Identifier
Created
Classification
Origin
07BELGRADE810
2007-06-08 10:45:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Belgrade
Cable title:  

NEW SERBIAN FINANCE MINISTER PROMISES RESPONSIBLE

Tags:  EFIN ECON EINV KIDE SR 
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OO RUEHWEB

DE RUEHBW #0810/01 1591045
ZNR UUUUU ZZH
O 081045Z JUN 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0977
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC
UNCLAS BELGRADE 000810 

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: EFIN ECON EINV KIDE SR
SUBJECT: NEW SERBIAN FINANCE MINISTER PROMISES RESPONSIBLE
POLICIES

Ref: a) Belgrade 774 b) Belgrade 630

SUMMARY
-------

UNCLAS BELGRADE 000810

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: EFIN ECON EINV KIDE SR
SUBJECT: NEW SERBIAN FINANCE MINISTER PROMISES RESPONSIBLE
POLICIES

Ref: a) Belgrade 774 b) Belgrade 630

SUMMARY
--------------


1. (SBU) The Ambassador met with new Finance Minister Mirko
Cvetkovic for the first time on June 5 to discuss the
economic agenda for the new government. Cvetkovic said that
he aims to uphold the Ministry's role in safeguarding a
stable macroeconomic environment, including a return to
conventional accounting for National Investment Plan
expenditures. He spoke in favor of engagement with the IMF
but did not explicitly call for a precautionary arrangement.
On financial market issues, Cvetkovic said Serbia would do
better to restrict issuance of greenfield banking licenses to
encourage acquisition of remaining small and state-owned
banks, which will be hard-pressed to survive in a competitive
environment. Approval of three new laws, including one on
restitution, is necessary to resolve ownership issues, but
Cvetkovic also admitted that the draft restitution law needs
more work. End summary.


2. (SBU) The Ambassador met with new Finance Minister Mirko
Cvetkovic in a June 4 courtesy call. Cvetkovic was joined by
assistant minister Gordana Lazarevic and two staff members,
while econ chief accompanied Ambassador. Cvetkovic, a
privatization expert, expressed surprise to find himself
finance minister, especially as he is not a member of the
Democratic party, which put him in the position. Referring
to his broad experience working both as deputy minister of
privatization and as a consultant for the World Bank, he said
he would continue to work for a better life for Serbs. As
minister, he would pursue this goal by promoting
macroeconomic stability, EU accession, and creation of a more
favorable environment for entrepreneurs.


3. (SBU) Ambassador Polt asked whether his agenda would
include an IMF agreement. Cvetkovic appeared to favor some
sort of arrangement: "I believe the IMF is essential to
increasing the rating of the country," he stated, adding that
monitoring and support were necessary, but not a loan. He
said that Serbia would be grateful for U.S. help in
persuading the Fund to re-engage.



4. (SBU) Cvetkovic said that ongoing budget talks are a
major headache, as the Ministry prepares a revised budget
that will cover the second half of 2007 and finally move
Serbia away from provisional financing. The budget will be
ready by June 14, leaving Parliament two weeks to review and
approve. The only insight he offered into the shape of the
new budget was a firm statement that National Investment Plan
expenditures will move on-budget, turning away from the
unconventional accounting introduced by former Finance
Minister Dinkic in the run-up to elections in late 2006.


5. (SBU) The Ambassador said that he appreciated the
pressures on the Ministry, relating that Defense Minister
Sutanovac already had raised tight defense finances and was
looking for new ways to raise money to support the military.
The issue arose in discussions of work the Ministry of
Defense is performing to prepare the new U.S. Embassy site.
Cvetkovic said he was not aware of new Ministry of Defense
requests but agreed that providing each ministry with a
stable source of financing was important for planning
purposes.


6. (SBU) The next order of business after the budget will
be new laws necessary to clarify property rights, Cvetkovic
said. The new Constitution and the expiration of the
deadline for selling off all socially-owned property mean
that that a new structure of state-owned property must be
introduced, one that permits local governments to own
property. A second law will set the rules for private
property, and the final piece of the package will be the new
restitution law. Despite work on a draft law under former
Minister Parivodic, further international help might be
necessary to reach an acceptable draft law, the minister
added.


