Serbia Approves Labor Code as Premier Seeks Spending Cuts

Serbian lawmakers approved a new labor code as the government tries to shrink the public sector to narrow the budget deficit and qualify for the International Monetary Fund’s program.

Lawmakers voted 190-21 to approve the new bill, which eases hiring and firing rules, allows longer fixed-term contracts, lowers severance payments and does away with industry-wide collective agreements. The law is effective immediately.

Thousands of workers protested in Belgrade earlier this week, asking President Tomislav Nikolic not to sign the bill. The trade unions said they’ll seek to collect at least 100,000 signatures needed to force cancellation of the measure. They blame Prime Minister Aleksandar Vucic for meeting most of the requests that came from foreign employers in Serbia.

Vucic’s three-month-old cabinet, which left the net minimum wage at 115 dinars ($1.34) per hour today, is under increasing public and political pressure as it balances promises to create jobs while trimming the budget gap. Serbia has fewer than 1.7 million people actively employed, just as many pensioners and 787,000 jobless. About 780,000 work in public administration and state-owned companies.

Pension Law

Lawmakers also voted 190-22 to amend the pension law, gradually raising the retirement age for women to 65 from 60 during next 18 years and introducing penalties for early retirement. Spending on public wages and pensions accounts for more than half of the government’s budget.

Vucic is trying to stabilize his cabinet after Finance Minister Lazar Krstic quit on July 12, saying the premier was unwilling to go along with his austerity measures. Krstic’s successor, Dusan Vujovic, said he wants to seek international financing to ease the pain of austerity and is looking for a three-year IMF loan by early October for stability.

Serbia needs to narrow its budget deficit, which is expected to top 8 percent of economic output this year. The economy is facing its third recession in five years, which is weighing on budget revenue even as spending is set to increase after the country was hit by the worst floods in a century in May. Fifty-seven people were killed and damage totaled an estimated $2 billion, or 5 percent of Serbia’s gross domestic product.

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