Serbia Must Form a Government Quickly, President-Elect Says

Serbia must form a government quickly because its finances are in “horrible” shape as the Balkan nation tries to stay on the path toward European Union membership, President-elect Tomislav Nikolic said.

Nikolic, who won a May 20 presidential election against incumbent Boris Tadic, said he will give someone from his Progressive Party the mandate of prime minister to try to form a government. If they aren’t successful, he will offer the mandate to another party, he said.

“Serbia’s finances are horrible and we must form a government quickly,” he told a meeting of his party in the capital Belgrade today. “We have no time to waste.”

Elections on May 6 were inconclusive with neither Nikolic’s or Tadic’s parties, the two biggest voter getters, winning a majority. The deepening of the former Yugoslav republic’s stalemate pushed the dinar to record lows on concern the delay will halt progress on spending cuts and the renewal of the country’s $1.3 billion international bailout loan.

Dinar Weakness

The dinar lost as much as 0.8 percent from yesterday’s official close to touch 116.212 per euro, rebounding to trade at 115.8526 at the 5:20 p.m. in Belgrade, according to data compiled by Bloomberg. The central bank said on its website that it sold 20 million euros ($25 million) to support the dinar today.

The next Cabinet must revise the budget to reduce the fiscal gap to 4.25 percent from 6 percent of economic output, persuading the International Monetary Fund of its commitment to maintaining macroeconomic stability and allowing for the continuation of a precautionary loan after talks were suspended in February because of a widening deficit.

Public debt is already higher than Serbia’s own fiscal rule that caps debt at 45 percent of gross domestic product.

Whoever emerges to lead Serbia’s government will need to mix a leaner budget with more public investment to jump-start the economy, which contracted 1.3 percent in the first three months, and keep a lid on unemployment, at 24.4 percent in 2011. They will also have to keep the Balkan nation’s goal of EU entry moving forward after Tadic led the country to gaining candidate status on March 1.

‘Challenging’ Task

Serbia’s new government will have to focus on measures to bring the debt and deficits to sustainable levels, “a task that may be challenging amid an extremely rapid weakening of the dinar,” which will ultimately start affecting inflation, at a 30-year low of 2.7 percent in April, Hasan Hanic, the head of the Belgrade Banking Academy, told reporters today.

Nikolic’s Progressive Party won 73 seats in the 250-seat legislature during May 6 elections, giving it control of about 94 lawmakers in a pact with the anti-European Union party of former Premier Vojislav Kostunica. Tadic’s Democratic Party, which ended in second place, controls 111 seats in an alliance with the third-place Socialist Party. A coalition needs 126 seats to gain approval.

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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