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. Last Updated: 07/27/2016

Serbian Leader Says Medvedev Backs Major Loan

ReutersPeople straining to catch a glimpse of President Dmitry Medvedev on a tightly guarded Belgrade street Tuesday.

Serbian President Boris Tadic said Tuesday that President Dmitry Medvedev had approved a major loan to the Balkan country, but the Russian side was largely quiet about the deal, suggesting that details still needed to be worked out.

“We have received President Medvedev’s approval of our request for a loan,” Tadic told reporters, Reuters reported. “We are grateful.”

Tadic did not indicate the size of the loan. Serbia requested a 1 billion euro ($1.5 billion) loan in July to help cover the country’s gaping budget deficit, and Finance Minister Alexei Kudrin earlier this month confirmed that Russia would provide the funds.

“We will work out a final decision on the allocation of the Russian loan to Serbia during the day,” Emergency Situations Minister Sergei Shoigu said Tuesday in Belgrade. Shoigu was part of the commission accompanying Medvedev on his first official visit to Serbia.

Earlier, a source in the Russian delegation told Interfax that an agreement with Serbia on the loan “was not planned” during the visit, but stressed that “negotiations on this subject were continuing productively.”

Serbia has already allocated most of the expected funds. Authorities intend to spend $350 million to cover part of the budget deficit and invest the remaining amount in the construction of a new Belgrade ring road and a planned subway.

Serbia must keep its budget deficit at less than 3.5 percent of its gross domestic product in 2010 to comply with the terms of a 3 billion euro ($4.5 billion) loan from the International Monetary Fund. Belgrade will hold talks with the IMF on Oct. 26 on receiving further tranches of the loan.

The Serbian government desperately needs the cash, said Danilo Sukovic, director of the Center for Economic Research in the Institute of Social Sciences in Belgrade.

“Serbia is facing a number of economic problems now: We have a weak public sector, large budget deficit, growing corruption and weak business competition,” he said. “Our economy really needs the money, but borrowing on debt markets is not an option, because paying back the debts would be a big challenge.”

It is very likely that Russia has been cautious about allocating the money for fear of not getting it back, he said.

“My opinion is that the Russians haven’t received clear guarantees so far on when exactly the money would be returned,” he said.  

Asked last week whether any political conditions were connected to the deal, Serbian Prime Minister Mirko Cvetkovic said, “No,” adding that “the conditions are favorable” for Serbia.

The two sides nevertheless concluded a raft of agreements, including the creation of a joint venture to oversee the South Stream gas pipeline project.

Gazprom and Srbijagas, a state-owned gas company, will set up a venture in 30 days to oversee the construction of an arm of the South Stream pipeline, Gazprom head Alexei Miller said Tuesday.

The enterprise will design, build and operate the arm of the pipeline on Serbian territory, and Gazprom will own a 51 percent stake in it.

In 2008 Gazprom acquired 51 percent of Serbia’s Naftna Industrija Srbije, in effect giving Russia a monopoly over the country’s gas and gasoline sales for the near future. Bank of Moscow said on Monday that it would offer NIS a $100 million loan.

Another venture, Banatsky Dvor, will be established in Serbia to construct an underground gas depot to store 450 million cubic meters of gas. Gazprom will also own a 51 percent stake, and will invest $25 million in the project, Miller said.

Medvedev is the first Russian head of state to visit Serbia since it separated from Montenegro in 2006, and his current trip marks the 65th anniversary of the Soviet army’s liberation of the former Yugoslavia from Nazi troops during World War II. Both presidents paid their respects at the tombs of Soviet soldiers in Belgrade on Tuesday afternoon.

Russia has consistently been among Serbia’s strongest supporters, emphasizing the countries’ common Orthodox Christianity and Slavic heritage. Russia vehemently opposed the NATO bombing of Serbia in 1999 and has declared that any recognition of Serbia’s breakaway province of Kosovo is an illegal act.  

“Russia will support Serbia in defending its sovereignty and territorial integrity,” Medvedev said Tuesday at a joint news conference with Tadic. “This support is based on the standards of the international law.”

A total of 62 countries have recognized Kosovo’s autonomy since it declared independence in February 2008.

In the period leading up to the declaration, Russia repeatedly linked the fate of Kosovo with that of Georgia’s breakaway provinces of South Ossetia and Abkhazia, suggesting that such a recognition could lead to Russia backing the aspirations of the two republics.