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The Government of the Republic of Serbia

In the service of citizens

Serbia to become a country with relatively low foreign debt burden

Belgrade, 31 August 2006

Serbian Minister of Finance Mladjan Dinkic said in an interview with weekly Vreme that from a medium indebted country Serbia will soon become a country with relatively low external debt burden as Serbia’s external debt is expected to decrease by between $2.5 billion and $3.5 billion.

The government’s official website brings excerpts from the interview.

External debt:

“From a medium indebted country Serbia will soon become a country with relatively low external debt level. I am completely convinced that Serbia could enter year 2007 with a substantially lower foreign debt. First of all, a part of the so-called Kosovo debt will be written off, and that is not a small sum as it amounts to around $1 billion. Apart from that, the government adopted last week a plan on “exchange” of up to $1 billion to the Paris club for investments, and we have the right to that in accordance with contracts concluded with the Paris club in 2001.

We will suggest replacing part of the debt for investments in ecological projects and infrastructure building in local self-governments. Also, we are ready to repay part of the debt before due time. The National Bank decided earlier to repay $1 billion to the International Monetary Fund (IMF) by May 2007.

Serbia’s external debt could thus decrease by between $2.5 billion and $3.5 billion. This is possible as this year we had very high privatisation revenues of over €1.8 billion whereas a budget surplus was also recorded. This allows us to undertake big infrastructure investments and reduce foreign debt substantially.

National Investment Plan:

It will include capital investments that happen once in ten or twenty years, these are not current budget investments. After all, one doesn’t build a highway every day. The greatest portion of the investment plan will concern road investments. I have already mentioned the investment into Corridor 10, which is of national importance, but other significant regional and local roads will also be constructed. The other part of the National Investment Plan includes projects to encourage employment and entrepreneurship, for which €165 million will be set aside. The underlying idea is to ensure a high long-term economic growth rate in Serbia, which will inevitably lead to an increase in employment. The starting point for any kind of development is improved infrastructure, because without it there can be no serious investment influx. A portion of the funds must be set aside for infrastructure improvement in the health, education and public administration sectors. These are all either direct or indirect investments whose goal is to increase the living standard of citizens.

I have already mentioned on several occasions that our investment plan is a copy of a similar Irish plan that has helped Ireland to turn from a poor country into a country with an annual GDP of $46,000 per capita in a relatively short period.

Will the National Investment Plan affect the 2006 budget revision as well as the 2007 budget?

The 2006 budget will be revised in September and we will then increase this year's investment funds by around 35 billion dinars. At the same time, we will for the first time announce long-term budgetary planning through investment plans for the next year and beyond. Therefore, the National Investment Plan will be included in the 2006 budget as a separate section. Through the 2007 budget we will plan investments for the year 2008. Long-term budgetary planning is a common practice in many countries and it attracts foreign investors to better prepare their investment dynamics. In fact, this year we are going to have a record $3.5 billion of foreign investments breaking the current record amount of $1.5 billion from 2005. We will ask parliament to put off the deadline for new budget composition from November 1 to December 1, so that we can conclude the negotiations with the Paris Club of creditors, as well as carry out other activities to improve Serbia's financial position.

Inflation:

This year's inflation rate will certainly be a one-digit figure. I believe that the central bank managed to stop inflation with its restrictive monetary policy. The finance ministry contributed with its frugal policy of salaries in the public sector. Namely, salaries rose by 10% this year, out of which 8% was in the private sector. Such a combination of monetary restrictions, salary control and a strong dinar has helped to stave off inflation growth. If there are no significant fluctuations in the upcoming months due to the price of oil in the world market, we will have a tolerable inflation rate.

Plan Plus:

The plan relies on several fundamental ideas whose realisation will help the Serbian society to develop faster. First, it includes visa relaxations for students and researchers and by 2008 a complete abolishment of the visa regime for all citizens; second, it implies that by end-2007 Serbia becomes an EU candidate country; third, that the EU participates in the implementation of the National Investment Plan with between €250 and €500 million a year in the period 2007 – 2001; fourth, that we receive political support to exchange up to $1 billion of foreign debt for investments into the completion of road infrastructure in the South of Serbia, construction of communal infrastructure in poorer municipalities and ecological projects; and finally, that the EU takes part in the development of education in Serbia.

Cooperation with the Hague tribunal:

According to all indicators, there have been serious improvements with our security services regarding the conclusion of cooperation with the Hague tribunal. We have the Action Plan for the conclusion of this task and security services and civil structures involved in the realisation of the plan are holding meetings on a daily basis. Naturally, Carla Del Ponte is to compose the final report, but not long ago at a meeting in Brussels, Commissioner Rehn said that the implementation of the Action Plan is going in the right direction. Of course, it is important that the plan yields results at some point, but it is certain that the network of people helping General Mladic has considerably tightened. In the meantime, we have issued a warrant to supervise the financial transactions of companies which are suspected of financing Mladic's hiding.”