FROM THE MEDIA

Delay on Serb pension reform puts IMF loan package at risk
By Eric Jansson
Published: August 31 2005 03:00 | Last updated: August 31 2005 03:00

The seriousness of the threat to Serbia and Montenegro's $951m (778m) loan package with the International Monetary Fund, and with it the country's $3bn debt write-off deal with the Paris Club of creditors, has become clearer after a senior Serbian minister signalled that Belgrade was unlikely to meet a key IMF requirement on the pace of economic reforms.

Milan Parivodic, minister for international economic relations, told the FT that the government "absolutely cannot afford to fail" to meet IMF requirements. But he also predicted the fund would back away from its demand that the government follow through imminently on the pensions overhaul it promised in June. Fund officials have been warning Serbia for over a month that a failure to move forward by the end of October with pension reform could result in withdrawal from the loan package. "The IMF will have understanding on the pensions issue. They will be flexible on what the government tells them," Mr Parivodic said.

However, it is far from certain that fund officials will prove as flexible as the minister predicts. Harald Hirschhofer, the fund's representative in Belgrade, acknowledged yesterday that fund officials were prepared to treat pension reform as a "complex" and sensitive undertaking. However, the October deadline remained non-negotiable.

Mr Parivodic hopes the IMF will accept a delay on pension reform at a time of political uncertainty in order to insulate Serbia from a risk of early elections and potentially "dangerous" destabilisation.

If angered by sudden reforms, "millions of pensioners" could be tempted to "turn to the old forces", he said, referring to the ultra- nationalist parties that dominated Serbian politics until 2000 and remain a powerful force today.

"The one thing that the IMF does not want is for this government to fall, not because we are perfect, not because we are ideal, but because new elections will take so much time away from us," he said.

Radovan Jelasic, Serbia's central bank governor, said Mr Parivodic's comments were a sign that government ministers were taking the IMF's warnings too lightly.

"Let me be frank. I would be extremely happy if I am not right, but I think that things are unfortunately getting more and more complicated in Serbia," he said.

Mr Jelasic also cited "problems" with the government's delayed plan for the privatisation of oil refineries - another issue threatening to trigger an IMF withdrawal after October.

Mr Parivodic said the government would fulfil IMF requirements on the refinery sales. Serbia expected to step closer to the European Union and the World Trade Organisation in October.