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Serbia Triples Subsidies as Seeks to Stimulate Bank Lending

Oct. 15 (Bloomberg) -- Serbia boosted subsidies to more than 1 billion dinars ($12 million) to encourage banks to lend to companies facing liquidity problems during the Balkan nation’s second recession in three years.

The ministry more than tripled corporate subsidies after its initial 300 million dinars in state aid in late August prompted banks to approve more than 669 million euros ($866 million) of liquidity loans, with big companies accounting for 55 percent of the total, the ministry said in a statement today. Exporters received 80 million euros in subsidized loans.

“Considering the great demand in the market, subsidies have been raised through the rest of the year,” Finance Minister Mladjan Dinkic told reporters at a Belgrade press conference today.

Serbian policy makers are seeking ways to prop up companies amid an economic slump and draft a 2013 budget to restore a suspended $1.3 billion loan from the International Monetary Fund. The government is targeting a fiscal gap of 1 percent of economic output in 2015, after narrowing it to 3.5 percent in 2013 and 1.9 percent in 2014.

The renewed lending activity, spurred by the August subsidies, forced banks to rebuild their dinar positions to be able to lend, triggering a rally in the dinar, the central bank said today.

Dinar Gains

The dinar gained 1.39 percent to an intraday high of 110.3866 at 12:28 p.m. in Belgrade today, its highest level in seven months. The Narodna Banka Srbije stepped in to buy euros at just below 111 to the euro to slow the rally.

Dinkic, who is also the economy minister, said Serbia will maintain subsidies for foreign and domestic investors who open factories across Serbia and create new jobs, helping the economy emerge from recession. The government will expand subsidies to investors worth a total of 8 billion dinars in 2013 from 6.5 billion dinars this year, he said.

Dinkic spoke after Serbia’s Investment and Export Promotion Agency signed 32 million euros worth of subsidies to 11 domestic and 11 foreign companies, who will invest a total of 120 million euros over the next three years and open 5,000 jobs.

Investors include Cooper Standard Holdings Inc., which will receive 8,000 euros for each of 500 new jobs created at its 18,000 square-meter (193,750-square-foot), 20.1 million-euro manufacturing facility.

‘Pro-Business Environment’

The U.S. manufacturer chose Serbia for its “pro-business environment, proximity of customers and the ability to get us a better cost structure going forward,” Cooper representative Robert Kuenning said.

Serbia is is betting investment in manufacturing will underpin next year’s economic rebound, with growth largely expected to be led by the car industry as Italy’s Fiat SpA expands production and exports.

The economy is forecast to grow 2 percent in 2013, he said, after contracting 1 percent this year, Dinkic said. The central bank sees the economy shrinking 1.5 percent this year and expanding by 3 percent next year.

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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