COMMISSION OF THE EUROPEAN COMVIUNITIES 
C0M(93) 687 final 
Brussels, 26 January 1994 
COMMISSION REPORT ON GUARANTEES 
COVERED BY THE GENERAL BUDGET -
SITUATION AT 30 JUNE 1993 
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REPORT ON GUARANTEES COVERED BY THE GENERAL BUDGET 
SITUATION AT 30 JUNE 1993 
This report describes the situation as regards budget guarantees at 30 June 1993. 
It is in response to the statement made by the Commission, when the vote was taken on 
supplementary and amending budget No 1/91, that it would report to the budgetary 
authority twice a year on budget guarantees and the corresponding risks. 
The Commission has already presented four reports to the budgetary authority. 
The report is in three parts: 
1. Description of operations entered in the budget and events since the last report. 
2. Situation at 30 June 1993 as regards risks for the budget in future years and 
guarantees already activated. 
3. Assessment of the economic and financial situation of non-Community countries 
benefiting from the most important operations. 
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PART ONE: OPERATIONS ALREADY ENTERED IN THE BUDGET 
At 30 June 1993 the budgetary authority had authorized 21 headings with token entries 
in the 1993 budget, including six new headings for operations in favour of Bulgaria, 
Romania, Latvia, Estonia and Lithuania and EIB loans in non-member countries. These 
headings can be divided into three categories: borrowing and lending within the 
Community, borrowing and lending outside the Community and guarantees given to 
financial institutions. 
L BORROWINGS TO BE ON-LENT WITHIN THE COMMUNITY 
A COMMUNITY BORROWING OPERATIONS TO PROVIDE BALANCE-OF-
PAYMENTS SUPPORT 
The Community is authorized to borrow on the capital markets or from financial 
institutions and make the sums raised available to Member States experiencing temporary 
balance-of-payments difficulties. 
The outstanding amount of loans granted to Member States for this purpose may not 
exceed ECU 14 billion in principal. 
At 30 June 1993 there were two operations in respect of Greece under the decisions of 
9 December 1985 and 4 March 1991 and one operation in respect of Italy under the 
decision of 18 January 1993. 
At 30 June 1993 the amount outstanding was ECU 1.200 million in loans to Greece and 
ECU 1 979 million in loans to Italy (Table 1). 
B. EURATOM BORROWING OPERATIONS 
In 1977 the Commission was empowered to borrow funds to be used to help finance 
nuclear power stations. 
Loans are made to electricity producers and carry the usual guarantee demanded by 
banks. Recipients are often State-owned companies or companies enjoying a State 
guarantee. 
The maximum amount of borrowings authorized is ECU 4 billion, of which 
ECU 500 million was authorized by the 1977 decision, ECU 500 million in 1980, 
ECU 1 billion in 1982, ECU 1 billion in 1985 and ECU 1 billion in 1990. At 
30 June 1993 the amount of loans granted came to around ECU 2 900 million. 
At 31 June 1993 the total of loans outstanding was ECU 1 144 million. 
On 9 December 1992 the Commission proposed that the balance of borrowings not used 
in the Member States could be used to finance the improvement of the degree of 
efficiency and safety of nuclear power stations in the countries of Central and Eastern 
Europe and in the CIS. 
Some ECU 1 100 million could be allocated. 
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C. BORROWING OPERATIONS FOR THE PROMOTION OF INVESTMENT IN 
THE COMMUNITY 
The Commission was empowered by a Council Decision of 16 October 1978 to borrow 
funds to be used to promote investment in the Community (New Community 
Instrument). 
The authorized borrowing ceiling was fixed at ECU 1 billion by the Decision of 
16 October 1978 and was then raised by ECU 1 billion by the Decision of 
15 March 1982. The ceiling was further raised by ECU 3 billion by the Decision of 
19 April 1983 and by ECU 750 million by the Decision of 9 March 1987. 
The proceeds of the operations are paid out in the form of loans granted by the EEB, 
acting for the Commission, to finance investment projects which contribute to greater 
convergence and growing integration and are consistent with the priority Community 
objectives in the energy, industry and infrastructure sectors, taking account of such 
factors as the regional impact of the projects and the need to combat unemployment. 
Support for small businesses was also made a priority objective by the Decision of 
26 April 1982. 
A Decision of 20 January 1981 also empowered the Community to contract loans in 
order to provide exceptional aid of ECU 1 billion to the regions of Italy affected by the 
earthquake of November 1980. A similar decision involving ECU 80 million was 
adopted on 14 December 1981 for the regions affected by the earthquakes in Greece in 
February/March 1981. 
