By Matt Robinson and Aleksandar Vasovic
BELGRADE (Reuters) - Serbia's new finance minister outlined on Thursday a plan to overhaul the tax system and bloated public sector and cut red tape, saying he is convinced he has the support of the fractious coalition government.
The jury is still out on whether 28-year-old Lazar Krstic has the political clout to push through the kind of reforms that successive governments since the fall of Serbian strongman Slobodan Milosevic in 2000 have ducked.
Krstic was handpicked by the ruling coalition's largest party, the Serbian Progressive Party (SNS), but his boldest plans may face resistance from the left wing of the alliance.
Stressing the need to "do something serious" to steady Serbia's finances and economy, Krstic said the SNS approached him with "a clean sheet of paper and said 'So what would you do?'"
In an interview with Reuters three days since taking the job, the Yale graduate said he hoped to secure a new loan deal with the International Monetary Fund, which would reassure investors concerned at Serbia's ballooning budget deficit and public debt.
The deficit is set at 4.7 percent of national output for the year, but the IMF says it will likely be higher. Public debt is forecast at 65 percent, higher than the Fund recommends for similar emerging economies.
The IMF early last year froze a previous 1 billion euro ($1.3 billion) standby loan deal over broken spending promises. The government is now targeting a budget deficit of 4.7 percent for the year, though the IMF and local analysts say it will almost certainly be higher.
Krstic refused to be drawn on whether the 2013 target was achievable, but when asked about 2014, he said the government was targeting "something around 4.2 percent." He warned of risks to the revenue side of the budget for this year.
Krstic said he was "still considering" whether to go ahead with a $1 billion Eurobond planned by his predecessor for this month, saying it may happen in late September or early October.
"We are at the same time looking for possible alternative sources of liquidity given the most recent situation in the bond markets," he told Reuters.
LITTLE ROOM FOR MANOEUVRE
Krstic, who left global consultancy firm McKinsey to join the Serbian government, said he was working on a plan for "comprehensive" reform of the tax system and public sector and to "aggressively" tackle red tape that is suffocating business.
"We need to fix our house," he said, "consolidate our fiscal deficit and bring things in order in the public sector."
"We're at the point where we have very little maneuvering space - primarily I'm referring to the public debt level we have," he said, speaking in English.
The IMF has repeatedly emphasized the need for reform of the pension system and public sector, which account for more than half the state's outgoings.
But Krstic said it was also important to ensure "social justice" in Serbia where unemployment is over 25 percent.
The Socialists of Prime Minister Ivica Dacic and his allies in the Pensioners Party have resisted any radical overhaul that would hit their main constituents, but the Progressives are riding high in the polls and say they are serious about taking painful measures.
Krstic said he was convinced he would have political backing. He said the long-term goal was to "reduce, mostly eliminate subsidies" for well over 100 loss-making state firms that annually cost the government about 750 million euros.
"There is an awareness and an agreement that ... we're at the point that we really need to do something serious to get the economy back on track and make it sustainable in the long term," he said.
"One thing we still need to work through ... is the pace at which we will do that," he said. "I don't think this is about shock therapy. We need to do it responsibly, but we need to do it. There's no question about that." ($1 = 0.7623 euros)
(Writing by Matt Robinson; Editing by Ruth Pitchford)