May 28 (Bloomberg) -- Former Serbian President Boris Tadic will start formal coalition talks to form a government to bring the former Yugoslav republic’s finances under control, cut unemployment and pursue European Union membership.
President-elect Tomislav Nikolic met Tadic in Belgrade today to discuss the transfer of power after winning the presidential election on May 20. Tadic wants to become prime minister even though his party was second in parliamentary elections this month. Tanjug reported today that Nikolic will take the oath of office on May 31.
“I think you can now look at Serbia’s political future with a lot more optimism,” Nikolic told reporters, as he and Tadic left the meeting together, and pledged to “closely cooperate.”
Serbia, which is struggling to head off a return to recession, has been without a government able to cut spending and create new jobs in an economy with unemployment at about 24 percent. Tadic needs to cobble together a majority to get his party back in power after it lost to Nikolic’s Progressive Party in May 6 general elections.
The Progressive Party’s victory gave it 73 seats in the 250-seat Parliament and control of about 94 lawmakers in a pact with the anti-EU party of former Premier Vojislav Kostunica. Tadic’s Democrats came in second place with control of 111 seats in an alliance with the third-place Socialist Party. A coalition needs 126 seats to gain power.
Nikolic asked Tadic and Socialist leader Ivica Dacic to quickly form the government. The administration needs to be approved by lawmakers within the first 90 days of the new Parliament’s first session.
“If there is really such an agreement, let’s quickly get on with it,” Nikolic told state broadcaster RTS in an interview late on May 25. “All parties are aware of the seriousness of the situation and waiting for the final deadline at the beginning of September is catastrophic for Serbia.”
Tadic said he wants to lead a government whose main task will be the “fight against unemployment and poverty and the war against corruption and crime,” while ensuring better standards of living by the end of its term.
Tadic met Dacic at 4 p.m. in Belgrade and said that forming a new government “won’t be easy” and “will take a compromise.” They need to discuss fiscal and political strategies, including Serbia’s path toward membership of the European Union.
Dacic said the two sides set a goal of having a coalition agreement in a month, while Tadic ruled out any coalition with the Progressive Party, which won the most votes in May 6 general elections. They also need to decide who will be the third partner in their coalition to garner the majority in parliament.
The past four years have coincided with the global economic and European debt crises. The dinar has lost 30 percent, unemployment rose 10 percentage points, public debt increased 16 percentage points to 14.4 billion euros ($18 billion) and the average take-home wage is 360 euros per month.
Over the past five months, Serbia has widened its deficit to 6 percent of gross domestic product as revenue lagged forecasts. The goal was to keep the gap within 4.25 percent of GDP, in line with a $1.3 billion precautionary loan program with the International Monetary Fund, frozen in February when it became clear that Serbia would slip on its fiscal target.
The economy contracted 1.3 percent in the first quarter and the dinar has weakened by 8 percent this year to the lowest in a decade as investors pulled out amid uncertainty over Serbia’s direction after the general elections.
Nikolic, who met with National Bank of Serbia Governor Dejan Soskic, expressed concern about intervening to prop up the dinar almost daily. The Belgrade-based Narodna Banka Srbije has spent more than 1 billion euros to help the national currency over the past four months.
The dinar traded at 116.2388 to the euro at 4:00 p.m. in Belgrade, according to data compiled by Bloomberg. The main stock index of the 15 most actively traded assets closed 0.15 percent down at 449.91 points, the lowest in three years.
Soskic has spoken with the IMF and other institutions, who are waiting for a new government so fresh aid talks may begin, Nikolic said.
“They must return as quickly as possible so we can decide what can be done right away,” Nikolic told RTS. If the government is not formed soon, Serbia may face a Greek scenario, he said.
Dacic said his party “won’t insist” on taking part in a new coalition, and warned that a “a policy of continued austerity is history, it makes the poor even poorer and investments must be accompanied by wage increases.” Finding “the right balance between fiscal responsbility and the need for economic development” will not be easy,’’ Dacic said.
Soskic said today Serbia could not afford any fiscal expansion and that spending cuts don’t have to be painful, while any policy loosening would be punished by financial markets.
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