Serb President Urges Quick Cabinet Formation as Debts Mount

Serbian President Tomislav Nikolic warned politicians they need to act quickly to form a government as economic pressures in the Balkan nation build.

Nikolic, who was inaugurated at 5 p.m. in Belgrade today, will choose any party able to form a majority after inconclusive general elections on May 6. His Progressive Party, which won the most seats, and the now-opposition Democrats of former President Boris Tadic are seeking support in Parliament to promote their own Cabinet plans.

The new government of the former Yugoslav republic, whose economy was shredding during the Balkan civil wars of the 1990s, is seeking to join the European Union and cooperate more with Russia to pull the economy out of recession and cut debts.

“I will cooperate with any future government,” Nikolic said in his inauguration speech. “I will build friendships around the world because Serbia has no enemies. Serbia’s path is the path of the future. In the interest of Serbia, I will cooperate with everyone in the east and the west because Serbia will only win and will have nothing to lose.”

Economic, Social Problems

Political leaders need to “start resolving accumulated economic and social problems” as Serbia faces additional difficulties in servicing its maturing debts, according to a statement released from Nikolic’s office before the inauguration. The country also “requires a plan that wouldn’t further endanger the already bad standards of living.”

The country’s three-member Fiscal Council, which monitors budget performance, warned on May 30 about a looming debt crisis after the budget gap rose to between 7 percent and 8 percent of gross domestic product and public debt approached 50 percent of GDP.

The five-month budget deficit widened 80 percent to 89.3 billion dinars ($976.5 million), while the economy contracted 1.3 percent in the first quarter after a harsh winter paralyzed many industries and the euro-area debt crisis damped exports.

A new government will need to resume IMF talks over a suspended $1.3 billion precautionary loan arrangement earlier this year when it became clear the country would slip on agreed fiscal targets that include keeping a full-year gap under 4.25 percent of GDP.

Wooing the Socialists

Nikolic met today with the leader of the Socialist Party of Serbia, which came third in the parliamentary elections and has an agreement in principle to form a coalition with former President Boris Tadic, whose Democratic Party placed second. The parties control 111 of the legislature’s 250 seats.

“It is definitely in Serbia’s interest that a new government is formed as quickly as possible, but if talks with the Democratic Party fail, we would then talk to another major partner, the Progressive Party,” leader Ivica Dacic said in Belgrade today, referring to Nikolic’s party, which won the most votes and has 73 seats.

Kosovo Issue

The Socialists oppose Serbia’s recognition of Kosovo, the breakaway province which unilaterally declared independence in 2008. The party would favors a broader coalition to include the United Regions of Serbia, a group led by Mladjan Dinkic, who held posts of the economy minister, finance minister and central bank governor since the 2000 fall of former Serbian strongman Slobodan Milosevic.

Serbia’s political stalemate also threatens to complicate the country’s march toward the European Union after it won candidate status in March.

EU Enlargement Commissioner Stefan Fule, who attended Nikolic’s inauguration, told the Belgrade newspaper Novosti today that the bloc “strongly encourages” Serbia to continue with policies that will allow the European Commission to recommend the start of pre-accession talks.

EU Candidacy

Serbia became a candidate for EU membership on March 1 after fulfilling a series of conditions, including the capture and transfer of Radovan Karadzic, Ratko Mladic and Goran Hadzic, the three most-wanted war-crimes suspects from the civil wars that accompanied the breakup of the former Yugoslavia, to the Hague-based International Criminal Tribunal for the Former Yugoslavia.

To prove its commitment to further reforms, the Balkan needs to continue to overhaul the judicial system and fight organized crime and corruption, while the “EU expects from Serbia further progress in a dialogue” between Belgrade and Pristina “with the aim of visible and sustainable relationship improvement” and a policy “in the spirit of cooperation and reconciliation in the region.”

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net Misha Savic in Belgrade at Msavic2@bloomberg.net

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

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