Yale graduate returns home to tackle Serbia's finances

by Reuters
Monday, 26 August 2013 12:58 GMT

By Ivana Sekularac

BELGRADE, Aug 26 (Reuters) - When 29-year old Lazar Krstic takes over Serbia's finance ministry this week, he will need to find more courage than his predecessors to break news of spending cuts to two million pensioners and state employees.

The two groups make up one third of Serbia's electorate and have never been the target of government austerity, even though the country has struggled to shore up its economy - the biggest of the ex-Yugoslav republics - and the state is running up debt.

Krstic, a Yale graduate who has been working for the McKinsey consultancy in New York, has yet to detail his plans.

But he has already said that "belt tightening will be required" and promised to cut the budget gap to four percent of economic output at most next year - hardly possible without job and spending cuts.

He also wants a loan deal with the International Monetary Fund, which would require painful economic changes.

Despite pressure from international lenders, no finance minister has tried to cut public sector jobs or pensions since Serbia emerged from international isolation and started market reforms in 2000 after strongman Slobodan Milosevic was ousted.

This year Serbia finally qualified for membership talks with the European Union, giving investors some reassurance.

But the EU says it needs to do much more, including fighting corruption, ensuring the rule of law, cutting red tape and letting go of state-controlled companies.

The success of these reforms will make or break Krstic, a Yale graduate with no political background and relatively brief work experience, who should be endorsed by parliament this week.

A parliament session devoted to the cabinet reshuffle started on Monday and is likely to last through the week.

The powerful Deputy Prime Minister Aleksandar Vucic, whose Serbian Progressive Party nominated Krstic, told Reuters in an emailed statement: "He has the character of a winner, a man with lots of self-confidence."

And he is likely to need it. Two coalition partners - the Socialists of Prime Minister Ivica Dacic and the Pensioners Party - have already signalled reluctance to support a pension freeze or wage and subsidy cuts.

Analysts say Krstic, who has no party affiliation or political clout and has never managed public finances before, will only be able to push through reforms that have Vucic's explicit backing.

"If his moves can cause any trouble (for the ruling coalition), political support will just melt away," analyst Miroslav Prokopijevic told Belgrade's Blic daily.


Krstic is little known to most people in Serbia but everyone agrees he has his work cut out.

"It will likely be a baptism of fire for him," said Timothy Ash, a Standard Bank analyst.

Nearly a quarter of Serbia's working population has no job, bad loans in local banks are rising and many companies do not pay taxes, health and pension fund contributions.

An average salary in Serbia is 380 euros ($510) a month compared with 720 euros in neighbouring Croatia.

Public spending has been driven up by the cost of state administration and subsidies to loss-making state enterprises. The government is struggling to plug a budget gap it puts at 4.7 percent of gross domestic product (GDP) after a July budget revision, although the IMF says that is an underestimate.

The only child of a psychologist and a doctor, Krstic graduated from a secondary school in the southern city of Nis as the top of his class.

Vucic handpicked him from McKinsey for the finance minister's post, vacated after Mladjan Dinkic was sacked as part of a cabinet reshuffle.

Krstic is a member of the Serbian MENSA association, which gathers people who score highly on its IQ tests, and has won prizes at various mathematics competitions.

"I don't think this post (of finance minister) came out of the blue," said Ljiljana Zlatanovic, Krstic's headmaster at the Bora Stankovic secondary school in Nis.

"He has worked towards achieving this. You can see that by the subjects he majored: ethics, politics, economy and mathematics."

While analysts remain sceptical because of his youth, a Belgrade-based western diplomat who met Krstic recently said that need not be a disadvantage. "He is thoughtful, he listens and he does not seem to rush, all of which is encouraging." ($1 = 0.7461 euros) (Additional reporting by Aleksandar Vasovic; Editing by Zoran Radosavljevic and Ruth Pitchford)

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