ECONOMY

Serbia’s failure to reform casts doubt on IMF loan plan

BELGRADE (Reuters) – Serbia and the International Monetary Fund acknowledged last week that frustration is growing over Belgrade’s failure to implement energy and pension system reforms, which could imperil an IMF loan program. Officials familiar with the situation told Reuters the frustration grew after the government postponed key reform decisions to late August, after a three-week summer break. Serbia failed to meet an end-July deadline to call a tender for an adviser to prepare the privatization of Serbia’s two refineries. It also postponed the adoption of planned pension reform. «The IMF expressed great concern about the implementation of agreed reforms, especially those related to NIS (the state oil monopoly), pension system and monetary policy,» said a source familiar with the issue. The list of less critical failures also includes inability to hit single-digit inflation this year, although Belgrade seems to be on track to deliver a healthy export growth, a reduced balance of payments deficit and a budget surplus. The sources said that in a letter to Prime Minister Vojislav Kostunica this week, the IMF warned the ongoing three-year loan agreement would be at stake if Serbia failed to reform NIS and put on sale majority stakes in its two refineries. If the loan was cancelled, Serbia would lose additional debt forgiveness from the Paris Club, which gave it phased 66 percent write-off on a $4.5 billion debt in 2001, with 51 percent relief at the start of the deal and 15 percent on expiry. «The loan facility has been designed to support structural reforms,» the source said adding that the lender felt it was inappropriate to be drawn into Serbia’s political disputes. Serbia initially agreed to NIS reform in May, to win a six-month extension of the loan, but started to back off after both NIS and opposition parties said it would make more sense to boost the value of the company and sell minority stakes later. The Energy Ministry, run by Kostunica’s party, now wants an adviser to draft a non-binding privatization strategy for NIS. Bone of contention Analysts say it is unclear if Kostunica would risk losing the IMF loan to stay in power, or go for reforms and face early elections. Kostunica has been slow to approve privatization in the energy sector, railways, air transport and telecommunications, which will result in thousands of unpopular layoffs, strip the state of its influence and bite into some vested interests. The NIS privatization has become a bone of contention within Kostunica’s minority coalition of conservatives, royalists and technocrats, which relies for support in parliament on the Socialist Party. The Socialists said they would vote against a plan that ends state control over NIS, the monopoly which «greatly affects the standards of living.» Deputy Prime Minister Miroljub Labus said the price of backing off would be high: «Investment risk, interest rates and unemployment would rise and foreign investor interest would fall,» Labus said in a statement. «Treating public companies as the property of political parties is the biggest risk for the future of Serbia.»