Finance minister of the year 2007: Mladjan Dinkic

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Serbia’s minister of the economy and former finance minister is uncompromising – and his approach has been crucial to the revival of his country’s economic fortunes.

Mladjan Dinkic

"You must stand firm in the face of opposition. To be a good politician you have to be able to sacrifice some popularity. In a transition economy you cannot expect to be loved by everybody"
Mladjan Dinkic



Hitting the right notes in Serbia

A keen musician, Mladjan Dinkic knows all about the value of a good composition. And as a finance minister too. Certainly in 2006 the Serbian economy was clearly in tune, boasting robust GDP growth, record foreign direct investment, high-profile privatizations, rising exports, falling inflation and a surging stock market.

In the annual prize fight for Euromoney’s finance minister of the year award, few contenders can claim to have held all three of the most important belts in the fiscal universe – central bank governor, minister of finance and minister of economy. Dinkic can. What’s more, over the course of seven years he can justifiably claim to have worn all three with distinction.

For a man who spent the best part of the 1990s in the sedate world of academia – much of it lecturing at various economic institutes in Europe and the US – following the fall of president Slobodan Milosevic in October 2000 Dinkic adapted remarkably well to the rough and tumble of Serbian politics and has proved himself to be not only a savvy operator but also someone who is not afraid of slugging it out with opponents in pursuit of his unapologetically reformist agenda.

Although the appropriate academic background has undoubtedly played a role in Dinkic’s success, it is arguably his abilities as a political street fighter that have enabled him to translate words into deeds in the face of fierce opposition. As founder and leader of the G-17 Plus party, which pursues an unashamedly liberal socioeconomic reform agenda, Dinkic has become one of the leading politicians in Serbia, with a reputation as someone who not only talks the talk but also walks the walk. As a result G-17 Plus has become a key player on the political stage in Belgrade, a fact that has ensured that Dinkic and his party have been at the heart of many of the positive changes that have occurred in Serbia since the beginning of the decade.

“Dinkic knows the right things to do and how to get them done,” says Dusko Pavlovic, head of sales and trading at Prospera Securities, one of a number of investment banking boutiques established in Belgrade in the past few years by Serbs who, having lived abroad during the war-torn 1990s, have been attracted back to their homeland by the economic reforms enacted by Dinkic and the business opportunities they have helped to create. It’s not only his own countrymen that Dinkic has impressed either. He has won plaudits abroad for his staunchly pro-market stance and authoritative manner. “To a great degree he has known the right language to present to international investors so that even when the political situation overall has looked rocky he has been able to calm investor jitters,” says James Oates, senior adviser at UniCredit Markets & Investment Banking in London. He adds: “Dinkic earned great respect at the National Bank of Serbia by leading the currency and the banking system out of crisis and demonstrating a certain coolness under fire.”

When in 2000 Dinkic was appointed the youngest-ever governor of the National Bank of Yugoslavia (now the National Bank of Serbia), the country’s banking system was in tatters, having been mercilessly exploited by former president Milosevic and his cronies for political and personal ends. As a result, Serbians had all but exited the country’s banks, with people having lost their life savings twice – once to the government and once to the pyramid banks that sprang up in the 1990s.

Dinkic rightly won widespread acclaim for his courageous and daring solutions to the problems plaguing the Serbian economy and its financial sector. For example, under Dinkic’s stewardship, inflation was slashed from 113% in 2000 to around 12% in 2003, and foreign exchange reserves grew from less than $300 million to more than $3.3 billion. Meanwhile the dinar, historically one of the world’s most volatile currencies, traded more or less unchanged following a December 2000 revaluation, a fact that went a long way towards explaining Dinkic’s popularity. Savings, which stood at just €30 million when Dinkic took up his post as governor in November 2000, increased more than 30-fold during his tenure.

Dinkic’s bravest move, though, was his decision to close down weak and badly managed banks, including the country’s four biggest in January 2002 – Beobanka, Investbanka, Jugobanka and Beogradska Banka. Although the quartet accounted for a whopping 70% of banking assets and employed 40% of the 35,000 people working in the banking sector in Serbia, the banks’ collective debts totalled more than $4 billion and were considered too large to be tolerated. 

Although in neighbouring Croatia and Slovenia failed banks were nursed expensively back to health at great expense to the taxpayer, Dinkic opted for the most shocking of shock therapy tactics and simply revoked bank licences – 25 in all. Lock-ins and street protests by sacked bank workers soon followed but Dinkic mollified public opinion by the establishment of the government-owned Nationalna Stedionica Banka, which compensated the account holders of the big four banks and then took over their roles.

