Serbia’s Vucic to Seek IMF Deal, Investment in Cabinet

Serbian Prime Minister-Elect Aleksandar Vucic vowed to cut spending and avoid debt restructuring before a vote on his government as he begins work on an international aid accord and European Union membership.

The 250-seat Belgrade-based parliament, which convened today for the first time since a March 16 ballot, is dominated by Vucic’s Progressive Party. With control of 158 seats, his cabinet is expected to win approval on April 27.

The new administration will have the strongest lock on power by a single party in more than two decades, when Slobodan Milosevic was still in control. Vucic will seek to persuade the International Monetary Fund to approve a standby agreement by the end of June and draw investors back to the biggest of the former Yugoslav republics.

“We will reach an agreement with the IMF, which we haven’t been able to achieve for years, and the deal will be possible because the IMF believes in our seriousness and commitment to reforms,” Vucic said in a press conference April 14. An IMF accord will show investors that “Serbia is a good place to be in.”

Vucic is counting on billions of dollars of investment from the United Arab Emirates to create jobs in an economy where one in four people is unemployed. EU accession will help raise living standards and per-capita economic output, which at 36 percent of the trading bloc’s average, trails that of the EU’s poorest member, Bulgaria, according to Eurostat.

Falling Yields

The yield on Serbian 10-year Eurobonds rose 4 basis points, or 0.04 percentage point, to 5.466 percent at 5 p.m. in Belgrade, data compiled by Bloomberg show. The cost of insuring Serbian government bonds against non-payment for five years using credit-default swaps fell 10 points to 310, the lowest level since June 20, 2013. It fell 78 points from 388 on March 14, two days before the vote.

The Washington-based lender suspended its loan program with Serbia in February 2012 when the country slipped on agreed fiscal targets. The deficit has since almost doubled and will rise to an estimated 7.1 percent of economic output this year.

Vucic pledged to embrace painful austerity measures endorsed by the IMF, which involve saving as much as 1.4 billion euros ($1.9 billion) in three years, cutting public-sector jobs and ending subsidies to 153 enterprises which employ about 60,000 workers and drain about $1 billion a year from the budget.

Fiscal Priorities

“Structural reforms and fiscal consolidation” come first, and there’s no need to restructure debts yet, Vucic said.

Serbia’s new cabinet will have 17 ministers, which will include former central bank Governor Kori Udovicki and Lazar Krstic, who will keep his post as finance minister, Vucic said. The Progressives will negotiate a coalition with the Alliance of Vojvodina Hungarians, the biggest ethnic minority party to have entered parliament. The Socialists of former Prime Minister Ivica Dacic may also join, Vucic said.

President Tomislav Nikolic and central bank Governor Jorgovanka Tabakovic are also senior members of Vucic’s party.

A collapse in coalition talks with the New Democratic Party of former President Boris Tadic “has raised investor concerns over implementation of economic reforms,” Otilia Dhand, an analyst at political risk evaluator Teneo Intelligence, said in an e-mail today. “However, the proposed structure of the new cabinet suggests the anti-reform Socialist Party of Serbia’s impact on economic policy will be limited.”

The Progressives plan to achieve savings through cuts in travel allowances, restricted use of chauffeured cars, additional taxes on politicians’ income and a crackdown on the gray economy. Vucic’s popularity before the elections was bolstered by the arrest of Miroslav Miskovic, Serbia’s richest man, in December 2012 on accusations of abuse of state funds.

No Work

“The key problem of Serbia is that it does not offer jobs to its people, because there’s no work available,” Vladimir Gligorov, an economist at the Vienna Institute for International Economic Studies, said in Belgrade on April 14. “That is the biggest curse for a country and for an economy and such a situation is not sustainable.”

Once an ally to the late Milosevic, Vucic wants to make Serbia the third former Yugoslav republic to join the EU two decades after the violent Balkan civil wars. The country began accession talks in January and their success depends on mending ties with Kosovo, a former province that declared independence in 2008, and bringing the judiciary in line with EU norms, among other conditions.

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