IMF Agrees more than $500 million Loan to Serbia

IMF Agrees $516 Million Standby Loan Deal With Serbia

The International Monetary Fund said Friday that Serbia should be able to withstand an economic crisis but could call on a loan of more than $500 million, if needed, under an IMF standby arrangement.

"Serbia is one of the more vulnerable countries in the region," said Albert Jaeger, the head of an IMF team that reached the 15-month standby arrangement with Serbia at the end of a 17-day visit.

"Serbia should be able to withstand financial difficulties that are coming" despite a "very high" external current account deficit, a "weak export base" and the economy's low savings rate, Jaeger said.

The "final problem that is now making the situation more difficult is that the fiscal policy in (the) last few years didn't use good time to prepare for a change in the cycle," he told a press conference in Belgrade.

The Balkan country was able, therefore, to cope with the global credit crunch but "this will very much depend on whether Serbia implements much stronger and more credible policies than in the past."

The arrangement, agreed late Thursday, was designed to preserve the macroeconomic and financial stability of Serbia, the country's finance minister, Diana Dragutinovic, said.

"This standby arrangement, reached out of precaution... will give us the possibility to withdraw funds only if we need them, but we will do our best not to use them," she told the press conference.

"There will be savings at all state levels but only on current expenditures. The budget clearly shows what is the priority of the state and capital investments are not put in question.

"The program acts preventively. It secured us more flexibility to absorb shocks of the crisis and strengthens the confidence of investors, foreign banks and gives us... more security."

The agreement, which the IMF said is subject to approval by its management and board, was supported by a loan of up to $516 million, which is 75% of Serbia's $700 million quota in special drawing rights.

Serbia, hard hit by capital flight in the wake of the global financial crisis, has downgraded its economic growth forecast for 2009 to 3.0% from an earlier estimate of up to 7.0%.