IMF opens Serbia loan talks



The International Monetary Fund opened talks in Serbia on Monday about the crisis-hit country's bid for another slice from a 4.0-billion-dollar standby loan agreed earlier this year.

The IMF mission led by Albert Jaeger is seeking assurances of Serbian measures to combat a soaring budget deficit in meetings with government officials, the central bank and private sector.

Prime Minister Mirko Cvetkovic said he would present the IMF with a proposal during a meeting on Monday to slash public expenditure "through rationalisation and comprehensive reform of the state sector.

"Public sector reforms would reduce government spending, make the government more efficient and help the country's economic strength and competitiveness," the Serb leader was quoted as saying in a statement ahead of the meeting.

These reforms are expected to test the resolve of the Fund, which favours unpopular income tax hikes.

Serbia imposed IMF-backed cuts to reduce the budget deficit in April, including a 10-percent reduction in public spending and new taxes, but many measures were never realised or failed to produce the desired results.

Cvetkovic has said his government intends to ask the IMF to approve a budget deficit representing 4.5 percent of gross domestic product versus the 3.0 percent previously agreed.

At stake for Serbia is an IMF instalment from the 3.0-billion-euro (4.0-billion-dollar) emergency loan agreed in March under a 27-month programme. Serbia has already drawn down 788 million euros from the arrangement.

The former Yugoslav republic has been battered by a sharp fall in foreign investment and the ballooning budget deficit as a result of the global financial crisis.

Its economy is expected to shrink by 6.0 percent in 2009, an abrupt turnaround from the 6.0 percent growth forecast before the onset of the crisis late last year.

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