Serbia and Cyprus struggling to prise loans out of Russia

By bne IntelliNews September 5, 2012

bne -

Despite claims to the contrary from Belgrade, Russia said on September 4 that it has yet to complete an agreement on a $300m loan to Serbia. Cyprus is also struggling to seal a deal to borrow €5bn, as the Kremlin dangles the carrot of cheap financing in front of its struggling allies.

Serbia's Natural Resources and Mining Minister Milan Bacevic told Tanjug on September 4, following a meeting in Moscow with Russian Energy Minister Alexander Novak, that Belgrade is close to securing the funding. Explaining that the cash will go towards propping up the budget, Bacevic claimed that the $300m should be available to Serbia by mid-December.

The Serb official also claimed that Belgrade hopes to see that loan quickly followed by another to support the 2013 budget. However, a representative of the Russian Finance Ministry contradicted Bacevic, insisting Russia has not held talks on such a loan with the Serbian government, reports Prime.

Russia signed an agreement on a $1bn loan in several tranches to Serbia in April 2010, reports Voice of Russia. The first installment of $200m was also allocated that same year to cover the Serbian budget deficit, while Russia said it plans to channel the remaining $800m to infrastructure projects.

Alexander Konuzin, Russia's ambassador to Belgrade, said on August 22 that the remainder could be released, depending on "Serbia's needs," according to Bloomberg. But both he and Serb Infrastructure Minister Milutin Mrkonjic insisted that the funds would not be used to prop up the budget, but would go towards the country's railways.

Serbia is not the only Russian ally struggling to tap Moscow's large fiscal reserves as the Eurozone crisis bites, with Cyprus also having problems nailing down a loan. Home to much of Russia's banking sector thanks to a double taxation treaty, the Kremlin said in August that it may lend the island state €5bn to prop up its economy. However, Finance Minister Vassos Shiarly said on state radio on September 4 that despite local media reports to the contrary, the deal has not been closed.

Unlike the Serbs, it appears the Cypriots are at least on the same page as Moscow, from where a Russian finance ministry spokesman told the Cyprus News Agency: "The negotiations are continuing. The Russian government is negotiating with Cyprus and the loan has not yet been agreed."

Cyprus officially requested €5bn of financial help from Russia and the EU in June. Cypriot President Demetris Christofias told the European Parliament that: "the conditions offered by Russia are more favorable" because it does not "impose any conditions" and offers "a lower interest rate."

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