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| Serbia's finance minister Mladjan Dinkic |
Serbia’s government endured a torrent of international condemnation in 2012. A precautionary IMF loan was suspended and there was fallout from a fractious election and fears of political meddling at the country’s central bank. This year, though, the country’s new government – while suffering from economic lethargy in its eurozone neighbours – is hoping to ride the wave of yield-hungry liquidity flowing to emerging European debt, as well as bilateral support, particularly from Russia.
In an interview with Euromoney, finance minister Mladjan Dinkic says Serbia will raise $2 billion through two Eurobond sales this year, half in seven-year notes, the rest in 10-year paper. "The first sale," he says, "will come very soon, for sure within the first quarter." Dinkic says the country is further seeking a $1 billion loan from Moscow, but adds that Serbia will "borrow directly from Russia only if they provide us with favourable rates".
Risk appetite
Traders say the first Eurobond might be a success when it is issued, possibly in February. Hrvoje Stojic, chief analyst at Zagreb-based Hypo Alpe Adria Bank, said in a January 23 note to clients that rising demand for Serbian bonds was being driven by "risk appetite and a lack of investment alternatives".
Dinkic is frank in his assessment of talks with the IMF, which suspended a $1.3 billion precautionary loan in February 2012 after Belgrade missed key fiscal targets. Serbia’s government, headed by the conservative president Tomislav Nikolic and sworn in last May following a bitterly contested election, has publicly pledged to cut its fiscal gap this year to 3.6% of GDP, from 6.7% in 2013.
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The IMF has described this target as "too optimistic", but Serbia appears determined to plough ahead without direct financial support from the Fund. "We are only looking for a precautionary agreement with the IMF," Dinkic insists. "We don’t expect or need money from them. We are quite capable of tapping the market ourselves, as we showed last autumn." Serbia raised $750 million from the sale of five-year paper in November, dragging in $3.75 billion in orders, mostly from US-based investors. Deutsche Bank and Russia’s state-owned VTB Capital were the lead managers.
Dinkic is dismissive of speculation that the Nikolic administration would seek to subjugate and influence the National Bank of Serbia.
Soon after taking power, Nikolic engineered the ouster of central bank governor Dejan Soskic, replacing him with Jorgovanka Tabakovic, a long-time ally of the sitting president.
Many feared the government would see fit to impose interest rates, perhaps even forcing the NBS to buy debt and equities issued by state enterprises and institutions. Yet Tabakovic has proved – so far at least – able to make her own decisions.
An October 2012 rate increase, by 25 basis points to 10.75%, made good sense, with inflation hovering around the 8% mark. But it was unexpected – the government seemed keen to keep rates unchanged – and many saw the move as a deliberate assertion of the central bank’s independence.
"Not a single cent has been taken from the central bank to support any state-run company or any state-owned bank," says Dinkic. "The central bank is and will remain completely independent. We don’t even use the sort of mechanisms used within the EU to purchase the bonds of troubled countries like Italy and Spain."
Vital change
Diversification of Serbia’s economic and trade relations is vital, the finance minister adds. Serbia remained determined to join the EU – Dinkic says the government is hoping to be able to kick off talks over EU integration "by the middle of this year".
But the eurozone crisis is forcing Serbia to look elsewhere for economic and financial support. "The EU is still in a crisis," says Dinkic. "We can’t wait for them to solve our problems – we must do that ourselves. That is why we are increasing our economic ties with Turkey, Russia, the UAE and China. These are countries that have capital to invest in our country."
In early 2013, the finance minister embarked on a global tour, signing an $800 million, five-year loan with Russia to help rebuild Serbia’s rail network. In another notable deal recently, China pledged to lend Serbia $1.2 billion toward the rebuilding of the country’s patchy highway network.
Dinkic reiterates that Serbia is not drifting away from Europe. He says: "[Serbia] will continue to be pro-European, but with strong connections to the east. This is our new trade philosophy and policy."
