La experiencia de los años

This paper explored municipal bonds in Serbia as an alternative model of project financing of infrastructure projects. We came to the conclusion that the state i.e. the Republic of Serbia partially enabled access to potential domestic investors through regulations. The proof is evidenced by changes (Public debt law, 2011)on one side, by which citizens as clients are enabled to invest in municipal bonds issued in Serbia. While on the other side as determined by the central bank‟s bylaws (Decision on more detailed conditions and maximum amounts of voluntary pension fund assets investment and manner of investing such assets abroad, 2011) the defined limits curb investments of pension funds, since the level of cca. EUR 5m for the value of issue is a rather high threshold for circumstance on Serbian municipal bond market, as this instrument is in its infancy.

We have also concluded that the option to access organized secondary market is only general, as the (Law on capital market, 2011) stipulates that the issuer of municipal bonds is not bound to list them on the market, thus denying potential access to citizens as clients, which leads to another conclusion that the only potential investors are actually business banks from the banking sector of Serbia.

Municipal bonds could potentially enhance and improve infrastructure projects and development of local governments. As we are expecting the downward trend in rates on FX and dinar savings of citizens to continue, the placements of which are burdened with a tax treatment of 15%, municipal bonds for citizens, tax-exempted, would be an alternative instrument of investment. The basic risk in Serbia pertaining to municipal bonds is identified in political risk as frequent changes of government indicates instability in the horizon of “received mandates”, and that potential investors perceive the state to be a “bad boss” in managing financing at a local level.

In circumstances when the credit rating agency is lowering the credit rating to the Republic of Serbian, as it was the case on January 17, 2014, when the Fitch agency announced the downgrade of credit rating from BB- to B+, the rated local governments cannot hope for potential investors with acceptable price, meaning more competitive price, than if the local government decides to take up a commercial loan from business banks. Until the mid-2014, another four local governments are expected to make a public invitation at the territory of Serbia.

In line with the previously stated, prospects for development of municipal bonds market are limited, on one hand due to the slowdown of credit function of commercial banks is Serbia as the result of discouraging legal frameworks. Further directions of the research should lead towards monitoring and analyzing the alignment of regulatory framework of competent state institutions, towards lifting existing restrictions which curb development of these securities, and monitoring the trend which implies reduction of bank-centric economy in Serbia, on one hand, and development of alternative instruments of capital market, on the other.

At the same time the cooperation of local governments and state institutions need to be enhanced in order to realize options and potentials in implementing development of a new alternative instrument for financing infrastructure projects.

7. CONCLUSION

A new source of financing in the form of municipal bonds in Serbia has not seen its light conceptually as this type of instrument was first time issued in the period of global financial crisis. Apart from this, another aggravating factor was a dramatic fall in banks‟ lending activities because of which the new instrument was not considered as an alternative to loans alongside business banks. A case in a point is the local self- government Užice. Namely, the offered price of the loan was far more favorable than of formerly granted loans, and also better relative to the price offered for a municipal bond.

The limiting factor for alternative financing of capital and development projects through municipal bonds requires both institutional and legal frameworks, in order to finance much-needed finance projects. Listing on organized markets and ability to access provided not only to business banks and institutional clients, but citizens as well, in one of essential conditions. The role of the underwriter in cooperation with a local government could considerably „‟animate“ citizens in local governments if this instrument is offered through local branches, provided the issuer offers the guarantee for issued securities. Main weaknesses of municipal bonds versus loans may be noticed unambiguously in costs and complex procedures. Furthermore, listing municipal bonds on local stock exchanges entails services related to preparation of project documentation, costs of listing, marketing costs, and substantial formalities than it is the case with loans.

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