Bloomberg News

Serbia to Approve Loan Subsidies Amid Recession, Dinkic Says

August 23, 2012

Serbia’s government will approve subsidies for bank loans on Aug. 30 after the country fell back into a recession, Finance Minister Mladjan Dinkic said.

The government plans lending support worth 1 billion euros ($1.25 billion) through the end of 2013, Dinkic said after meeting a group of top exporters and banks to discuss how to lower credit costs for export companies hurt by slowing demand in their traditional European markets.

“We want to pump 1 billion euros in the economy in the coming period through subsidized liquidity loans,” Dinkic told reporters in Belgrade today. The first 300 million euros will be made available in the last quarter, with the remaining 700 million euros offered in 2013.

The Cabinet of Prime Minister Ivica Dacic, which took office on July 27, is trying to bolster the economy and stave off bankruptcy as the previous government left a budget gap of more than 7 percent of gross domestic product amid renewed economic contraction and unemployment rate of 25.5 percent.

The government will subsidize interest rates on bank loans to corporate clients to make sure the ultimate cost of the credit does not exceed 3.5 percent as banks agreed to limit the “margin at around 5 percent,” he said.

Borrowers will have 18 months to repay the new loans, including a five-month grace period, and can qualify for loans as long as they don’t lay off workers.

Budget Cost

Dinkic said the cost for the budget this year will be 300 million dinars ($3.2 million). Banks are expected to start lending in the first week of September.

As economy minister in 2009, Dinkic pioneered the subsidy program in Serbia, slowing decline in economic growth.

“Serbia is in a recession again and we are re-launching this program,” he said.

The economy is expected to shrink by as much as 1 percent this year as investor interest in Serbia wanes and demand for its exports contracts during the economic downturn and debt crisis in Europe.

The government plans to cut red tape, abolish 104 “para- fiscal” fees and streamline prices of administration services to cut the cost of doing business in Serbia at a time when the foreign trade deficit has expanded 14 percent from a year earlier in the first six months, he said.

Deficit Cuts

Dinkic wants to lower the budget deficit to 6.5 percent of gross domestic product in 2012 and to 4 percent in 2013. He will meet trade unions next week to explain that “any wage increases would lead to a Greek scenario.”

Serbia is trying to negotiate 2 billion euros in cheap, non-market funding for its budget for the rest of the year. Government officials will be traveling to Brussels, Moscow and some “third world countries” to inquire about financing options for the budget, Dinkic said.

The government “has not yet asked” Russia for a new loan and Serbia wants to reshape its debts after interest payments alone reached $704 million this year, he said.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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