November 8, 2013 / 2:36 PM / 4 years ago

Serbia to cut subsidies to foreign investors

* No new subsidies for investors from 2014 - Economy minister

* Serbia to offer sovereign guarantees to manufacturers

* Economy Ministry wants to shut down investment agency

By Aleksandar Vasovic

BELGRADE, Nov 8 (Reuters) - Serbia plans to abolish incentives for new foreign investment from 2014 to help its budget and the state agency tasked with attracting investors will shut down, the economy minister said on Friday.

Serbia is trying to cut spending and contain the 2014 shortfall at 4.6 percent of gross domestic product (GDP), as envisioned in the draft budget.

To achieve that and secure a new loan deal with the International Monetary Fund next year, the Socialist-led government has promised to restrict indexed rises in wages and pensions and cut discretionary spending, notably subsidies for almost 200 loss-making state firms.

Subsidies for foreign direct investment were introduced by the previous government, and can reach up to 10,000 euros ($13,400) for every new job.

“The 2014 budget does not contain fresh incentives for investors for new jobs and will only maintain subsidies for existing deals,” Economy Minister Sasa Radulovic told reporters.

Allotments for subsidies in 2014 in the draft budget stand at 8.3 billion dinars ($98 million) for Serbia’s joint venture with Italian carmaker Fiat and 1.2 billion dinars for flag carrier Air Serbia, an equity partnership with the Gulf-based Etihad airline, Radulovic said.

The Economy Ministry also wants to shut down SIEPA, the government agency for attracting foreign investors because, Radulovic said, it was not “fulfilling its mission.” A department within the ministry will take over, he said.

SIEPA, formed a year after strongman Slobodan Milosevic was ousted in 2000, has attracted most of the 17 billion euros of investment that has entered Serbia since then, said its head Bozidar Laganin.

“The closure of the agency will be a blow for the economy,” he told Reuters. “We are surprised by minister’s move,” he said.

The economy ministry will also form a special fund to secure sovereign guarantees to commercial banks, totalling 12 billion dinars, for lending to local manufacturers, Radulovic said.

Last month the economy ministry ordered the state Development Fund to stop lending, after uncovering that it had more than 40 percent of non-performing loans in its 217 billion dinars portfolio. ($1 = 0.7472 euros) (Reporting by Aleksandar Vasovic; Editing by Zoran Radosavljevic and)

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