ s risk premium ( measured by embi ), albeit smaller than those of other countries in the region. as a result, the dinar was more stable during this period than the currencies of other east european countries with flexible

”. the resultant combination of reckless lending and unsophisticated borrowing, which started in the usa ended up engulfing large parts of the financial world. a need for change against this background i attended the annual meetings of the international monetary fund ( imf ) and the world bank last week. these institutions were created at the end of the second world war to fill a much needed gap of providing capital in the global financial system, as well as ensuring the orderly functioning of the system. the imf was, inter alia, created to provide financial support to countries that may be experiencing short term balance of payments problems, while the world bank was established to assist countries, in particular european countries, in their post war reconstruction efforts. over time, the size and the needs of the membership of these institutions have changed. these institutions have, however, not kept pace with the changing conditions in their operating environment. the governance and representation structures have lagged behind the changing global economic realities. the imf has not fully lived up to one of its core responsibilities, being the conduct of effective surveillance of the global economic environment and that of individual countries. the relevance of the bretton woods institutions, as the imf and the world bank have become to be known, has come under severe scrutiny, particularly over that last ten years in the aftermath of the asian crises. questioning the relevance of the imf has intensified in the wake of the current crisis. a key area of criticism has been the failure of the imf to warn its members of the outbreak of financial crises in a timely manner. the imf and indeed other global financial institutions are in serious need of change. a need for collective action we need collective global action to overcome the current crisis. the imf was established to promote coordination and collective action in order to avoid the kind of crisis we are now facing. we all saw the dangers building up over the last few years, particularly with regard to global imbalances. these problems have for many years been discussed within the international monetary and financial committee ( imfc ). but this common knowledge was not enough to spur any determined action. global policy makers were not able to act in unison, and the institutions tasked with facilitating a collective response could not or would not act in accordance with their mandates. this failure on the part of the global economic policymakers needs to be recognised, and as we acknowledge this failure, we must recommit ourselves to deeper multilateral cooperation, mutual accountability and active