[stop-imf] SERBIA: IMF OFFERS BITTER PILL TO HEAL ECONOMY

[robert weissman]

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SERBIA: IMF OFFERS BITTER PILL TO HEAL ECONOMY

Belgrade, 9 May (AKI) =96 The International Monetary Fund (IMF) has
proposed some harsh medicine to cure Serbia=92s ailing economy. But if
strictly applied, the 'bitter pill' could signal a way out of the
current havoc and years of stagnation, financial experts agreed on
Monday. Talks with International Monetary Fund (IMF) representatives are
underway in Belgrade. The IMF has rolled out a raft of tough demands it
requires Serbia to meet in order for a three-year credit arrangement
that expires next week to be extended to the end of the year.

Sebia and Montenegro's economy has a number of significant problems,
including scarce foreign investment, double-digit inflation, a
substantial foreign trade deficit and high unemployment. The arrangement
Serbia and Montenegro signed with the IMF in 2002 laid down requirements
for fiscal discipline. The agreement provided for credit of 994 million
dollars, of which Serbia has already used 700 million.

But in order for Serbia to qualify for the last installment, and to
extend the arrangement, the IMF has demanded rigorous cuts in public
spending, drastic reduction of the foreign trade deficit, reform of the
pension system and layoffs in public firms.

The European Union is grooming Serbia and Montenegro for possible future
membership of the 25-member bloc. It has earmarked 184 million euros for
the country in 2005, targeted at helping create a free-market economy,
sustainable economic recovery and structural reforms, as well measures
to stabilise the country by developing government institutions and
legislation aimed at reinforcing democracy and the rule of law, human
rights, civil society and the media.

Finance minister Mladjan Dinkic has announced that 3,000 government
employees would be laid off by the beginning of July. Economists have
estimated that several hundred thousand people would have to join the
country's existing army of 900,000 jobless in order to meet the IMF's
demands. Analysts agree that such high levels of unemployment would
create dangerous social tensions, which might topple prime minister
Vojislav Kostunica=92s frail four-party coalition government.

Miloje Kanjevac of Belgrade's Institute for Market Research said that
the government should halve its current proposal to reduce the number of
civil servants by 10 per cent. High export growth of 50 per cent in the
first quarter of this year could contribute to considerably reducing the
current 7.5 billion dollar trade deficit, he argued.

On a less optimistic note, Kanjevac's colleague, Sasa Djogovic, said
that annual inflation would exceed the government's forecast 9.1 per
cent in 2005, and most likely reach last year's level of 13.6 per cent.
Experts agree that to avoid mass lay-offs and social unrest, the
country's gross domestic product needs to be doubled. In view of the
current state of the economy, this kind of growth cannot be achieved.

Dinkic said a planned write-off of a 700 million dollars of foreign debt
by the Paris club of creditors (the G8 nations plus several Scandinavian
countries, Spain, the Netherlands, Ireland, Australia and Switzerland)
depended on the outcome of talks with the IMF. Serbia=92s total foreign
debt currently exceeds 12 billion dollars.

Kanjevac said his government would strive to meet the IMF's minimum
criteria, saying: "It is indeed a minimum, and we should do it for our
own good,=94 Kanjevac said. He and Serbian economic experts expressed the
belief that the talks would end positively, despite the country's
current economic difficulties, saying the IMF would insist on cutting
public spending, but might show flexibility in other areas.


(Vpr/Ajd/Aki)

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