IMF worried over Serbian $2 billion investment plan

BELGRADE – The International Monetary Fund (IMF) advised Serbia to rethink a 1.67-billion-euro ($2 billion) public investment plan scheduled for next year, saying that spreading it over a longer period would protect the economy. The message came through Serbia’s central bank governor Radovan Jelasic, who met IMF officials in Singapore during the lender’s annual meeting. The office of the IMF resident representative in Belgrade declined comment. «The IMF expressed concern over the plan’s impact on the Serbian economy, both due to the volume of the funds and the structure of the planned investments,» Jelasic said in a statement. «The IMF understands Serbia needs to invest in infrastructure, but believes the investment should be made over a longer period of time, to make it more efficient and to avoid a negative impact on macroeconomic stability,» he said. Encouraged by unexpectedly high privatisation revenue, seen above $3 billion this year, the government drafted a plan to build new roads, improve environmental protection, upgrade hospitals and give scholarships to halt the country’s brain drain. The government wants to spend 400 million euros this year. The remaining 1.2 billion euros would be kept in foreign government bonds until 2007 projects get approved. The plan, labelled by critics a «pre-election sweetener,» is part of a revised 2006 budget. If approved by parliament, Serbia’s 2006 budget surplus would fall to 0.8 percent of GDP from 2.3 percent initially agreed with the IMF. Elections are due in late 2007, but there is growing expectation that tough political challenges will force the ruling minority government of Prime Minister Vojislav Kostunica into an early ballot, probably in March. That prospect has put the brakes on plans to restructure and privatize some public companies, seen as essential for Serbia’s further economic transition but unpopular with voters. The IMF board of directors will look into Serbia’s reform progress on October 18. «Its statement on where Serbia stands in terms of reforms is of exceptional importance for Serbia’s future rating and for the type of signal it will send to potential investors ready to invest in Serbia,» Jelasic added. The central bank has already criticised the revised budget draft, warning it would affect inflation and monetary policy. The government denies both charges, saying 2006 inflation would be in line with a 9.3 percent a year initial plan. It stood at 13.1 percent year-on-year in August – off 17.7 percent at the end of 2005. To achieve the goal, the central bank must stick to high interest rates, a 60 percent reserve requirement and strong dinar to keep price pressures under control.