ECONOMY

Serbia agrees to cut budget expenditure

BELGRADE (AP) – Serbia’s government approved a 2006 budget proposal late on Friday, moving to further cut public spending as demanded by the International Monetary Fund. The Cabinet reviewed the 487.9-billion-dinar (5.6-billion-euro) budget proposal for next year at an urgent session amid earlier reports that key negotiations with an IMF delegation had stalled. The Washington-based IMF has been aiding Serbia’s transition process following years of mismanagement under former president Slobodan Milosevic that ravaged the country’s economy. The ongoing negotiations in Belgrade are critical for the IMF’s sixth review of a three-year loan to Serbia, the dominant republic in the Serbia-Montenegro union. In May, the IMF extended the $994 million (835-million-euro) credit arrangement to the end of 2005, giving Serbia time to cope with its budget deficit and growing inflation. If the IMF does not approve the latest extension of the loan, Serbia would have to return 2.2 billion euros to the Paris Club creditor nations by March next year. If the IMF loan is approved, the sum would be reduced to 1.6 billion euros. Finance Minister Mladjan Dinkic said that the 2006 budget was agreed upon with the IMF and that the talks were «very successful.» Dinkic said the IMF team will remain in Belgrade for an extra week to work out details about the salaries in public companies and the monetary policies. According to Dinkic, Serbia will cut spending in health services, reduce aid to state-run companies and slice salaries in administration and public services. The finance minister said he expected a surplus of 39.6 billion dinars (462 million euros). The 2006 budget needs approval in the Serbian Parliament, in a possible challenge to Prime Minister Vojislav Kostunica’s government, which depends on parliamentary backing from the Socialist party. Serbia’s Parliament recently approved an IMF-demanded pension law only after a key provision in the legislation was changed upon the Socialists’ insistence – a move that led to a crisis in negotiations with the fund. Serbia’s budget deficit last year was 32.6 billion dinars (431 million euros), or 2.2 percent of the gross domestic product, despite relatively modest salaries in the public sector that average 250 euros a month.