Finance Minister Bozidar Djelic

Belgrade, September 6 - Finance Minister Bozidar Djelic remarked that the economic performance in the first half of the year had been favorable and that the country was leaving the years of turmoil behind and was heading for economic stability and growth. Serbia now has a stable currency and foreign currency reserves exceeding $1 billion.

Djelic, as a guest in the Open Studio broadcast on Radio-Television Serbia, explained that Serbia's economy had been brought into order during the first stage of reforms.

Asked whether that was a result either of overvalued or undervalued dinar, he replied that various factors had been in effect. However, the dinar has maintained solid performance, which it should manage to sustain in the months to come.

"This is also confirmed by the fact that for the first time in the past ten years we have both foreign and local currency savings," Djelic said. "One speaks of figures amounting to several tens of millions DM for a start, but figures are steadily climbing and there is already initial credit potential."

Inflation was held to 31% in the first six months of the year, said the Serbian Finance Minister and added that he expected that it might exceed the targeted annual inflation rate of 30-35% by only a few percent.

Djelic said that after the removal of price disparities, dubbed "shock therapy" by some, the living standard of citizens was steadily improving. June and July saw an increase in real wages of 20%, while the cost of living rose by only 6%.

"Most importantly, a drop in labor costs in Serbia by 10% underlies the rise in salaries," he explained.

Apart from that, public finances have been brought in order and for the first time in ten years budget projections have been fulfilled, Djelic said, admitting that social welfare benefits were low and that the state still had difficulties in disbursing pensions, but managed to pay them out on time.

A great deal has been achieved in fighting the gray economy, Djelic said and quoted oil and tobacco trafficking as an example. Grey market penetration in cigarette trade has been reduced from last year's 50% to 17%, which is the result of daily intervention by thousands of financial auditors, who have reviewed 11,000 cases and shut down around 600 sales points.

Djelic expressed optimism on the issue of capital inflow and foreign direct investment, pointing to a DM22m grant expected from the World Bank. An additional DM30m is to be obtained from the European Union this month to bolster currency reserves. The government will be able to secure sufficient loans from the National bank of Yugoslavia, without issuing new money.

According to his calculations, DM120m in foreign aid should arrive by the end of the year, along with credits from the European Development Bank. Two other very favorable credit deals are about to be closed, providing ?100m for the Electric Power Industry of Serbia, and ?57m for the railway system.

He pointed out that a conceptual framework for Serbia's industrial development strategy until 2010 had been outlined and that in the upcoming months government officials would be touring the country and initiating formation of expert groups made up of businessmen, local government officials, trade union representatives and prominent public figures to work jointly on development projects.

"The government guarantees to provide money for sound strategic projects," Djelic announces.