A public relations masterstroke, the bank closures did wonders for the country’s international image, clearly conveying the impression that Serbia would take every step necessary to make up for the decade-long period of international economic isolation it suffered during the 1990s and to speed its accession to European Union membership.

Effectively sacked in July 2003 for being too popular, Dinkic made a quick-fire return to prominence in March 2004 when he was named as finance minister, a post he held until November 2006 when he resigned in protest at the lack of progress on EU membership.

Thanks to the reforms he instituted in public finances, Dinkic succeeded in turning the fiscal position from a large deficit of 4% of GDP in 2003 to a surplus in 2005 and 2006 of 1.5%. Dinkic was able to target healthcare, education and infrastructure development on the back of improved government finances that have gone from being firmly in the red to firmly in the black. At the same time, Dinkic has slashed public debt from 50% to 34%, meaning that Serbia is now one of the least indebted countries in Europe and so largely insulated from the potential fallout from the sub-prime mortgage fiasco in the US and the associated global credit crunch and stock market volatility.

Another important reform that Dinkic introduced while finance minister was the introduction of value-added tax and the cutting of corporation tax to 10% – both of which measures massively increased the government’s tax take and reduced the size of the black economy.

In a highly symbolic gesture, in 2006 Dinkic arranged for Serbia to repay its debts to the IMF and the World Bank ahead of schedule, thus highlighting the fact that Serbia is no longer in need of economic assistance.

“We had to pay back $500 million of domestic debt and so we decided to pay back the IMF and the World Bank as well to show we treat foreign creditors the same as domestic ones,” Dinkic tells Euromoney.

That the country was able to make such a show of strength was partly at least because of Dinkic’s ability to persuade investors that Serbia, political troubles notwithstanding, is very much open for business. “As finance minister, Dinkic created the view in investors’ minds that the economy was a lesser worry than the continued extremism in the political sphere,” says Oates at UniCredit. “He was able to do this because he established a more sold framework for fiscal policy, which made it more predictable and generally presented a consistent approach to policy. He is seen as a reassuring and competent figure, who has definitely established a higher threshold of credibility for the country’s economy as a whole.” As a result, Serbia enjoyed a landmark year in 2006, attracting some €4.5 billion in foreign direct investment, three times the previous record set in 2005. At the core of this record-breaking performance was the €1.5 billion sale of the Mobi 63 mobile telecoms company to Norway’s Telenor and the subsequent €320 million sale of a third mobile operator licence to Mobilkom Austria. As Dinkic points out, the sale of a third licence to Mobilkom Austria trumped the €100 million total that five of the surrounding countries had raised through licence sales, while the price that Telenor paid was almost double the €800 million initial price target. Not only did the sales swell the government’s coffers; they also added to the already impressive roster of international firms that have set up shop in Serbia in recent years.

Although Dinkic has proved adept at sweet-talking investors as finance minister, he can also be as uncompromising as he was at the NBS, refusing to be cowed when he believes he is in the right. In 2005, when workers at the country’s main oil refinery went on strike in pursuit of a 30% pay rise, Dinkic rebuffed their demands – offering just 0.5% so as to ensure the government hit its public spending targets – and challenged the strikers to do their worst. After a short period of blockades and barricades, the workers gave up the struggle and accepted Dinkic’s conciliatory offer of a 1% rise. Subsequently, there were no further major strikes during Dinkic’s watch as finance minister.  “You must stand firm in the face of opposition. To be a good politician you have to be able to sacrifice some popularity,” says Dinkic, adding: “In a transition economy you cannot expect to be loved by everybody.” However it’s a measure of the high regard in which he is held by his political partners in the new Serbian coalition government that came to power in May, that they created a new ministerial post especially for him – minister of economy and regional development – giving him a key role not only in completing the privatization process in Serbia but also in combating bureaucracy and unemployment, as well as helping to diversify the economic base of the country. As ever, Dinkic has set ambitious goals for himself: finishing all major privatizations by the end of 2008; guillotining red tape in the next 12 to 15 months and halving unemployment to 10% by 2012; and ironing out the economic differences between Belgrade and the provinces through a series of subsidies, credits and incentives which it is hoped will create sustainable economic development and jobs.
“I believe that 2007 is a break point in terms of improving job creation and education programmes as we now have the money in the budget to support such programmes,” says Dinkic.

Last but by no means least, there’s the small matter of next year’s Eurovision song competition in Belgrade to look forward to. It would be a brave bookmaker indeed who took odds against Dinkic taking to the stage and belting out a song by his former band, Monetary Shock.