Serbia and Montenegro: Serbia�Financial System Stability Assessment,

Serbia and Montenegro: Serbiaâ€â€Financial System Stability Assessment,

including Reports on the Observance of Standards and Codes on

the following topics: Monetary and Financial Policy Transparency,

Banking Supervision, and Payment Systems
http://www.reporter.gr/bd/download/xls/IMFreport060308.pdf

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Reporter: Hipol Sale Contract Signed w/Italian Co.
http://news.serbianunity.net/bydate/2006/March_09/16.html

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http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B9999DBD1%2D34A4%2D4E4B%2D9646%2D8409C506AD0D%7D&dist=newsfinder&siteid=google&keyword=

MarketWatch



Serbia to sell banks, telecoms, aims for 6% growth

By John W. Miller
Last Update: 3:45 PM ET Mar 9, 2006

BELGRADE (MarketWatch)- Riding a strategy of aggressive privatization,
Serbia expects a 6% gross domestic product growth rate in 2006,
finance minister Mladjan Dinkic told Dow Jones Newswires in an
interview.

Serbia boasts dozens of valuable factories and state-owned companies
despite a decade of sanctions and a bloody civil war. The sectors most
attractive to foreign investors so far have been tobacco factories,
cell phone operators and banks. Both Serbia and tiny Montenegro are
members of the Yugoslav federation, but Montenegro has its own finance
ministry and is preparing to vote on independence this spring.
Serbia faces big challenges, including taming high inflation and
unemployment. It's still a developing country: its an annual gross
domestic product is around EUR25 billion, and the economy is less than
a tenth the size Belgium, which has a similar population. But the
minister says its biggest problems are political, not economic. GDP
growth was 7.2% in 2004 and 6.5% in 2005. The E.U., which has accepted
neighboring Romania and Bulgaria, has refused to begin talks on
Serbia's joining the 25-nation trading bloc until the government in
Belgrade arrests General Ratko Mladic, who is wanted as a suspected
war criminal for the massacre of Muslims in Bosnia in 1995. At
EUR2,750, GDP per capita "is higher than in Romania and Bulgaria,"
Dinkic said. The minister said Serbia will be ready economically to
join the E.U. by 2012, but he's not in a hurry.
"When a country joins the E.U., its wages go up, so we're happy to
have several years to attract foreign companies with low wages," he
said.
Privatization is key to his plans. The biggest interest from foreign
companies has been in banks, Dinkic said. Hyper-inflation during the
Milosevic era triggered a slowdown in banking.
"We became an economy where people put money under their pillow,"said Dinkic.
With peace and more stability, that is now changing. Serbs now have
EUR2.3 billion in savings, and that figure is growing by EUR100
million a month, Dinkic said. Banks are issuing 30 times more loans
than in 2001. Serbia now has 3.8 million credit cards.
Foreign banks have helped restore faith in credit. Serbia last year
sold Jubanka to Greece's Alpha Bank (ALPHA.AT) for EUR152 million, and
currently has three other banks on the table, including the biggest
domestic player, Vojvodkanska.
An Austrian bank, Raiffeisen International Bank Holdins (RIBH.VI), is
the market leader in Serbia. The premiums for former state-owned banks
are rising, Dinkic said. He expects a 6-to-1 price-to-asset ratio.
The government has already sold off two tobacco factories, to Philip
Morris, owned by Altria Group Inc. (MO), and British American Tobacco
PLC (BTI). Japan Tobacco International (2914.TO) is paying EUR25
million for another factory.
Serbia attracted them by locking in low excise taxes until 2011,
Dinkic said. Real taxes on cigarettes in Serbia are only 30% of cost.
A pack of Marlboros costs only EUR1.25 in Belgrade, a quarter the rate
in most Western European countries. Serbia is also selling off
mobile-phone operator Mobtel. After seizing the company from tycoon
and Milosevic ally Bogoljub Karic, and charging him with bribery and
embezzlement, Serbia is set to float the company in April, Dinkic
said.
The starting price will be EUR700 million. The government will receive
82%, and the rest will go to Austrian entrepreneur Martin Schlaff, who
bought a stake last year.
"This will be a test" for Serbia's privatization process and the
establishment of rule of law, Dinkic said. He praises the Austrian
government and Austrian banks "for helping us do the deal".
After selling off banks, cell phone and cigarette companies, Serbia
will privatize energy assets by autumn, including the national oil
company, Dinkic said.
In 2007, Dinkic says, the government will unload an insurance company.
But not every state industry will bring in cash. Some factories, like
the Zastra car complex, are inefficient and won't find buyers, Dinkic
said. "No company will take that for free."
The economy's biggest problem is inflation. Prices rose 13.7% in 2004
and 17.7% in 2005. Even though Dinkic forecasts inflation at under 10%
in 2006, he acknowledges that "Serbia is in transition so prices of
services are going up" from the deflated levels of the past.
Part of the problem is that there isn't enough competition in retail
trade, he said.
Still the current inflation is a far cry from the early 1990s, when
the government had to print bank notes worth 500 billion dinars. To
keep prices under control and back the currency, the government will
continue a strategy of aggressive spending cuts, Dinkic said.
Serbia ran a 1% surplus in 2005, down from a 4% deficit in 2004,
thanks mostly to a new 18% value added tax, which now accounts for
half of its revenue, or EUR2.5 billion. The debt has been cut to 44%
from 170% five years ago.
As the government cuts costs and privatizes industries, Dinkic expects
19% unemployment to remain a problem. He argues the problem is normal
for a country in transition.
"Flexibility of labor is very low," he explains. "People want one job
for life." He defends closing down factories. "You can't force people
to buy something they don't want."

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