The maximum amount of borrowings authorized thus comes to ECU 6 830 million. 
At 30 June 1993 the total outstanding was ECU 2 813 million, 15.4% less than on 
31 December 1992. 
The risk is spread over a large number of borrowers. In addition, most of the loans are 
global loans to financial institutions which guarantee repayment of the funds. 
Every year the EIB provides the Commission with a list of debtors who, according to its 
information, risk defaulting in the coming year. So far, no names have been recorded on 
this list. 
H. LOANS RAISED FOR ON-LENDING TO NON-COMMUNITY 
COUNTRIES 
A. PROGRAMME OF BORROWINGS CONTRACTED'BY THE COMMUNITY 
TO PROVIDE MEDIUM-TERM FINANCIAL ASSISTANCE TO HUNGARY 
(Hungary I) 
The Community is granting Hungary a medium-term loan of up to ECU 870 million in 
principal for a maximum of five years. The loan is intended to facilitate the adjustment of 
the Hungarian economy in a way which will enable it to derive all the benefits of a 
market-based economy. It is being made available in tranches. 
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The first tranche of ECU 350 million was paid on 20 April 1990. A second tranche of 
ECU 260 million was paid on 14 February 1991. The third tranche, which is not to 
exceed ECU 260 million, was planned for 1992 but will probably not be paid out now 
that Hungary's balance of payments is more favourable than expected. The tranches will 
be repaid in one instalment after five years and interest, which is at variable rates, is 
payable half-yearly. 
B. ADDITIONAL MEDIUM-TERM FINANCIAL ASSISTANCE TO HUNGARY 
(Hungary II) 
As the break-up of the Council for Mutual Economic Assistance (Comecon) and the Gulf 
crisis threatened to compromise the initial encouraging results of the reforms undertaken, 
it was decided to launch a supplementary borrowing and lending operation for 
ECU 180 million under an overall ECU 360 million G-24 aid programme. 
The first tranche of ECU 100 million was paid on 14 August 1991. It will be repaid in 
one instalment after seven years, and interest, which is at variable rates, is payable 
half-yearly. The second tranche of ECU 80 million was due paid on 15 January 1993. It 
will be repaid in January 1997 and interest, which is at a fixed rate, is payable annually. 
C. BORROWING CONTRACTED BY THE COMMUNITY TO PROVIDE 
MEDIUM-TERM FINANCIAL ASSISTANCE FOR THE CZECH AND 
SLOVAK FEDERAL REPUBLIC 
As part of G-24's total aid of around ECU 750 million, the Commission, on behalf of the 
Community, is empowered to borrow, in two tranches, ECU 375 million for a period of 
seven years. The proceeds of this operation were to be on-lent on the same terms to the 
Czech and Slovak Federal Republic. 
The first tranche of ECU 185 million was paid on 14 August 1991. It will be repaid in 
one instalment after seven years, and interest, which is at variable rates, is payable 
half-yearly. 
The second tranche of ECU 190 million was paid on 2 March 1992 and will be repaid in 
one instalment after six years. 
Following the division of Czechoslovakia into the Czech Republic and the Slovak 
Republic on 1 January 1993, the Commission proposed that the loan be divided between 
the two Republics. 
Two thirds of the loan - ECU 250 million - would be for the Czech Republic and one 
third - ECU 125 million - for the Slovak Republic. 
D. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT 
BULGARIA MEDIUM-TERM FINANCIAL ASSISTANCE 
As part of G-24's total aid of ECU 580 million, the Commission, on behalf of the 
Community, is empowered to borrow, in two tranches, ECU 290 million for a period of 
seven years. The proceeds of this operation were to be on-lent on the same terms to 
Bulgaria. 
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The first tranche of ECU 150 million was paid to Bulgaria on 14 August 1991. It will be 
repaid in one instalment after seven years, and interest, which is at variable rates, is 
payable half-yearly. 
The second tranche of ECU 140 million was paid on 2 March 1992 and will be repaid in 
one instalment after six years. Interest, which is at variable rates, is payable quarterly. 
E. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT 
BULGARIA ADDITIONAL MEDIUM-TERM FINANCIAL ASSISTANCE 
As part of G-24's total aid of ECU 220 million, the Commission, on behalf of the 
Community, is empowered to borrow, in two tranches, 
ECU 110 million for a period of seven years. The proceeds of this operation are to be 
on-lent to Bulgaria. 
