Serb deputy PM pledges stability ahead of election

By Gordana Filipovic

BELGRADE (Reuters) - Serbia's pro-Western deputy prime minister vowed on Tuesday that the outgoing government would spend very cautiously to maintain financial stability ahead of an early parliamentary election due in May.

"There will be no pre-election sweeteners," deputy Prime Minister Bozidar Djelic said on the sidelines of an economic forum.

"Until May 11, the government will be very careful about budget spending. That means that we will not be spending everything we can, and monetary policy will be even more restrictive."

The coalition government collapsed at the weekend, with nationalist Prime Minister Vojislav Kostunica blaming disunity over the conflicting goals of pursuing European Union membership versus defending Kosovo, the province which seceded last month with EU backing.

"Right now, around 1.0 billion euros worth of investments have been put on hold," Djelic said. "There is a growing risk perception considering that some parties want to halt Serbia's road to Europe. The elections will be a choice between Europe and investors are extremely careful."

Heavily reliant on foreign investment for growth, Serbia is believed to need between 3.0 billion and 5.0 billion euros a year to ensure solid economic growth, single digit inflation and financing of its current account gap of 16 percent of GDP.

"In the absence of the required level of foreign investment, foreign creditors could also decide to put on hold lending to Serbian companies," said Pavle Petrovic of the FREN/CEVES thinktank said.

"The resulting crisis would lead to forcible reduction in external gaps through inflation, currency depreciation, a fall in output and wages. In that case, the central bank could soothe and postpone, but not eliminate the crisis," he said.