BELGRADE (Reuters) – The Serbian economy will continue to grow by 4 to 8 percent a year if hardline nationalists form a government, according to the opposition Radical Party’s chief economist Jorgovanka Tabakovic. But the policies to ensure growth would change to reflect the global economic downturn, and would allow double-digit inflation and a weaker dinar, Tabakovic told Reuters in an interview ahead of Sunday’s general elections. She said the central bank would have to drop inflation targeting, which has been a key policy since September 2006. «Growth could be around 6 percent in 2008 with a solid (grain) harvest,» Tabakovic said. Drought could keep it below 4 percent, but with favorable weather, it could run at 8 percent and more, she added. «Inflation of 10-15 percent is realistic (in 2008-2012), but it will be controlled through fiscal policy, not central bank repo operations,» Tabakovic said. Wage controls, income tax reforms and incentives to save rather than spend money will top a list of measures. Serbs vote on Sunday in an election seen as decisive for the nation’s future, after the former coalition collapsed over whether Serbia should pursue European Union membership or shun it because of the EU’s support for the secession of Kosovo. The Radicals, Serbia’s strongest party, say they will not «sell out» the country’s territorial integrity and right to sovereignty over the ethnic Albanian-dominated province simply in order to join the EU. Polls forecast a tight race between them and the pro-Western bloc led by President Boris Tadic, who wants Serbia to pursue EU membership without making reversal of Kosovo’s independence a condition. «With a clear victory and a four-year term, belt-tightening is inevitable,» Tabakovic said. The state would give more money to the poor, who spend most of their income on staples. «For them, inflation has been 60-70 percent… Food prices will continue to rise in the next two years and adjustments to deteriorating external circumstances are inevitable.» She said a Radical-led government would cooperate with the International Monetary Fund – for policy guidance. «We do not need the IMF as an excuse for the unpopular measures we plan to take. But we need them as economic advisers to better see our own situation and for their opinion on global trends.» As finance minister, Tabakovic would propose changes to the 2008 budget, to set aside more for capital investments. A new government would also have to take into account pre-election wage and pension hikes and the fact that inflation – at 12 percent in April – is double what the outgoing government had pledged. In a Radical-led government, the central bank can forget about inflation targeting, which Tabakovic said was «the most expensive economic experiment. Inflation targeting is a clear signal to speculators to come and get a 15.25 percent interest rate on euros because the only way inflation targeting works is with the firming dinar.» The central bank last raised its key policy rate by 75 basis points to 15.25 percent on April 24 to curb prices and try to bring core inflation down into a 3-6 percent targeted band. Tabakovic said her party’s election victory should not sour investor sentiment. Serbia needs up to 5 billion euros in foreign investment a year to finance its current account gap. «Our message to everyone is that all investments are welcome and that we offer a stable, convenient business environment. No one will be afraid of a government which loathes corruption.» The same message goes to portfolio investors, who have been pulling out of Serbia since the start of the year, driving the nascent stock market to its lowest level in 17 months. «We will offer tax incentives to all investors, not as a bonus for fear but as an incentive for a big start in Serbia.» But if it came to a massive flight of capital, the central bank would have to protect foreign exchange reserves of $15 billion. «The central bank would have to defend the reserves with the dinar exchange rate,» she said. The reserves are impressive, she said, but with only 10 percent of them being the central bank’s own money, they are not enough to safeguard Serbia’s external liquidity. «But under unchanged circumstances, the exchange rate should be between 82 and 86 dinars to the euro in 2008,» she said.