Serbia should stop servicing Kosovo debt: EconMin

By Gordana Filipovic

BELGRADE (Reuters) - Serbia should stop servicing Kosovo's foreign debt now the territory has declared independence, and instead spend the money on Serbian communities there, Economy Minister Mladjan Dinkic said on Tuesday.

He also warned Serbia risked losing foreign investment because of the political tensions, saying General Motors had cancelled a visit and some Italian companies were discussing selling land they had bought for development in Serbia.

Dinkic, a liberal in a government dominated by nationalist Prime Minister Vojislav Kostunica, said Serbia had to agree with international creditors to stop servicing Kosovo's debt after the Albanian majority declared independence on February 17.

Serbia lost control of Kosovo in 1999 but has continued to service the debt at a cost of some $150 million a year as part of efforts to maintain its claim on the territory.

"Under the circumstances, Serbian taxpayers' money will go to Albanians ... That's insane," he told a news conference at his party's headquarters. "We should save the money and redirect it to strengthen the Serbian communities in Kosovo."

Dinkic conceded the government was not unanimous on what to do with the debt, which the Serbian central bank calculates at some $1.3 billion at the end of 2007.

The money, owed mainly to the World Bank, was allocated to Kosovo in the 1980s when it was an autonomous province of Serbia within what was then Yugoslavia. Dinkic said the issue would be discussed with World Bank officials, due in Belgrade next week.

FOREIGN INVESTMENT

Dinkic urged calm after several embassies and foreign firms were vandalized in mass protests over the recognition of Kosovo by the United States and some major European Union countries.

"The situation is very delicate," he said. "But I urge foreign companies to continue to invest in Serbia. Foreign investment is crucial for Serbia to develop."

Foreign companies have invested more than $11 billion in Serbia since the fall of late nationalist autocrat Slobodan Milosevic in 2000. Serbia needs up to $7.0 billion a year to finance its current account deficit.

"Several Italian companies told their lawyers to put on sale the land where they planned to build factories," Dinkic said.

"General Motors has cancelled its visit to (car maker) Zastava and we were supposed to discuss expansion of production of Opels," he added, referring to a five-year deal for Zastava to produce Opel Astras.

"If foreign investors see peace and order in the streets of Serbia, they will continue to invest."

Dinkic said Belgrade was still pursuing a Stabilisation and Association Agreement (SAA), the first step to closer ties with the EU. "We will sign the agreement when they offer it," he said.