Serbian Cabinet to Finish Term If Budget Passes, Minister Says

Serbia’s government has a chance to become the first in a decade to complete its term if it passes a 2011 budget, Finance Minister Diana Dragutinovic said.

The Cabinet of Prime Minister Mirko Cvetkovic took office in July 2008. General elections are due in 2012 and opposition parties are trying to force early elections next year.

“If the 2011 budget is passed, this will be the first government to complete its term,” Dragutinovic said in a late evening talk show yesterday on RTS TV.

The 2011 budget will have a deficit of 140 billion dinars ($1.77 billion), or 4.1 percent of gross domestic product and growth of “at least” 3 percent, she said.

Dragutinovic said last week Serbia was “only days” away from an agreement with the International Monetary Fund on its 2011 budget, a key to win the lender’s approval for the next tranche of a bailout loan worth 3 billion euros.

Central bank Governor Dejan Soskic said on the same program that bringing inflation back to a target band of 4.5 percent plus or minus 1.5 percentage points will be a main challenge for next year.

“I think inflation will be the number one challenge next year,” he said. “It will be much easier if the budget is focused on investments.”

The central bank is already trying to rein in inflation through higher benchmark interest rates and selling euros on the interbank foreign-exchange market to drain surplus dinar liquidity, Soskic said. Tight monetary policy will affect both growth and jobs.

“The price of restrictive monetary policy is a higher level of illiquidity, weaker GDP growth and higher unemployment,” he said. “That’s why monetary policy needs to be well measured to not choke economic activity.”

With an expected inflation rate of 9.5 or 10 percent in 2010, Serbia has the highest inflation rate record in Europe.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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