VZCZCXYZ0020
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 
------- 
 
¶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