Nov. 14 (Bloomberg) -- Serbia secured a $516 million standby loan from the International Monetary Fund, the fourth eastern European nation to tap the institution for funds, to help stabilize the economy during the global financial crisis.

``We've reached a 15-month standby agreement,'' Finance Minister Diana Dragutinovic told a press conference in Belgrade today. ``This program will allow us to draw funds only if we need them. We believe we will not need the money.''

Former communist emerging markets in Europe are feeling the pinch of the global financial crisis, triggering earlier appeals from Hungary, Belarus and Ukraine to the IMF. The Washington-based fund has warned Serbia that government overspending may push the current-account deficit in 2008 above 18 percent of gross domestic product, which it must cover through increased borrowing.

``This deal with the IMF is our response to the crisis and our response to the crisis in the state budget,'' Dragutinovic said. ``It's reinforcing the confidence of investors.''

As part of the agreement, the Serbian government pledged to cut the 2009 budget deficit to 1.5 percent of GDP from 2.7 percent to help weather the crisis and attract investors after the economy was devastated by war and international isolation in the 1990s.

`Stabilizer'

``The standby deal will allow Serbia to secure its foreign currency liquidity,'' said Milan Kovacevic, a Belgrade-based economist with the Economic Institute. ``The arrangement could serve as a stabilizer to the dinar's exchange rate against the euro. This deal's positive effect on attracting foreign investments will be visible if Serbia adheres to it.''

The central bank increased the benchmark interest rate by 2 percentage points to 17.75 percent on Oct. 31 after inflation jumped to a three-month high. Earlier, it lowered the reserve requirements for commercial banks to help boost market liquidity and ease pressure on the dinar.

Central bank Governor Radovan Jelasic said the bank's board was now ``closer to raising the benchmark rate than to its preservation'' and that it will ``continue with the floating regime'' of setting the exchange rate.

Economic growth is expected to slow to 3 percent in 2009 from 7 percent this year, which will help lower inflation and the current-account deficit, central bank governor Radovan Jelasic told the press conference. The bank will also stop setting a target range for core inflation and instead follow the headline inflation rate with a goal of 8 percent, plus or minus 2 percent.

``The Serbian authorities will treat this program as a precautionary measure,'' Jelasic said.

The IMF said its board will decide on final approval of the agreement by the end of November.

To contact the reporter on this story: Aleksandra Nenadovic in Belgrade at anenadovic@bloomberg.net.

Last Updated: November 14, 2008 08:14 EST