July 14, 2014 / 1:16 PM / 3 years ago

UPDATE 1-Serbia signals softer cuts plan after finance minister quits

* Finance minister resigns over reform disagreements

* Had sought 15 percent cut in public wages, 20 percent in pensions

* Acting finance minister eyes 10 percent cuts in both

* Says package must be acceptable to IMF as loan talks loom (Adds dealer comment on dinar exchange rate)

By Aleksandar Vasovic

BELGRADE, July 14 (Reuters) - Serbia’s acting finance minister said on Monday he aimed to ease back on previously announced cuts to pensions and public sector wages, looking to soothe market nerves two days after his predecessor resigned.

Lazar Krstic stepped down as finance minister on Saturday, saying he did not have the support of Prime Minister Aleksandar Vucic for tough measures Krstic sought in order to rein in public spending and cut Serbia’s ballooning budget deficit.

With loan talks with the International Monetary Fund looming, Krstic had sought a public sector wage cut of at least 15 percent and 20 percent for pensions.

His interim replacement Dusan Vujovic, who is expected to take over permanently, said on Monday he would look to cut both public wages and pensions by 10 percent.

“We will try to stay within what is reasonable, and 10 percent is reasonable,” Vujovic told Serbia’s state broadcaster. “The entire package must by acceptable to the International Monetary Fund and global markets.”

Krstic had also called for a minimum of 160,000 of Serbia’s roughly 700,000 public sector workers to be laid off over the next two years, as the best way to curtail a budget deficit threatening to exceed eight percent of output.

A dealer with a Belgrade-based bank said markets were “somewhat nervous” after Krstic’s resignation and the Serbian dinar, which the country’s central bank keeps in a managed float, weakened by 0.2 percent against the euro on Monday.

Vujovic said his aim was to cut the deficit to 130 billion dinars (1.1 billion euros) by the end of 2017, from an initially planned 182 billion dinars (1.56 billion euros) this year.

The government is expected to revise the 2014 budget and increase its deficit forecast in September. Serbia is expected to begin negotiations with the IMF on a new precautionary loan deal in the autumn.

The Serbian dinar, which the country’s central bank keeps in a managed float, weakened by 0.2 percent against the euro after Krstic’s resignation. Around 2PM (1200GMT) on Monday the currency traded between 116.2 and 116.45 to euro, Reuters data showed.

“Slightly weaker rate is seen as favourable for the economy, mainly because of exports of agricultural products, that’s why central bank interventions are expected to be mild,” said a dealer with a Belgrade-based bank. “True, investors are somewhat nervous after Krstic’s resignation,” he said.

Serbia’s 5-year credit default swaps widened by 9 basis points, or 3 percent over the week, to a mid-market level of 271 basis points. (Reporting by Aleksandar Vasovic; Editing by Matt Robinson and John Stonestreet)

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