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The Government of the Republic of Serbia

In the service of citizens

Pension system to be revised

Belgrade, 12 May 2005

Serbian Minister of Economy Predrag Bubalo gave an interview on negotiations with the International Monetary Fund (IMF), subsidies for poor performing companies, demand to cut public expenditure and privatisation of mining and metallurgical complex RTB Bor and Kragujevac car maker Zastava. The government’s official website brings excerpts from the minister’s interview for weekly Vreme.

Predrag Bubalo

On the start of negotiations with the IMF:

I was optimistic that we would end the fifth revision of the three-year arrangement with the IMF because in 2004 we had an 8.3 percent GDP growth and respectable industrial production growth. The rise in the foreign deficit, however, embittered our negotiations with the IMF Mission as monthly inflation early this year was substantial, resulting from the rise in the price of crude oil on the global market and introduction of the value added tax (VAT).

We are requested to thoroughly revise our pension system. Nowhere in the world such large sums are allocated for pensions. The pension system reform is always a sensitive issue, but we need to start that job immediately. After that, we need to speed up the military reform too.

We are also required to bridge expenditure inconsistencies between local and central authorities.

We must also speed up structural reforms in large public and socially owned companies. The IMF acknowledges our excellent results in privatisation.

A lot has been done in the restructuring of large public companies lately. Restructuring strategies have been adopted, non-core activities were set aside, etc. But the IMF demands swifter results.

I support accelerated privatisation of non-core companies, but I think we must be very careful with vital companies as they are most precious.

The IMF said it will discuss delay of the arrangement by the end of the year. We asked for the delay due to the time lost in 2003. It is particularly important as the drawing of the remaining $200 million and the write-off of $700 million to the Paris Club of creditors is awaiting us. Still, I am optimistic about the positive outcome.

On the request for reduction in public expenditures

- We must reduce the demand that is unsecured because that creates inflation and trade deficit and then we have to control the rise in personal income.

Subsidies for poor performing companies

- We have no alternative there and I think that the IMF mission has accepted our reasons for maintaining the projected level of subsidies for the economy sector. Already last year the IMF requested a complete suspension of them but they are no longer insisting on that. It needs to be taken into account that some companies are getting off the list of those being subsidised because they have recovered through privatisation. They are still financially negative but are gradually recovering and increasing production. I believe that already next year we will be able to cut budgetary subsidies to industrial firms because many of them will find strategic partners.

On interest rates

- I have to admit that Serbia has skyrocketing interest rates. They are additional burden to the economy because it has no working capital, it has no necessary funds for financing the production. Serbia would have remarkably higher exports if its companies had favourable production loans. However, this bad situation is gradually getting better. Last year we managed to increase productivity, even more than personal income in the economic sector itself. But that did not reflect adequately on our competitiveness at the world markets because salaries are being raised in non-industrial sectors.

On privatisation of largest loss makers such as RTB Bor and Zastava

- In these companies we are making big progress. As far as Zastava is concerned, we have already sold three parts of this company. We reached an agreement on the write-off of Zastava's debts to Fiat. We are working to give Zastava a chance but its up to them whether they will use it.

The Mobtel case

- It has already been made public that the Alfa Group decided not to buy the majority stake of Mobtel. The government's position is very clear. The government can be given as a present any percent of co-ownership over a company and we can always prove that the state is the majority owner of Mobtel because we have the documentation. That evidence will be checked at two arbitration disputes, one initiated by BK Trade and other by the public company PTT Srbija. It would be good if we could reach an out-of-court settlement and not lose time because telecommunications are developing very rapidly and now is the moment for the state to call a tender for the privatisation of its majority stake in Mobtel. If we can't do that with the BK Trade perhaps we will with some other co-owner.