Silk Road – a financial dead end for Serbia?

The incredibly ambitious New Silk Road plan, launched by Chinese President Xi Jinping in 2013, did not delight much the director of the International Monetary Fund (IMF), Christine Lagarde. While participating in a forum in Beijing, Lagarde warned about the risks stemming from financial difficulties and indebtedness of countries involved in the construction of infrastructure projects under this Chinese initiative.

Serbia is a part of this initiative, which assembles 70 countries, and our state officials have repeatedly stated that “The Belt and Road Initiative” held a great importance for the country and that Serbia, as a transit country, should want to be as much of a part of this project as possible, especially in terms of rail and road traffic.

Even before Serbia joined the New Silk Road project, it revised the Agreement on Economic and Technical Cooperation, concluded with China in 2009, to stipulate the construction of a new block of Kostolac Thermal Power Plant, worth over $700 million, but also the construction of a section of the Corridor 11 motorway, from Obrenovac to Ljig, all involving Chinese companies.

Following that, Serbia and China also agreed on the construction of the Zemun-Borca Bridge over the Danube. Furthermore, the modernization of the Belgrade-Budapest railway was agreed as one of the capital projects under the The Belt and Road Initiative.

The total value of the biggest joint projects has reached a figure of $ 6 billion, of which the value of the ongoing projects is $ 2.5 billion.

Could the participation in this initiative be a financial risk for Serbia, as the IMF director suggests?

Although Lagarde agreed that The Belt and Road Initiative was a good idea, she also warned about saddling countries involved in the project with too much debt.

“The first challenge is ensuring that Belt and Road only travels where it is needed,” Lagarde told an audience of officials on Thursday, many of whom preside over projects planned along the route.

“With any large-scale spending there is sometimes the temptation to take advantage of the project selection and bidding process. Experiences from across the globe show that there is always a risk of potentially failed projects and misuse of funds,” she added.

Chinese President, Xi Jinping disagreed with Lagarde and said: “The Belt and Road initiative is neither the Marshall Plan after World War II nor a secret plan of China. It is, if anything, a public plan”, he told the Boao Forum for Asia.

According to Milojko Arsic, professor at the Faculty of Economics, Serbia’s public finances are not compromised due to our participation in the “New Silk Road” initiative.

“This warning, coming from the IMF director, should not be applied directly to Serbia because there is a declining public debt and budget surplus in our country,” Arsic said.

Geo-strategically speaking, the IMF sometimes does not want the presence of competitors in certain parts of the world that they consider to be “their own.” Both America and Europe would like us to depend on them”, Arsic adds.

“They think that China is entering their sphere of interest and their backyard through Serbia and Hungary,” Arsic points out, adding that Christine Lagarde’s warning is probably the result of the intensification of relations between a group of countries – America and Europe, on one hand, and China, on the other. “The only thing that is controversial about Serbia, when it comes to Chinese projects, is the pronounced participation of Chinese contractors in projects”, Arsic believes.” Therefore, it is logical to pose a question whether it would be better for the country’s development if domestic companies were subcontractors on these projects”, Arsic concludes.

France Press argues that “many of the colossal projects (under the Belt and Road Initiative) are being built by state-owned Chinese companies and financed by loans from China, leaving states billions of dollars in debt to Beijing.

However, Chinese projects are also financed from European loans. For instance, the banking group Intesa Sanpaolo and the European Bank for Reconstruction and Development (EBRD) announced, in 2016, that they would credit small and medium-sized companies in the Western Balkans with a billion euros in order to be competitive in participating in projects funded by China.

It is estimated that around $ 11 billion will be invested in infrastructure projects in the Western Balkans under the New Silk Road programme in the coming decades.

(Politika, Deutsche Welle, 13.04.2018)

Share this post

Leave a Reply

Your email address will not be published.

scroll to top