UPDATE 3-Serbia's new PM pledges painful reforms with eyes on EU

Sun Apr 27, 2014 2:13pm EDT

Related Topics

* Parliament votes in new government led by Aleksandar Vucic

* Eyes membership of the EU by end of decade

* Vucic readies budget revision by end-June

* Plans to cut subsidies to loss-making firms, public sector downsize (Adds government confirmation, detail, background)

By Maja Zuvela and Ivana Sekularac

BELGRADE, April 27 (Reuters) - Serbia's parliament approved the cabinet of Prime Minister Aleksandar Vucic who took office on Sunday pledging deep economic reform and a drive to get the country into the European Union by the end of the decade.

In March the 44-year-old Progressive Party (SNS) leader won the strongest popular mandate of any government since the days of Slobodan Milosevic, a leader during the wars of Yugoslavia's demise in the 1990s that left Serbia isolated and bankrupt.

One hundred and ninety-eight deputies in the 250-seat parliament voted for Vucic's 19-member cabinet.

Vucic said entry into the EU would be the government's priority.

"The European Union might not be an ideal community but it is the best community we could join and I hope that Serbia will become its member of the end of this decade," he said.

EU foreign policy chief Catherine Ashton will visit Belgrade on Monday to meet Vucic and address parliament.

The former ultra-nationalist and Milosevic-era minister, who converted to the pro-EU cause in 2008, promised root-and-branch reform of the bloated public sector, pension system and labour law, as well as a cut of subsidies to loss-making state firms.

His lead role in a much-publicized fight against crime and corruption, including the arrest and trial of influential Balkan retail tycoon Miroslav Miskovic, has vested him with popularity and helped him secure 158 out of 250 seats in the parliament.

"I am ready to undertake the task of implementing reforms as I am convinced that, in case the status quo is maintained, consequences would be detrimental," Vucic told parliament.

He said his government plans to revise the budget by the end of June to keep the consolidated budget gap at 7 percent of gross domestic product (GDP), after a top advisory body warned the deficit could exceed 8 pct of GDP.

The measure is key to securing a new precautionary loan deal with the International Monetary Fund (IMF), which could cut Serbia's borrowing costs and reassure investors that the government is committed to reform.

STEPS TO AVOID GREEK SCENARIO

Since Serbia ousted Milosevic and emerged from international isolation in 2000, successive governments have avoided any attempt to downsize the public sector, which employs nearly 800,000 people.

"One or two years on the same path would lead to the Greek scenario (in Serbia)," Vucic told parliament.

He said the government will cut public-sector salaries by 10 percent and stop subsidising 153 state-run firms that employ 60,000 people and absorb 750 million euros ($1.04 billion) of government subsidies a year.

The measure is also a pre-condition the World Bank has set for a disbursement of its budget support loan.

Vucic said the government will most likely sell its stake in telecom operator Telekom Srbija next year, while a minority stake in the power utility Elektroprivreda Srbije (EPS) could be offered for sale in 2016.

To bring more liquidity to the Serbian economy which is forecast to stagnate this year, the government will secure subsidies loans to companies via commercial banks, Vucic said.

Investors will look to changes in bankruptcy and privatisation laws and a new law on planning in construction, promised by mid-July as a reassurance the government will remain on a reform path.

Vucic said his government would aim to achieve savings of 1.5 billion euros a year to curb the deficit to between 3 and 4 percent of GDP by 2017.

As a signal the government will deliver on promised economic overhaul, Vucic appointed non-partisan experts to run some of the key ministries, including ministry of finance, economy and public administration.

Yale graduate Lazar Krstic remained as finance minister while a former World Bank official, Dusan Vujovic, and the ex-central bank governor Kori Udovicki will run economy and public administration ministries respectively.

Vucic also offered several ministerial posts to the Socialists of ex-prime minister Ivica Dacic, who took over as foreign minister. (1 = 0.7227 euros) (Reporting by Maja Zuvela and Ivana Sekularac; Editing by Alison Williams and Stephen Powell)

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