Belgrade, 6 October (AKI) – Russia will grant Serbia a one billion dollar loan to bridge its mounting budget deficit and finance infrastructural projects, Serbian media reported on Tuesday. The deal could increase Russia's influence in the region, according to observers.

Russian finance minister Alexey Kudrin and his Serbian counterpart Diana Dragutinovic announced the deal on the sidelines of the annual meeting of the International Monetary Fund (IMF) and the World Bank in the Turkish capital, Istanbul.

A total 350 million dollars will be made available this year to finance Serbia's budget deficit, Kudrin said.

The remaining 650 million dollars will be provided in 2010 to fund a new subway in Belgrade and build a ring road around the capital, Kudrin stated.

The loan was agreed between Russian president Dmitry Medvedev and Serbian president Boris Tadic ahead of Medvedev’s first visit to Belgrade on 20 October, where the deal is expected to be signed.

Serbia’s foreign debt has tripled in the past nine years to 30 million dollars. Belgrade is still negotiating with the IMF terms for the release of a second instalment of a three billion euros loan granted to Serbia last year.

Dragutinovic said the IMF is insisting that the 2010 budget deficit be no more than 3.5 percent of gross domestic product, as opposed to the 4 percent of GDP proposed by Serbia.

Serbia's deficit is currently running at 4.5 percent of gross domestic product.

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