Conference Paper

The global downturn is amplifying its negative effects on the local economic crisis. The real sector is much more exposed to the crisis and its negative impact than the financial sector, which is dominated by foreign ownership. In the conditions of foreign capital squeeze and foreign debt repayment, the pressure is increased on the depreciation of the local currency followed by uncertain value of the nominal fix rate. Due to these underlying principles, the policy respond have the focus from the financial sector to the real sector. In the paper is explained that the sudden stop of the foreign capital inflow, due to the world financial crisis, has caused a sharp monetary contraction and consequently a drop in output in Serbia. The main problem of Serbia as the environment is the discrepancies between the real sector and the financial sector. The macroeconomic balance is directly related to the rate of implementing the industrial structural reforms and the level of the economic competitiveness. The increasing illiquidity, which is the major cause of decreasing demand and consequently manufacturing, is possible to be overcome by offering additional resources to the industry and the population.