(Adds more detail, background, market reaction)
By Gordana Filipovic
BELGRADE, March 12 (Reuters) - Serbia needs $2 billion from the International Monetary Fund for 2009 alone and a lot more under a new three-year loan with the IMF to maintain stability, central bank Governor Radovan Jelasic said on Thursday.
Jelasic also said a failure to cut state spending would push Serbia's 2009 budget deficit to six percent of GDP.
Asked if Serbia needed $2.0 billion from the IMF, he told B92 radio: "It should be $2.0 billion for this year alone and if we are negotiating a three-year loan, it will be a lot more."
He could not say how much more money would be needed and this would depend on government borrowing from other international financial institutions, European Union assistance and privatisation revenues.
"If we agree the loan, Serbia will be on the right track to maintain macroeconomic stability, prices will be under control, a greater exchange rate stability will be guaranteed and inflation will not eat away wages," he said.
On Wednesday, Finance Minister Diana Dragutinovic said Serbia could do well with less than $2.0 billion from the IMF.
Serbia is due to start talks with the IMF next week to replace a $520 million stand-by loan with a $2.0-$2.5 billion arrangement, to absorb the impact of the global crisis.
The government and the central bank were due to meet on Friday to agree a negotiating strategy with the IMF.
Jelasic said lower than forecast economic growth in 2009 would mean less fiscal revenue, but the government planned no spending cuts. "If we fail to cut spending, our fiscal deficit will not be 1.7 or 1.8 percent of GDP but 6 percent of GDP," he said. "The question is how to finance that." An option is that inflation and the exchange rate do the necessary spending adjustments.
Earlier this week, an independent think-tank unveiled three scenarios, showing Serbia's economy contracting by up to three percent without an IMF deal with a loss in hard currency reserves resulting in a possible default on external debts.
Their baseline scenario sees an IMF deal helping Serbia to restrict 2009 GDP contraction to one percent, inflation would be at least 12 percent, official reserves would fall by 3.4 billion euro and the dinar decline to 99.2/euro by the end of 2009.
Without the IMF deal, inflation would be at least 15 percent, the dinar would fall past 106/euro and reserves would fall by 7.6 billion euros, their report said.
With currency reserves last reported for January at 7.99 billion euros and Serbia's total 2009 external borrowing needs estimated at 7.5-8.0 billion euros, Serbia planned to ask ten foreign-owned banks in Serbia to refinance about 3.0 billion euros in loans to corporates maturing this year.
"After we conclude the meeting with the IMF mission, we plan to meet top ten banks in Serbia," Jelasic said. "We need reassurance that all the credits maturing this year will be refinanced." The most important thing was for Serbia to make sure there are no more capital outflows in 2009.
The dinar
Banks traded the dinar in an 94.30-95.00/euro range on Thursday and low import-related demand and the extension of subsidised loans, which are part of a wider government plan to counter the global recession, offset downward pressures.
"The market sentiment is for more downside, but low demand keeps the dinar fairly safe and stable for the time being," a senior currency dealer said. (Reporting by Gordana Filipovic; Editing by Victoria Main)