VZCZCXYZ0000
RR RUEHWEB

DE RUEHBW #0185/01 0631403
ZNR UUUUU ZZH
R 041403Z MAR 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 1026
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC

UNCLAS BELGRADE 000185 
 
SIPDIS 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV SR
SUBJECT: SERBIA: BELGRADE'S ECONOMIC AGENDA 
 
SUMMARY 
------- 
 
¶1.  Belgrade is Serbia's economic center, accounting for over 30% of 
the country's GDP and workforce.  Among the international and 
domestic companies headquartered in the capital are Belgrade's 
public utility companies which are divvied up along party lines. 
The city government is a coalition of pro-European parties, which, 
with exception of also including the Liberal Democratic Party, 
mirrors that of the national government.  Although there is not 
complete harmony within the coalition, members agree that Belgrade's 
public utility companies and utility subsidies need to be reformed 
and investment in infrastructure and public transportation are 
imperative.  Amid the financial crisis, however, significantly 
reducing subsidies could lead to public criticism.  Serbia will try 
to secure financing for large infrastructure projects from 
international organizations, but many projects may be postponed 
until an end to the economic crisis is in sight.  End Summary. 
 
Belgrade, Serbia's Economic Powerhouse 
-------------------------------------- 
 
¶2.  Belgrade is the economic heart of Serbia.  Over 30% of the 
country's GDP is generated in the capital and over 30% of the 
nation's workforce is employed here.  The city's 2008 budget was 
2.9% higher than in 2007, while the 2009 budget (about $958 million) 
is 7.7% higher than 2008 driven by expenditures for the upcoming 
Student Olympic Games in July 2009 and the city's newly acquired 
authority and financial responsibility for roads, rivers and 
railways running through Belgrade as mandated by a law passed in 
¶2008.  The majority (58%) of Belgrade's revenue comes from the 
federal government, of which, 63% comes from federally collected 
income taxes.  Of the 42% of revenue generated by the city, 68% is 
for payments to the city for the use and maintenance of land and 10% 
is from property taxes. 
 
Belgrade's Utility Companies Divvied Up 
----------------------------------------- 
 
¶3.  Belgrade's public sector is dominated by public utility 
companies.  Like at the national level, management of these 
companies is divvied up along ruling coalition party lines. 
Belgrade's city coalition mirrors that of the federal government 
(Democratic Party (DS), G17 Plus, Liberal Democratic Party (LDP), 
Socialist Party (SPS), and Pensioners Party (PUPS)) with the 
exception of LDP's inclusion.  Of the 11 utility companies, DS runs 
water and sewage, parks, sanitation, and parking services.  G17+ 
manages city housing and open air markets, while SPS manages 
district heating plants and public transportation.  LDP appointed 
managers to run road maintenance services and the bill collecting 
agency and PUPS manages Belgrade's funeral services.  In a 
conversation with us on December 19, Head of LDP Caucus for Belgrade 
Dejan Randic said utility companies were largely inefficient and 
unprofitable and that the city gave money to the companies without 
receiving or requiring accountability for expenses. 
 
Infrastructure, Traffic Top Priorities 
-------------------------------------- 
 
¶4.  DS, LDP and SPS all agree that Belgrade must tackle traffic 
congestion and reduce utility subsidies.  On December 24, Vice 
President of Belgrade City Assembly Zoran Alimpic (DS) told us that 
there were 600,000 cars in the city in 2008, up significantly from 
200,000 in 2000.  Unfortunately for commuters, very few 
infrastructure changes have been made since 2001 to alleviate the 
increased traffic.  City Assembly Member and former SPS Belgrade 
Board Chairman Aleksandar Antic told us on December 11 that 
Belgrade's traffic problem could be solved with the completion of 
the ring road, more public buses, and the expansion of the existing 
railroad.  Ring road construction has been an ongoing project for 
the last 20 years with only segments yet completed.  One of several 
purposes of the road would be to divert large trucks and commercial 
vehicle traffic from the city center.  Serbia has yet to secure 
funding to finish the project, however, the European Bank for 
Reconstruction and Development announced its intention to provide 
Serbia with infrastructure loans. 
 
¶5.  The city government sees expanding Belgrade's railway systems as 
a long-term solution to its traffic problem.  According to Alimpic, 
funds were allocated in the 2009 city budget for a railway expansion 
that would be operational in 2010.  In the short-term, the city is 
considering increasing the number of public buses in an effort to 
encourage more Belgraders to use public transportation.  Alimpic 
estimated that 50% to 60% of Belgraders already use public 
transportation. 
 
¶6.  According to Alimpic, to fund proposed infrastructure projects, 
the city would need to cut administrative costs and subsidies, 
rationalize public company costs, and increase public utility prices 
by 20% to 30%. 
Social Welfare Only for the Needy 
--------------------------------- 
 
¶7.  All three parties also agree that subsidies should be lowered, 
but not for all city dwellers.  Currently, all Belgraders enjoy 
sibsidized low prices for public services from electricity to bus 
tickets.  Alimpic estimated that 40% of the city's budget goes to 
public subsidies and discounts.  Instead of extending these benefits 
to all, the city proposes giving them only to the poor and low 
income wage earners.  Antic said he supported a phasing out of 
subsidies for the more well-off over time and implementing a sliding 
payment scale for others as is done with state-subsidized child 
care.  Even though the parties are on board with lowering subsidies, 
the negative public opinion of making such an unpopular has given 
them pause. 
 
 
Politics 
-------- 
 
¶8.  Although the city coalition government appears stable, it is far 
from harmonious.  Alimpic explained that the "constant struggle" 
over every issue discussed slowed the implementation of projects. 
Randic was more positive, but still honest saying that communication 
in the coalition was good, but that there still remained deep-seeded 
political rivalry among parties.  Antic portrayed SPS as selfless, 
claiming that his party at times "worked against its own interest 
for the good of all and political stability." 
 
COMMENT 
------- 
 
¶9.  The city government acknowledges that tough reforms like 
increasing utility prices and productivity in ailing public 
companies are necessary, especially since the central government 
cannot bail them out.  However, amid a global financial crisis, 
tough reforms will be unpopular and unlikely to occur.  As on the 
national level, Belgrade's large scale plans will likely have to 
wait out the crisis.  End Comment. 
 
BRUSH