Belgrade Nervous Over IMF Talks

Tuesday, 6 February, 2001

The link has been copied

Dimitrije Boarov

When IMF representatives arrived in Belgrade on Jan 31 for talks with government officials, the latter were scarcely able to hide their nervousness.

It's fair to say Yugoslavia's future depends on the outcome of the meetings. The government hopes they will bring about a deal to bridge the country's current liquidity crisis, which would pave the way for talks with international creditors.

Should they fail, credit negotiations with groups like the London and Paris clubs may be jeopardised, as the IMF acts as international guarantor for all their financial transactions.

But the authorities in Belgrade are not worried about dealing with the IMF's economic criteria.

They are afraid that any credit agreement will also hinge on one important political pre-condition - the extradition of former president Slobodan Milosovic to the international war crimes tribunal.

It was only a week ago that The Hague chief prosecutor Carla Del Ponte walked out on talks with President Kostunica following the latter's refusal to agree to the extradition. The incident provoked serious unease in economic circles.

On the day Del Ponte arrived in Belgrade, Miroljub Labus, a deputy president in the federal government, who has played a key role in courting international creditors, threatened to resign if his efforts came to nothing as a result of Kostunica's strained relations with The Hague court.

A brush-off from the IMF would lead to total economic collapse. The country is currently shackled by a 12 billion US dollar foreign debt. Belgrade economists have calculated that it also requires a minimal influx of 2.2 billion dollars for urgently needed electricity, oil and sugar imports.

Labus and other architects of the economic reform programme are loathe to see the extradition question compromise their rapprochement with the IMF. They are satisfied that they are capable of fulfilling the IMF's economic criteria and have laid out their proposals in a letter of intent.

They are even negotiating a rare re-scheduling of interest payments which constitutes 4.2 billion dollars of the debt.

The IMF visit comes just weeks after Yugoslavia's readmission to the organisation. It was expelled in 1992 at the outbreak of the Yugoslav conflict.

The speed with which the IMF has embraced Yugoslavia suggested it recognised that real democratic changes were taking place in Belgrade.

Given this, no-one in Belgrade expects the organisation to make Milosevic's extradition a written condition for the continuation of talks. But leading financial experts believe it could bring about pressure indirectly.

The IMF, they fear, could stall on deciding whether to accept the government's programme of economic reform.

These fears were confirmed over the weekend. On his return from a meeting with the new US Secretary of State Colin Powell, prime minister Zoran Djindjic said he'd been told that Washington, the IMF and the World Bank would not help Belgrade if it fails to begin cooperating with the tribunal by March 31.

The Serbian adminstration, understandably, is wary of discussing foreign credit and future budgets in public until they receive a green light from the IMF.

Djindjic has been extremely cautious about predicting the outcome of the IMF negotiations. No mention was made in his inaugural January 25 speech of the extent of financial help for the coming year.

Djindjic's economy and finance minister, Bozidar Djelic, said he would be delaying his budget announcement until March, due to the uncertainty.

Financial experts' concern over the IMF's intentions escalated following central bank governor Mladjan Dinkic's visit to Canada and USA at the end of January. On his return, some thought it strange that he refused to mention specific details concerning IMF negotiations.

Dinkic is not a man who knowingly hides good news. Rather the opposite, in the past he has always been keen to exploit any positive developments.

Should negotiations with the IMF not proceed as hoped, Yugoslavia will be unable to confront its dire financial situation.

The country's external debt equals its GDP, its current annual hard currency income of around 1.5 billion dollars is hopelessly inadequate to pay off any foreign debts.

Although between half a billion and 2.5 billion dollars is expected in foreign aid this year, this cannot hope to cover the cost of Milosevic's wars in ex-Yugoslavia and the NATO conflict.

It is widely believed in Belgrade that without the green light from the IMF, the economy will plunge into recession. People expect that pensions will be held up again; that there will be no sugar or cooking oil in the stores and they'll be back to power cuts and petrol rationing.

This could unravel much of the political progress made since the fall of Milosevic and lead to a revival of extreme nationalism.

Dimitrije Boarov is a leading Serbian economist.