Serbia’s Vucic Poised to Lead Cabinet With EU, IMF Vows

Serbs headed to the polls today in early parliamentary elections designed to install Deputy Prime Minister Aleksandar Vucic as the head of a government vowing to spur the economy and win European Union membership by 2020.

Vucic’s Progressive Party, which forced a ballot two years earlier than scheduled, leads the campaign with 44.6 percent, compared with 13.8 percent for Premier Ivica Dacic’s Socialist Party, according to a March 10-11 poll by Belgrade-based Faktor Plus. The survey has a margin of error of 3 percentage points.

Vucic, who said in 1995 that his country would kill 100 Muslims for every Serb who died, wants his party to win a full majority in parliament. He now pledges to embrace austerity measures endorsed by the International Monetary Fund and embark on talks to make Serbia the third former Yugoslav republic to join the EU two decades after the bloody Balkan civil wars.

“I am sure we will be able to form a government that will be able to continue along our European path faster,” President Tomislav Nikolic, a member of Vucic’s Progressive Party, told reporters after voting in Belgrade. “Things are clear. This is a great chance for Serbia.”

Polling stations across the country of 7.2 million people will close at 8 p.m., with preliminary results expected later in the evening. Final official election results will be announced by March 20, according to the Election Commission.

Milosevic Association

Vucic has promised billions of dollars worth of investments from the United Arab Emirates to create jobs in an economy which has the same number of active workers and pensioners and where one in four is without a job. EU accession also promises to raise living standards and output per capita, which at 36 percent of the EU’s average, is lower than those of the bloc’s poorest member, Bulgaria, according to Eurostat.

Riding a wave of a growing western-leaning electorate would give Vucic’s party the strongest lock on power by a single party since the communist days. Aside from Nikolic in the presidency, senior party official Jorgovanka Tabakovic is the central bank governor.

Vucic’s critics fear a tendency to wield a powerful hand over institutions may give him too much influence in a country that has received criticism from the EU for weak rule of law and selective justice.

“Things are not black and white,” Sonja Licht, an analyst at the Belgrade Fund for Political Excellence, said today by phone. “A great dominance of a single party in a relatively young democracy like Serbia can be dangerous, since they want to control all segments.”

EU Turnaround

Once a prominent member of the Radical Party led by Vojislav Seselj, who is now awaiting a Hague court verdict on charges of war crimes and crimes against humanity, Vucic is trying to shake off associations with his past relations with former strongman Slobodan Milosevic and his cronies.

He supports membership in the EU, a turnaround from the years when he and political allies resisted EU demands to give up suspected war criminals, renounce claims on Kosovo, a former province that declared independence, and bring the judiciary into line with EU norms.

The elections are “all very much positive for Serbian credit,” Abbas Ameli-Renani, a strategist at Royal Bank of Scotland Group Plc, said by e-mail on March 14. “In my view, all the positive news is already priced at this stage and I don’t expect any further relative tightening of Serbian yields on the back of a positive election outcome.”

Yields on the 2021 dollar bond rose 3 basis points, or 0.03 percentage point, to 5.57 percent by 2:44 p.m. on March 14 in Belgrade, data compiled by Bloomberg show.

Anti-Corruption Drive

Supporters also say Vucic is committed to fighting corruption that has left Serbia behind all its ex-Yugoslav partners and neighboring EU members Romania and Hungary in Berlin-based Transparency International’s 2013 corruption perception rankings.

Dragoljub Jovicevic, a 54-year-old lawyer from Belgrade, said he is casting his vote for Vucic and the Progressives because they will be “decisive” in dealing with rampant graft.

“I know corruption won’t disappear overnight,” Jovicevic said, as he sipped coffee at a cafe overlooking Belgrade’s St. Sava cathedral. “But someone needs to start doing that or we’re doomed.”

While Vucic has promised to form a cabinet with broad support to tackle unpopular measures, “we are more likely to end up with a narrow coalition,” said Naz Masraff, an analyst at political-risk assessor Eurasia Group in London, in a March 4 note. Vucic has yet to prove his commitment to reform is genuine, Masraff said.

Public Debt

The Progressives have “talked the talk of economic reforms” but “done little to walk the walk,” Masraff said.

Serbia’s new government will inherit an economy that the central bank expects to grow 1 percent this year. Serbia’s 2014 budget targets a fiscal deficit of 7.1 percent of gross domestic product. It will need to narrow the gap further and cut public debt by 2016 to meet commitments to the IMF, which suspended a loan in 2012.

The next government needs to focus on fixing its pension system and labor market, overhauling failing state-owned enterprises and cleaning up public finances, unpopular measures that if not done quickly may turn public opinion against it.

“If they start with economic, social and institutional reforms they have a chance to last longer,” Licht said. “If not, the citizens will punish them.”

Before it's here, it's on the Bloomberg Terminal.