ECONOMY

IMF Belgrade trip off

BELGRADE (Reuters) – The International Monetary Fund said on Saturday it was holding up a mission to Belgrade after Serbia adopted a watered-down pension reform that disregarded agreed changes. «The IMF mission scheduled to arrive in Belgrade on Wednesday has been postponed for the time being,» Harald Hirschhofer, the IMF resident representative in Belgrade, told Reuters. «We are in the process of assessing the fiscal impact of the approved pension law in cooperation with the government,» he said. In a statement to local media, the Finance Ministry said talks were held up for a few days only «until the government assessed the fiscal impact.» The IMF told Serbia last week the mission, due in Belgrade for the final review of Serb policies and reforms under ongoing 2002-2005 extended financial facility, would come only if the new pension law strictly followed elements agreed to in May. Only a successful completion of the deal will bring Serbia further debt forgiveness from the Paris Club. The sovereign lenders gave Serbia a phased 66 percent write-off deal on $4.5 billion debt in 2001, with 51 percent relief at the start of the program and 15 percent on its expiry. To win a six-month extension of the loan deal, Serbia agreed in May to sell control in its two refineries and launch pension reform to cut heavy subsidies to the inefficient system. The pay-as-you-go system currently consumes $3.0 billion, or 14 percent, of Serbia’s gross domestic product. The new law is expected to secure some $144 million worth of savings in 2006. The new law keeps average pensions from falling below 60 percent of average salaries in the next three years. The IMF had wanted Serbia to scrap any link between pensions and salaries and calculate it only according to the cost of living. The law introduces semi-annual pension adjustments, although the IMF had called for annual adjustments only. The retirement age will be raised to 65 from 63 for men and to 60 from 58 for women as of 2008, two years later than the IMF stipulated. It also envisages an unspecified volume of subsidies for workers at state monopolies who lose jobs during privatization. The changes to the initial agreement with the IMF were forced by the Socialist Party of ex-president Slobodan Milosevic. Its power base is mainly pensioners and its 22 MPs give key support to the minority coalition of Prime Minister Vojislav Kostunica. For the loan deal to be completed, Serbia must also offer a draft 2006 budget with clear inflation-busting measures. The central bank urged the government on Saturday, for the third time last week, to keep the draft consistent with pledges made to the IMF, step up contacts with the lender and pave the way for the final round of talks.