VZCZCXRO3624
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHBW #0383/01 1201802
ZNR UUUUU ZZH
R 301802Z APR 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 1246
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 BELGRADE 000383 
 
SIPDIS 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD EFIN SR
SUBJECT: SERBIA: 2009 BUDGET REBALANCE ADOPTED 
 
Ref: Belgrade 352 
 
SUMMARY 
------- 
 
¶1.  The Serbian Parliament adopted a rebalanced 2009 budget on April 
¶29.  The rebalance reflected the deteriorating economic situation 
and adjusted for lower than projected 2009 revenues and 
expenditures, due to falling revenue collection by the government. 
The central government deficit increased from 1.5% to 2.3% of GDP, 
while the consolidated deficit went up to 3% of GDP.  The biggest 
obstacle to adoption of the rebalance was the Alliance of Vojvodina 
Hungarians request to increase funds allocated to the autonomous 
province of Vojvodina.  Finance Minister Dragutinovic presented the 
budget as a means to soften the consequences of the recession caused 
by global crisis.  Opposition parties rejected the rebalance as 
"unrealistic and unsustainable."  The budget rebalance meets the 
IMF's criteria, but the government faces the difficult task of 
holding to the promised spending cuts.  End Summary. 
 
Budget Rebalance: Expenditures and Revenues Fall 
--------------------------------------------- --- 
 
¶2.  The Serbian Parliament adopted a rebalanced 2009 budget and a 
set of accompanying laws on April 29 by a narrow majority of 127 to 
16 (the budget needed support from half of the 250 parliamentarians 
to pass).  The rebalance reflects the government acknowledgement of 
the reality that Serbia will be in recession during 2009 due to the 
global crisis.  The budget rebalancing decreased both revenues and 
expenditures based on the revised 2009 GDP projections - a 2% fall, 
rather than the previous 3.5% growth.  Revenue projections fell by 
7% to $9 billion, while expenditures were decreased by 4% to around 
$10 billion, thus increasing the budget gap by 41% to approximately 
$1 billion.  Inflation projections for 2009 increased to 10% from 8% 
annually. 
 
Opposition: Rebalance Unrealistic, Overly Optimistic 
--------------------------------------------- ------- 
 
¶3.  Finance Minister Dragutinovic presented the budget as "one of 
the tools to soften the recession caused by world economic crisis" 
and said that the government tried to cut administration costs, 
support production and infrastructure projects, and preserve living 
standards for the poorest Serbs.  Although the opposition submitted 
720 amendments to the rebalance package, under the new rules of 
procedure adopted in February the Parliament was nonetheless able to 
pass the entire package in less than a week. 
 
¶4.  Opposition parties criticized the rebalance.  A Liberal 
Democratic Party (LDP) parliamentarian claimed that it would place 
the burden of the crisis on the middle class.  Cedomir Jovanovic 
(LDP) criticized the government's entire economic policy, claiming 
that the LDP, "could topple the government and have elections but 
after that there would be an even bigger hole waiting for us." 
Jovanovic requested greater consultation with the opposition.  Nenad 
Popovic from former Prime Minister Kostunica's Democratic Party of 
Serbia (DSS) said that the budget was "created by the IMF," that the 
government had spread unrealistic optimism, and that in the fall the 
situation could become catastrophic.  Zoran Sami (DSS) complained 
about the decrease in the education budget and because funds for 
Corridor 10 (a regional highway) were cut from $69 million in the 
original 2009 budget to zero. (Serbia is now using loans to fund 
Corridor 10.)  Leader of the Serbian Progressive Party (SNS) 
Tomislav Nikolic claimed that the measures were unrealistic and his 
party colleague Jorgovanka Tabakovic criticized the deficit and the 
additional borrowing in the budget. 
 
The Key Problem - Vojvodina Budget 
---------------------------------- 
 
¶5.  Interestingly, the biggest challenge in passing the budget 
rebalance was the position of the four MPs of the Alliance of 
Vojvodina Hungarians (SVM), who are members of the ruling coalition. 
 The SVM said they would not support the budget unless the 
Government set aside 7%, as stipulated in the Serbian Constitution, 
for Vojvodina instead of 5.7%.  In the lead up to the vote, Prime 
Minister Cvetkovic reached an agreement with Bojan Pajtic, President 
of the Executive Council of Vojvodina to transfer additional funds. 
Via a teleconference, members of the government adopted the 
agreement to set aside an additional $90.3 million and thus achieved 
the 7% figure in the last hour before parliament voted. 
 
COMMENT 
------- 
 
¶6.  The urgent adoption of the revised 2009 budget was necessary to 
secure the IMF Board's approval of the new $4 billion Stand-By 
agreement with Serbia, currently scheduled for May 11.  This revised 
budget buys the government time to adjust to the economic crisis and 
to seek additional financing from abroad, but may come at a 
 
BELGRADE 00000383  002 OF 002 
 
 
significant social and political cost.  While the government may be 
able to use international loans for certain key infrastructure 
projects such as Corridor 10, spending constraints will likely 
prevent it from satisfying demands for increased social spending, 
limit its ability to stimulate the economy and bail out struggling 
businesses, and force layoffs of government personnel - all leading 
to rising public discontent.  End Summary. 
 
MUNTER