7. (SBU) The Ambassador passed Cvetkovic a set of Embassy
comments on the draft restitution law (see reftel),prepared
in consultation with groups representing restitution
claimants. Some of the claimants are U.S. citizens, the
Ambassador noted, and the Embassy stands ready to assist with
further development of the law.


8. (SBU) The Ambassador noted that Cvetkovic is a
privatization expert and requested his views on how the new

coalition would proceed. Cvetkovic noted that formally, the
Finance Ministry has two roles: leadership in privatization
of financial institutions and the role of representing state
creditors in bankruptcy proceedings. With regard to state-
owned banks, Cvetkovic said that he would prefer to maintain
the moratorium on new greenfield banking licenses to promote
sale of remaining small banks, which otherwise will wither
under competition with private banks.


9. (SBU) Turning to socially owned enterprises, the minister
noted that some 1,000 till remain to be sold off, but he
discounted the economic impact, observing that many of them
are small with insignificant payrolls. The World Bank is
drafting a strategy for completing this process, and their
ideas are sound, he added. However, he said that bankruptcy
is still a problem, with private creditors lacking confidence
in the system, in part due to continuing problems with the
courts. Here, donors could be especially helpful, he added.
With regard to large state-owned enterprises, such as Telekom
Srbija, Cvetkovic noted only that the coalition has yet to
come up with a policy.


10. (SBU) The Ambassador asked about recent assertions by
government officials about "special" opportunities for
Russian investment in Serbia: was there in fact a feeling
that Serbia owed Russia based on Kosovo policy? Cvetkovic
said that he would argue that no pre-emptive rights should be
awarded to any potential purchasers, whether for oil company
NIS or state airline JAT. Lukoil bought Beopetrol when he
was director of the privatization agency only because it made
a better offer, the minister added.


11. (SBU) Kosovo debt also brings politics into the
Minister's portfolio, the Ambassador noted, adding that
U.S. policy is to seek some solution to this issue. But
would Serbia be willing to agree to a debt deal, or would it
continue to service the debt for political reasons, he asked.
Cvetkovic sidestepped the question, noting that his personal
views on this issue may vary from the GOS position. Gordana
Lazarevic, assistant minister for donor issues, stepped in
and said that Serbia would continue to service absent some
agreement to the contrary.


12. (SBU) Cvetkovic said that he had received the
Ambassador's letter on the investment dispute involving the
Putnik travel agency purchased by U.S. investor Uniworld
Holding. Cvetkovic said that, if the arbitration decision
ruling that Uniworld's privatization agreement had been
terminated by the GOS without due cause is in fact final, the
GOS should pay. He would consult with Economy Minister
Dinkic, who is responsible for privatization, but he would
push to pay Uniworld owner Srba Ilic to avoid sending a
negative signal to foreign investors. On a second dispute
still pending, concerning the cancellation of Uniworld's
purchase of travel agency Srbijaturist, Cvetkovic said that
he favors permitting the arbitration to take its course.


13. (SBU) Comment. Cvetkovic is an experienced player,
having participated in many World Bank agreements and IMF
negotiations. He was careful to retain maximum flexibility
in his statements regarding pending policy issues. While he
expressed a desire to complete an IMF agreement, the new
minister also was not specific in seeking a precautionary
agreement, instead referring to monitoring. (Note: in his
first press conference on June 6, Economy Minister Mladjan
Dinkic also straddled the fence, telling reporters that "I
have nothing against an IMF agreement," but adding that it
would be the Government's decision.) We continue to believe
that the coalition simply will not be willing to deliver the
sort of fiscal adjustment that the IMF has in mind. Indeed,
Deputy Prime Minister Djelic said on June 5 that the 2007
deficit target will be 1.5 percent of GDP, or about 4
percentage points less than recommended by the Fund's April
mission. However, given the potential benefit of such an
agreement for economic progress in Serbia, we urge Washington
agencies to engage with the Fund to determine whether
flexibility is possible. End comment.

POLT