By Gordana Filipovic
BELGRADE, Dec 10 (Reuters) - Serbia will feel little benefit from a stand-by deal with the International Monetary Fund and the non-EU member state will not cure its exchange rate problems by adopting the euro, a top economist said.
"The record is that, in general, countries that have entered into IMF stand-by arrangements of the kind that Serbia has agreed to have not gotten much benefit," Joseph Stiglitz, the 2001 Nobel Prize winner for Economics, said late on Tuesday.
Serbia has agreed a $516 million deal with the IMF, due for approval on Dec. 19, as it tries to reassure investors that its policies stay on track despite the ravages of the financial crisis.
The terms of the agreement require that Serbia cut its budget deficit to 1.5 percent of GDP in 2009, from 2.7 percent this year.
"It didn't make any big difference to the exchange rate," Stiglitz said at an insurance company event. "While it did provide more access to funds it also imposed constraints on interest rates that may actually weaken the economy."
Serbia's central bank has raised its key policy rate to 17.75 percent in an effort to prop up the dinar, the biggest loser among east and central European currencies which have been hit by a flight of risk-averse capital.
Weaker global demand and lower commodities prices are expected to weigh on Serbia's economy in 2009, when the government sees growth at 3.5 percent, down from this year's 7 percent.
Serbia could seek a cure by adopting the euro -- which already accounts for 60 percent of the broad money measure and 70 percent of savings and financial assets -- former deputy Prime Minister Miroljub Labus told the same forum.
But Stiglitz said that would be premature. "At this juncture it would be questionable about whether Serbia is sufficiently integrated into Europe to join the euro."
"But once Serbia becomes part of the EU, once its trade patterns become more integrated with Europe's trade patterns ... and once Europe becomes fiscally a more solid place, then the advantages of having the euro for a small country like Serbia might actually be quite strong," Stiglitz said. (Editing by Christian Lowe)