Russia will grant Serbia a $1-billion (euro680 million) loan to cover the Balkan country’s budget deficit and invest into infrastructure, officials said Tuesday, in a deal that could extend Russia’s influence in the region.

The deal is expected to be signed during a visit to Serbia by Russian President Dmitry Medvedev on Oct. 20 -- the first-ever visit by a Russian president to the Balkan country.

Russia’s Finance Minister Aleksei Kudrin said that up to $350 million, to be available this year, will be used to finance Serbia’s budget deficit.

The remaining $650 million, to be provided next year, will be used to build a subway in Belgrade and construct a ring road around the capital, Kudrin said during the World Bank annual meeting in Istanbul, Turkey.

“We were not among the countries to which Russia has approved loans for this year, but Kudrin has promised me that Russia will make an exception for Serbia,” Serbia’s Finance Minister Diana Dragutinovic said.

Loaning money to Serbia could enhance Russia’s clout in the Balkans, where Moscow’s interests include the South Stream gas pipeline that would bring Russian gas from the Black Sea to Europe. The route across the Balkans, including Serbia, would avoid Ukraine, with which Russia has pricing and political disputes.

“The fact is that Russia is granting Serbia a loan even though its own economy is struggling amid the global financial crisis,” said Milan Culibrk, the chief editor of Belgrade’s Ekonomist magazine. “I fear that the conditions for the credit will not be favourable for Serbia.”

By contrast, Russia has reportedly refused to give additional credits to Ukraine and Belarus because Moscow assessed that the two former Soviet states’ economies are not strong enough to service the debt.

Serbia’s Economy Minister Mladjan Dinkic said the World Bank has promised additional $400 million to Serbia, half to fill the budget gap and half for the construction of a major highway through Serbia linking Hungary with Bulgaria.

The International Monetary Fund has postponed giving the Balkan country access to additional funds from a euro2.8 billion standby loan granted in March, demanding details on how Serbia plans to finance its growing budget deficit amid the global financial crisis.

Serbia promised to lay off about one-fifth of its government employees --14,000 people -- to meet conditions set by the IMF to receive more financial aid, Dragutinovic has said.

She said the IMF insists that the 2010 budget deficit be no more than 3.5 per cent of gross domestic product. Serbia had proposed it be 4 percent of GDP and now is running a 4.5 per cent deficit.

New talks between the IMF and Serbia are expected to start in Belgrade on Oct. 20.

More In: International | News