Serbia’s central bank says IMF-proposed reforms necessary for finalizing loan deal

BELGRADE (Reuters) – Serbia’s central bank said yesterday that Belgrade had no chance of finalizing its ongoing loan deal with the International Monetary Fund if it continued to stall or water down the reforms demanded by the IMF. Radovan Jelasic, governor of the central bank, gave the warning after meeting with Anne Krueger, the first deputy managing director of the IMF, in Washington this week. «During the talks, IMF representatives… unequivocally emphasized they expect Serbia to fully meet commitments made under the loan agreement,» Jelasic said in a written statement. In May, Serbia got a six-month extension on its 2002-2005 loan deal by promising the IMF it would hire advisers for the sale of majority stakes in two state-owned refineries next year and reform its inefficient state-run pension system. But in August the government bowed to months of domestic criticism and watered down the pension reform and said it would keep control of the refineries by maybe selling minority stakes only. «Judging by what has been achieved to date, the IMF cannot see right now how the program can possibly be successfully completed,» Jelasic said. The completion of the deal would also «test Serbia’s declared commitment to European integration.» Serbia has just six weeks to return to the path agreed upon with the IMF. By late October, an IMF mission is due in Belgrade for a final review of the reform progress. «The agreement cannot be renegotiated… The process of reform is like pulling teeth without anaesthesia. And there is no decision in Washington on whether the mission will come at all,» an official familiar with the situation told Reuters. Without reforms, the IMF would simply let the loan expire uncompleted and Serbia would lose $700 million in additional debt forgiveness from the Paris Club, the official said. The official said the IMF would reject any Serbian offers to sell minority stakes in the refineries to several investors or selling a majority stake but keeping a golden share. «The agreement says the refineries must be sold to a strategic partner. That means a single investor who takes over both ownership and management of the company,» the official said. The IMF wants Serbia to shift to annual adjustments of pensions from the current quarterly system. Belgrade wants to adjust them to every six months and make interim adjustments if inflation tops 5.0 percent. This year’s forecast is 14 percent. Serbia also needs to pass a new bank law, force public companies to submit audited financial statements, implement the bankruptcy law, and show fiscal tightening in 2006.