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Serbia Nears Cabinet Revamp, Top Party Repeats Early Poll Threat

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Aug. 29 (Bloomberg) -- Serbia’s main ruling parties moved closer to overhauling the cabinet even as a dispute over policies needed to shore up the European Union aspirant’s dwindling finances raised the prospect of early elections.

Lawmakers voted to split the Finance and Economy Ministry, opening the way for a shuffle of Prime Minister Ivica Dacic’s administration after he and Deputy Premier Aleksandar Vucic ejected Mladjan Dinkic, who ran the ministry, and his party from the government last month.

With his Progressive Party leading opinion polls, Vucic is pushing for spending cuts to reduce the budget deficit and win a new lending agreement from the International Monetary Fund. Dacic’s Socialist Party and its Pensioners Party allies argue more spending will help Serbia recover from two recessions in the past three years. They oppose cuts to retirement payments and public salaries, a stance Progressive economic policy coordinator Milenko Dzeletovic said may kill the coalition.

“We will have early elections” if any coalition partner “halts the reforms we plan to implement,” Blic newspaper cited Dzeletovic as saying today.

Serbia’s borrowing costs are above the 7 percent threshold that triggered bailouts in the euro area, putting pressure on the government which needs between 1.6 billion euros ($2.1 billion) and 1.7 billion euros to get it through the end of the year, former central banker and finance ministry adviser Milojko Arsic told Bloomberg this week.

Yields on Serbia’s 10-year Eurobonds maturing in 2021 rose two basis points, or 0.02 percentage point, to 7.177 percent by 11:40 a.m. in Belgrade.

Shuffle

Even though Vucic is the dominant figure in government, he will let Dacic keep the prime minister spot, party official Slavica Djukic-Dejanovic told NIN magazine on Aug. 15.

Dacic’s Socialists revealed the names of new candidates for the revamped cabinet, including Socialist Party executive board chief Branko Ruzic as minister without portfolio for European Union integration and Belgrade deputy mayor Aleksandar Antic as transport minister.

Vucic has tapped former McKinsey & Co. associate Lazar Krstic, to be the new finance minister and asked former International Monetary Fund head Dominique Strauss-Kahn and one-time Austrian chancellor Alfred Gusenbauer to be advisers.

Last week, Krstic said budget deficit must narrow to 4 percent of gross domestic product from an estimated 6.5 percent this year and adopt a 2014 budget for Belgrade to qualify for a $250 million loan from the World Bank, magazine NIN reported.

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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