Inflation close to zero in Q2

Serbian Minister of Finance Mladjan Dinkic said today that inflation in 2005 will remain below ten percent and that in the second quarter of the year it will be close to zero.

The first quarter will see higher inflation though, due to an increase in the price of services provided by local communities, which had the strongest impact on the 2.7 percent inflation in January, Dinkic told reporters at the signing of an acquisition agreement between Delta Banka and Italian Banca Intesa.

He recalled that the prices of services increased by 7.8 percent in January, while the prices of goods grew only 0.9 percent, which means that the impact of the value added tax (VAT) was not as strong as expected.

Dinkic stressed that $500 million in foreign direct investment, raised from the sales of banks in the first two months of 2005, combined with a stable dinar exchange rate, will help to ensure that month-on-month inflation in the second quarter is close to zero.

He said he expects that at the end of 2005, inflation projections of 9.1 percent will hold true, adding that the sharpest hikes in retail prices will be recorded in the first quarter, followed by a sharp decline in the second quarter.

Following the signing of a €277.5 million deal on Intesa’s acquisition of 75 percent plus one share of Delta Banka, Dinkic said that this represents the “biggest transaction in Eastern Europe to date” and “certainly one of the biggest transactions in Serbia since the beginning of transition.”

According to him, the recent sale of Jubanka and today’s sale of Delta have already ensured around $500 million in foreign direct investment, which could reach a record level of $1.5 billion by the end of the year.

He stressed that the arrival of Intesa to the Serbian market will further attract the Italian bank’s clients into doing business with Serbian companies as well as boost trade with Italy, which is Serbia-Montenegro’s second biggest trade partner.

“We expect that Intesa’s arrival will help Serbian exports, primarily in the textile and food industries,” said Dinkic and described as “encouraging” Delta Holding’s announcement that it will invest the receipts from the sale of Delta Banka in Serbia and neighbouring countries.

Dinkic announced that Jubmes Banka will most probably be turned into an institution for the insurance of export loans and for approving cheap loans to certain export sectors.

He stressed that the government is mulling tax breaks for large exporters as well as an exemption from capital gains tax.