Serbia’s Kindled Capture Attention

Serbian shares up 30 percent as MSCI frontier leaders were boosted further along with the currency by the arrest after a 15-year pursuit of accused war crime mastermind Mladic, who apparently lived unnoticed in a remote farming village. His apprehension was a precondition in formal EU accession talks which have proceeded slowly with Brussels’ preoccupation with member debt crisis and pending crime and anti-corruption and Kosovo relations strides. Portfolio investment leapt tenfold in the first quarter from the previous one to 2 percent of GDP as the last installment of the IMF’s EUR 3 billion standby was given and the government laid the groundwork for another arrangement heading into 2012 elections. Q1 economic growth was 3 percent underpinned by exports, but inflation touched 15 percent due in part to bad weather food costs as the central bank lifted its benchmark rate to 12.5 percent. The current account deficit has worsened slightly from last year’s 7 percent of output on external debt at 70 percent of GDP. Bank credit to businesses and households is again expanding at double-digits on a system loan/deposit ratio of 135 percent, as the EBRD warned at its annual meeting of potential Greek network spillover. Although the privatization and pension reform record has been mixed under the Fund program, ratings agencies have praised fiscal consolidation in awarding recent sovereign upgrades. As a tiny EMBI slice foreign investors have taken positions in external bonds and also moved into local T-bills. The exchange along with other ex-Yugoslav ones shares data with the Vienna bourse under an information and commercial partnership, and Austrian units control 40 percent of Serbia’s financial services. As it bids for official EU candidate status WTO negotiations are also proceeding with a target entry date of early next year.

Croatian shares in comparison are ahead modestly as under its own economic recovery plan the government seeks to escape recession and pare the 5 percent of GDP budget gap. The coalition remains weak with end-year elections in sight, and ship-building in particular has slumped. Slovenia ended its hold on the country’s EU submission, but popular support for inclusion sank according to opinion polls after wartime generals were sentenced by the Hague’s International Criminal Tribunal. 30 of 35 chapters have been closed but formal admission has likely been postponed past mid-decade. Competition policy is a key sticking point with many state firms still receiving preferences and subsidies and anti-monopoly laws lacking as the Balkans’ heavy history relinquishes longstanding protections.