UPDATE 2-Serbia's next PM sets reform target, backs finance minister to stay

Mon Mar 17, 2014 10:24am EDT

Related Topics

* Centre-right wins parliamentary majority in snap election

* Former nationalists handed mandate to reform economy

* New government to seek IMF loan deal, progress towards EU (Adds analyst, details, edits)

By Ivana Sekularac

BELGRADE, March 17 (Reuters) - Serbia's probable next prime minister set a mid-July target to overhaul laws on labour, bankruptcy and privatisation under his reformist agenda after winning a parliamentary majority unseen since the days of strongman Slobodan Milosevic.

Reaffirming his commitment to a new IMF loan deal, Aleksandar Vucic, leader of the centre-right Progressive Party, said on Monday that "as far as I am concerned" 29-year-old Yale graduate Lazar Krstic would remain as finance minister.

The Progressives claimed a resounding victory in a snap vote on Sunday, pledging the kind of root-and-branch economic change that successive governments have ducked since Serbia came out of international isolation with the ouster of Milosevic in 2000.

The margin of triumph rivals those of Milosevic in the war years of the 1990s, handing Vucic a firm mandate to reform the biggest country to emerge from the ashes of socialist federal Yugoslavia as it embarks on talks to join the European Union.

Vucic is expected to bring at least one other party into government, then act to secure a new precautionary loan deal with the International Monetary Fund.

"I expect we will pass key laws, including the labour law, bankruptcy law, privatisation law and the law on building permits by the end of June or mid-July," Vucic told a briefing for journalists.

Passage of those laws stalled under the previous government, a coalition of the Progressives and the Socialist Party, which finished a distant second on Sunday and may find itself in opposition in Belgrade.

The IMF says a revamping of the bloated public sector and pension system and the sale or closure of loss-making state firms is essential if Serbia is to bring down its budget deficit and cap the public debt.

"We will have to reform some public companies, and that is going to be our biggest problem," said Vucic. "We have to do it very quickly but I am sure we will manage to do something."

For decades, governments in Serbia have poured money into staggering state firms to avoid adding to unemployment of more than 20 percent. The World Bank has conditioned further aid to Serbia on cuts to the subsidies paid to some 153 such companies.

IMF DEAL ESSENTIAL

Serbia's finances are shaky, with a consolidated budget deficit - including municipal spending, subsidies and guarantees - threatening to exceed a planned 7 percent of national output. Public debt is nearing 70 percent.

The public sector employs some 800,000 of Serbia's 7.3 million people. Sixty percent of state budget revenues are paid out in pensions and public sector wages.

"We can't keep spending two or three billion euros more than we earn for much longer. That's not sustainable," Vucic said.

Despite the threat of resistance from unions, analysts said Vucic would have no excuse for not forging ahead, particularly if the eventual benefits would be felt before the end of his four-year mandate.

"SNS has an absolute majority. The only obstacle would be if they are not ready to implement reforms and we will see whether that's the case within the first three months of their rule," Milan Culibrk, editor of the Serbian weekly NIN, told Reuters.

Investors would take heart from an IMF deal as an anchor for reform. But the failure of the previous government, in which Vucic was deputy prime minister, to pursue any meaningful economic reform gave some analysts cause for caution.

"Although a more consolidated government set-up would ease policy-making on painful measures, we take a rather cautious approach before we can examine whether political leaders would not just talk the talk, but also walk the walk," Austria's Hypo Alpe Adria bank said in a note.

The Progressives, a party of former ultra-nationalists who converted to the cause of EU membership in 2008, won just over 48 percent of votes in Sunday's election, translating to around 156 seats in the 250-seat parliament.

Vucic says he wants a government formed by May 1. Analysts said he may turn to the New Democratic Party of former Serbian president Boris Tadic to broaden support and seek expertise for what promises to be a period of tough reform. ($1 = 0.7181 Euros) (Writing by Matt Robinson; Editing by Mark Heinrich)

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