Serbia ‘Very Close’ to Completing IMF Policy Talks on Loan

Serbia is “very close” to completing the final policy review talks with the International Monetary Fund and is closer to seeking a new program once the current bailout loan expires, Finance Minister Diana Dragutinovic said.

The government has also opted against yielding to public- sector wage demands and will stick with its own fiscal rules that do not allow any excessive wage increases, Dragutinovic told reporters in Parliament today in Belgrade.

“We have almost completed talks with the IMF during the weekend and the contents of the letter of intent are being finalised today, so we are very close to concluding the seventh review,” Dragutinovic said.

Serbia has relied on a 3 billion-euro ($4.1 billion) bailout loan from the IMF since mid-2009 to offset external liquidity pressures amid capital flight triggered by the global financial turmoil that hurt the country in late 2008. The Balkan nation is wants to lure new investment as it emerges from its first recession since 1999, when a NATO bombing aimed at forcing the country’s troops out of Kosovo destroyed most of its infrastructure.

The IMF began the formal final review of Serbia’s policies and compliance with terms agreed under the loan on Feb. 14. The ongoing loan expires in April and the ruling coalition is increasingly looking at maintaining ties with the lender.

April Discussions

“I think there is willingness in the ruling coalition to continue with a program,” Dragutinovic said, adding that the government will decide on the timing. Deputy Prime Minister Bozidar Djelic said on Feb. 18 Serbia is likely to discuss the new deal in April during IMF and World Bank annual meetings.

Whatever the new agreement, Serbia does not plan to draw any more funds from the lender, Dragutinovic said.

“Foreign-exchange reserves are high enough and there is no need to draw money,” she said. “It is more important as a positive signal and positive assessment.” The government has drawn around 1.5 billion euros from its current program.

Talks with the IMF were held amid growing public-sector wage demands, with teachers, police and health workers seeking 20 percent to 40 percent wage increases. Under the program, public wages and pensions were frozen for two years, with a 2 percent increase as of January this year.

“We as the government could choose whether to have a program with the IMF or not. We chose to have the program with the IMF, because we think that’s the best,” Dragutinovic said.

Her ministry has prepared “a negotiating platform” and any wage offers to protesting workers will be in line with Serbia’s fiscal rules, according to which the country needs to keep its 2011 fiscal gap below 4.1 percent of gross domestic product.

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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