Post by Bozur on Feb 14, 2010 13:07:20 GMT -5
Dinar's dive means trouble for Serbs with euro-loans
By Pierre Glachant (AFP) – Feb 6, 2010
BELGRADE — The steady decline of the Serbian dinar, which is close to the symbolic threshold of 100 dinars for one euro, means many Serbs are struggling to repay their loans traditionally denominated in euros.
When pensioner Mirjana Kovacevik took out a loan to buy furniture three years ago the 126 euro-monthly installment didn't seem like much.
When she signed the loan a euro was worth 75 dinars, now after several years of steady decline of the dinar a euro is worth 98 dinars. Kovacevic's monthly payments have jumped from 9,500 to 12,300 dinars.
Kovacevik's pension is unchanged as the Serbian government has frozen wages and pensions as part of an agreement with the International Monetary Fund (IMF).
"Pensions are frozen because of the crisis and agreement with IMF, but neither the loans nor value of dinar are frozen. That is so unfair," she told AFP.
With some 80 percent of all loans in Serbia, business and consumer, denominated in euros the fall of the dinar affects almost everyone here.
Dragan Subotic, a 55-year old travelling salesman, said he was "desperate" with two loans where the monthly installment reaches 360 euros.
When he took out the loans he was making some 75,000 dinars a month, which was then around 1,000 euros but the economic crisis has severely affected his income.
"I'm managing so far, but if the dinar continues to fall I see no way out," he said.
"I live off selling products, but because of the crisis people are not buying that much any more, so my income is decreasing both in euros and in dinars. I am a desperate man."
On Friday the official exchange rate of the currency was 98.68 dinars for one euro, one of the lowest rates since the introduction of the European currency.
Serbian newspapers have been headlining for weeks that the currency is getting dangerously close to the psychological threshold of 100 dinars for a euro and the Serbian national bank has sold over 250 million euros since the start of the year to try and stem the currency's slide.
The dinar's fall is not only causing problems for individuals but also to companies and the Serbian economy at large where "all economic debts in euros are being paid in dinars," according to a diplomatic source.
The head of the Serbian Chamber of Commerce Milos Bugarin has recently estimated in the daily Press that companies that took on debt in 2008 when one euro was worth 80 dinars were now suffering with a euro being exchanged for 100 dinars.
The variable rate of the dinar against the euro also affects the business environment and contributes to the uncertainty of the economy, said the deputy president of the Serbian Chamber of Commerce, Vidosava Dzagic.
"We have the psychological problem that shows itself in the uncertainty of doing business here because in the conditions of uncertainty about the exchange rate there is no planning and consequently no real business management," she explained.
A weak dinar also has a direct impact on domestic demand for products, which again negatively impacts the economy, Dzagic said.
According to economist Goran Nikolic, the Serbian government will do its best to hold inflation in 2010 at six percent.
But a weak dinar against euro could boost Serbian exports, a diplomatic source said, noting that 2009 "saw a significant decline in the current account deficit" in Serbia.
With costs in dinars and euros in revenues, a Serbian exporter may actually find a weak dinar in its interest.
Increased exports could also help Serbia's economic recovery this year. Belgrade has forecast growth in gross domestic product of 1.5 percent in 2010.
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