Serbia plans and Debt Issuance Index new dinar

Serbia plans to issue new debt dinar six months of this month and the link either to inflation or the euro to ensure the smooth financing of its 2010 budget, Finance Minister Diana Dragutinovic said.

With debt issues denominated in dinars, undersold and yields on the rise since June this year, the government needs to raise another 20 million dinars ($ 248,170,000) at 25 million dinars to finance the budget liquidity.

"I want to be sure what that refers to the liquidity of the budget," said Dragutinovic, in a telephone interview. "The first option I'm looking, if possible at all, is rate debt with inflation."

His preference for inflation-indexed debt is motivated by "dinarization" efforts to increase the share of the dinar in all banking transactions, still dominated by the euro.

Serbia consumer price inflation is at 9.6 percent in November compared to 8.9 percent in October and above the central bank's target of 4 percent to 8 percent by the end of the year.

Linking the new debt to the euro "is my last choice," said Dragutinovic, adding that his ministry is also investigating the relationship of debt to "a shot, as a certain level of depreciation of the dinar."

The Ministry of Finance will decide next week, he said.

The government plans to approve new debt issues at its meeting on December 16, allowing the Treasury to call two auctions of new debt on December 22 and December 29, the head of the Agency's Debt Management Branislav Toncic told us.

The decision to change the timing of the loans in December came after yields dinars issues of Treasury bills approached 14 percent, continues to attract little investor interest amid the tightening cycle of the bank's policy Central, launched in late August to curb inflation driven by food prices and the weak dinar.

The National Bank of Serbia, raised its benchmark interest rate by one percentage point to 11.5 percent yesterday, while trying to declare that the inflation target range in late 2011.