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Top Serb Ruling Party Threatens Snap Poll in Cabinet Delay

Aug. 26 (Bloomberg) -- Serb lawmakers delayed a vote on a revamped cabinet after the prime minister’s party failed to agree on its own list of nominees and prompted its larger ruling partner to threaten early elections.

With a year-end financing squeeze approaching, Deputy Prime Minister Aleksandar Vucic’s poll-leading Progressive Party is pushing for a cabinet shuffle in which it wants to take over the prime minister post from Ivica Dacic’s Socialists. They ejected Mladjan Dinkic and his party from the government last month and will begin a debate today on a law to split the Finance and Economy Ministry, which Dinkic led, into two entities to pave the way for a new cabinet.

Facing borrowing costs higher than the 7 percent threshold that triggered bailouts in the euro area, the parties agreed to reconstitute the cabinet by the end of August. Dacic didn’t propose new names at a meeting yesterday. Vucic, whose Progressives are the biggest government party, said the Socialists needed to act fast to avoid early elections.

“There is a limit where we, on the political scene, can tolerate someone’s arrogance, someone’s insolence,” Vucic told 404 members of his party’s main board on Aug. 25. “You won’t have to wait long for the moment when we have to say enough” to policies that halt Serbia’s progress, he said. He told his party to be ready for elections as if they would be called now.

Yields on Serbia’s 10-year Eurobonds maturing in 2021 rose 6 basis points, or 0.06 percentage point, to 7.16 percent by 2:15 p.m. in Belgrade, data compiled by Bloomberg showed. The dinar traded little changed at 114.2920 against the euro.

Financial Strain

Serbia’s government needs between 1.6 billion euros ($2.1 billion) and 1.7 billion euros to get it through the end of the year, Milojko Arsic, chief economist at the Foundation for Advancement of Economics and a former central banker and finance ministry adviser, said in Belgrade.

Sinisa Mali, an economic adviser to Vucic, also told Bloomberg on Aug. 20 Belgrade would approach the International Monetary Fund to discuss a new loan and assure investors that the government was serious about overhauling the economy.

Dacic and Vucic are both trying to shake off associations tied to their nationalist pasts in the 1990s, when their party leaders Slobodan Milosevic and Vojislav Seselj led Serbia through a series of wars. Vucic says he wants to overhaul the pension system, improve the business environment, reduce unemployment and lure investors. His Progressives lead opinion polls with more than 40 percent support.

Energy Minister Zorana Mihajlovic told Belgrade newspaper Informer that government shuffle would be incomplete if Vucic didn’t take the prime minister’s post and Dacic should “think about resigning.” Mihajlovic, vice-president of the Progressives, later told Pink TV broadcaster that she “has never requested the prime minister’s resignation” and that lawmakers would vote for the new government this week.

’Increasingly Vulnerable’

Besides tapping Krstic, a former McKinsey & Co. associate, for finance minister, Vucic has also invited former IMF head Dominique Strauss-Kahn and one-time Austrian chancellor Alfred Gusenbauer to be advisers. Dacic said his talks with candidates would be held this week.

Moody’s Investors Service, which assigned a non-investment grade B1 rating to Serbia’s local and foreign-currency bonds on July 14, said in an update today that Serbia’s public finances were “increasingly vulnerable to international market volatility and interest-rate trends.”

Forecasting economic growth of between 1.5 percent to 2.5 percent this year and next, Moody’s said the rating outlook would improve if the government substantially narrowed its budget gap and quickened growth. Continued high deficits and debt levels would put the rating under downward pressure.

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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