radovan jelasic : remittances to serbia speech by mr radovan jelasic, governor of the national bank of serbia, on the occasion of the international conference on remittances, berlin, 29 november 2007. * * * dear mrs. minister, mr. minister, your excellency, ladies and gentlemen, it would be true to say that citizens of serbia are its main article of export since no other “ article “ brings in more foreign currency than the serbian diaspora sending remittances from abroad. this is particularly true of the serbian diaspora in germany as over 700, 000 serbian nationals still live there – let us be clear on this, i am referring to those still holding serbian passports, or better to say, yugoslav passports! though our fellow citizens have left serbia, and done so for various reasons of economic or political nature, in order to obtain better employment opportunities or to flee the war - torn regions, etc. – they all share a common denominator. all of them are sending money to serbia. and, they are sending lots of it! based on our estimates, around usd 3, 0 billion or 8. 1 % of the gdp was sent to serbia in 2006, of which over usd 300 million from germany alone! these transactions have two important aspects : social – assistance to those who had stayed behind, care for the elderly, supporting relatives, and economic – investment in the smes, residential building, purchase of property, investment in their own or their children ’ s education, etc. however, our estimates show that only half of all remittances take the formal route, i. e. reach serbia through banking channels, which certainly has nothing to do with the quality of the banking sector in serbia since 80 % of the sector is in majority ownership of well ranked strategic owners from the eu countries - austria, italy, france and greece. this means that the majority of such money is brought into serbia by people crossing borders, which naturally has a negative impact on all those participating in such dealings : • there are side - effects to money senders in terms of undesirable costs, safety exposure and loss of tax benefits ( if the aim is to support relatives ) ; • money recipients must pick up the money and hopefully take it to a bank, which is not a simple matter as they do not fully qualify for use of banking products, such as credit cards, mortgage loans, etc. why is money still being

which stimulates production and discourages consumption – for instance, by raising the vat rate, while at the same time lowering wage taxes. on the side of expenditure, fiscal policy may contribute to the medium - term narrowing of the current account deficit by shifting the budget from transfers and consumption towards investments that target export - oriented and import - substituting sectors. the more effective the use of these two mechanisms, the lesser the need for adjustment through depreciation of the dinar. in fact, i am convinced that efficient structural measures aided by fiscal policy would be more than sufficient to fully eliminate our current account deficit, with no medium - term adjustment of the exchange rate whatsoever. fiscal balance while the composition of fiscal revenues and expenditures represents a potent tool for the reduction of external imbalances in serbia, the balance between fiscal revenues and expenditures represents another key factor for the assessment of credit rating and the country risk premium. recent fiscal problems experienced by some eurozone members, which contributed to the second wave of the crisis, have further heightened the significance of fiscal balance and public debt levels in the assessment of macroeconomic sustainability of many economies. bis central bankers ’ speeches though the share of public debt in gdp in serbia is lower than in many other european countries, it has reached the prudent limit of 45 % as laid down by the fiscal rule ( as defined by the law on the budget system ) and this created the need for valid fiscal consolidation. fiscal consolidation may induce a decline in demand in the short run, but has advantages in terms of improving economic activity and growth over the medium run. high fiscal deficit and growing public debt boost the country risk, which increases the cost of borrowing for the serbian state, corporates, banks and households alike, and discourages the inflow of foreign capital. together, this results in lower economic growth and lower living standard in the medium and long run. fiscal or monetary stimuli fiscal consolidation and implementation of a responsible fiscal policy would create more scope for the counter - cyclical impact of monetary policy, i. e. its capacity to support the economic recovery and contribute to faster recovery at a lower level of real interest rates. in the initial wave of the crisis many countries, including serbia, implemented expansionary fiscal policy to stimulate economic activity. but in this phase of the crisis relying on fiscal expansion would be rather risky due to the limited room for its financing and the fact that foreign investors, credit rating agencies and international financial institutions, such as the imf, are particularly