BELGRADE (Reuters) -- Russia said it has approved a major loan for its ally Serbia due to be signed as President Dmitry Medvedev visited Belgrade on October 20, underlining special relations between Moscow and the European Union hopeful.
Medvedev is expected to discuss terms for the 1 billion euro ($1.5 billion) loan with his Serbian counterpart Boris Tadic in talks which are also focusing on energy and regional security.
Russian Ambassador to Belgrade Alexander Konuzin said Serbia's loan request, made in July, had been approved. It was up to Medvedev and Tadic to work out the details of "how best to use the resources which Russia put at Serbia's disposal," he told B92 television.
Belgrade wants to use 350 million euros of the loan to help cover part of its 2010 budget gap, which it needs to keep within 3.5 percent of GDP to meet requirements under a 3 billion euro loan deal with the International Monetary Fund.
Serbia has been hard hit by the global financial crisis and the loan deal is expected to be signed on the sidelines of Medvedev's one-day visit, which aims to display the special relations with Russia's Slav ally.
Tadic welcomed Medvedev at a ceremony against a backdrop of the two national flags -- similar white-blue-red tricolours -- before they went into the Palace Serbia, a drab communist-era government compound, to hold their talks.
Serbian Foreign Minister Vuk Jeremic described Medvedev's visit as "a historical day."
"All Western Balkan countries are on track to the EU membership, and only one -- Serbia -- has special ties with Russia, which makes our country exceptional and stronger," Jeremic told state-run RTS TV.
Belgrade plans to spend the rest of the loan on infrastructure as it tries to kick-start economic activity during the global downturn with road and rail construction.
Russia and Serbia share a common Orthodox Christian and Slavic heritage, but the Kremlin has driven hard bargains in recent energy deals with Belgrade and bilateral trade has tumbled so far this year.
Serbia has attracted almost $12 billion in foreign direct investments since 2003, but Russia's contribution has been modest, with the country ranking 19th in the list of investors.
Bilateral trade totalled $4.04 billion in 2008, but it fell 47 percent in the first eight months of the year, according to Russian government data. Russian exports to Serbia made up 86 percent of 2008 bilateral trade turnover.
"We will explore major joint projects during the upcoming talks -- projects in the energy sector, in the sphere of transport and cultural, humanitarian and scientific cooperation," Medvedev said in an interview published by Serbia's "Vecenje Novosti" daily on October 19.
"We will have to work more not only to strengthen the foundations of our cooperation but to unleash its rich potential," he said, according to a Russian transcript of his interview supplied by the Kremlin.
Medvedev led a Russian delegation to sign a major energy deal with Serbia last year when he was a deputy prime minister.
Under the deal, Russia's Gazprom said it would develop an arm of the South Stream gas pipeline, allowing Russia to bypass Ukraine via Turkey, Bulgaria, and Serbia.
Moscow and Kyiv have had a number of disputes about gas which have sometimes affected supplies to other countries.
"I expect that Medvedev will reassure us that Serbia will not be affected by a future gas row with Ukraine," a Serbian official told Reuters on condition of anonymity. "Russia needs an ally in Europe ahead of another cold winter."
Russia opposed last year's independence of Kosovo, Serbia's former southern province. However, Medvedev's visit is likely to focus more on economic issues.