Serbs plan to raise $500 mln to plug budget-source

Deals have fallen off since Serbia’s May 11 election, and investors are now waiting to see whether a pro-Western bloc led by President Boris Tadic or the nationalist, anti European Union group led by the Radical party will form the next government. The source said the government would have to tap local markets to make up for the 25-30 billion dinar ($477-$566 million) shortfall. “No matter how hard we try, we cannot see a single big privatization deal completed by the end of 2008 that would make a difference for the budget,” the source, speaking on condition of anonymity, told Reuters. “The money will be raised in the local market, through 6-month treasury bills, and interest rates will be the same or higher than the central bank’s repo rate.”

The government has borrowed locally mainly from state funds and institutions at unrealistically low interest rates, arguing it has no need for expensive rates as it ran a budget surplus. But it has faced difficulty attracting private investors, and not a single bank took part in a three-month debt tender this week.

Privatization deals expected to boost budget revenues have faltered, including the collapse of the sale of troubled copper miner RTB Bor to Austria’s A-TEC and several smaller industrial assets, with potential investors pulling out or seeking deadline extensions to see the next cabinet’s makeup. Finance Minister Mirko Cvetkovic said, this week that Serbia would have to step up borrowing in the third quarter of the year without major privatization revenue. The source said the government will try to turn a blind eye to limits that normally restrict banks from selling short-term maturities to foreigners. “In case of great demand, we could try with lower rates, but certainly not below the inflation figure,” said the source, adding that the plan to borrow, except for the exact amount, did not depend on the constitution of a new government.

The central bank raised its key policy rate by 50 basis points to 15.75% a week ago to try to tame prices and make sure core inflation falls back within its 3-6% target band by the end of 2008. May headline inflation was 11.6. Also on Thursday, central bank Governor Radovan Jelasic said the caretaker government could borrow in the local market or abroad -- or ideally cut spending -- but could not count on the central bank for any funding due to high inflation. (Reuters)