The first tranche will probably be paid in thee second half of 1993 and the second in early 
1994. 
F. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT ISRAEL 
MEDIUM-TERM FINANCIAL ASSISTANCE 
As part of the financial assistance agreed for Israel and the population of the occupied 
territories, the Commission was empowered to borrow, on behalf of the Community, 
ECU 160 million in one tranche for a period of seven years. The proceeds were to be 
paid out to Israel on the same terms and are accompanied by an interest subsidy of 
ECU 27.5 million paid from the Community budget. 
This operation started on 2 March 1992. The borrowing is to be repaid in full on 
15 December 1997. 
G. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT 
ROMANIA MEDIUM-TERM FINANCIAL ASSISTANCE 
As part of G-24's total aid of ECU 750 million, the Commission, on behalf of the 
Community, is empowered to borrow, in two tranches, ECU 375 million for a period of 
seven years. The proceeds of this operation were to be on-lent on the same terms to 
Romania. 
The first tranche of ECU 190 million for a term of seven years was paid on 
22 January 1992. It will be repaid in one instalment on 1 February 1999, and interest, 
which is at variable rates, is payable half-yearly. 
The second tranche of ECU 185 million for a term of six years was paid on 1 April 1992 
and will be repaid in one instalment on 18 March 1999. Interest, which is at variable 
rates, is payable half-yearly. 
H. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT 
ROMANIA ADDITIONAL MEDIUM-TERM FINANCIAL ASSISTANCE 
As part of G-24's total aid of ECU 160 million, the Commission, on behalf of the 
Community, is empowered to borrow ECU 80 million for a maximum period of seven 
years. The proceeds of this operation are to be on-lent on the same terms to Romania. 
In view of its size, the loan was paid out in a single tranche on 26 February 1993. It will 
be repaid in one instalment on 26 February 2000, and interest is payable half-yearly. 
I. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT ALGERIA 
MEDIUM-TERM FINANCIAL ASSISTANCE 
The Commission, on behalf of the Community, was empowered to borrow 
ECU 400 million for a maximum period of seven years in two tranches of 
ECU 250 million and ECU 150 million. The proceeds of this operation were to be 
on-lent on the same terms to Algeria. 
A bridging loan was granted on 23 December 1991 to cover the first tranche and was 
repaid from the net proceeds of thee borrowing contracted on 14 January 1992 for a 
period of six years. 
The loan is to be repaid in one instalment on 15 december 1997 and interest is payable 
annually every 15 December. 
The second tranche has not yet been paid. 
J. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT MEDIUM-
TERM FINANCIAL ASSISTANCE TO THE SOVIET UNION AND/OR ITS 
REPUBLICS 
The Commission has proposed a medium-term loan of up to ECU 1 250 million for the 
Soviet Union and/or its Republics in order to finance imports of agricultural products, 
foodstuffs and medicines from the Community and Eastern Europe. 
Parliament delivered a favourable opinion and the Council adopted its formal decision on 
16 December 1991. The guarantee heading was set up when the 1992 budget was 
adopted in December 1991. 
The loan will be divided between the various Republics of the former Soviet Union for a 
maximum period of three years. 
The loan contracts were signed in the course of 1992: 
- with Armenia (ECU 38 million), Kyrgyzstan (ECU 32 million), Turkmenistan 
(ECU 45 million) and Moldova (ECU 27 million) on 10 July 1992; 
- with Ukraine (ECU 130 million) on 13 July 1992; 
-with Belarus (ECU 102 million), Tajikistan (ECU 55 million) and Georgia 
(ECU 70 million) on 24 July 1992; 
- with Russia (ECU 150 million) on 9 September 1992; 
- with Russia (ECU 349 million) on 9 December 1992; 
- with Kazakhstan (ECU 25 million) on 15 December 1992; 
The amounts allocated to certain Republics have since been revised and agreements 
supplementary to the initial contracts were signed on 5 May 1993 : 
- the amount for Armenia was increased from ECU 38 million to ECU 58 million; 
- the amount for Georgia was increased from ECU 70 million to ECU 80 million; 
These increases were covered by the reallocation of ECU 30 million originally intended 
for Kazakhstan which stated that it would not use all this amount since ECU 25 million 
was sufficient. 
The total outstanding at 30 June 1993 was ECU 616 million. 
So far, contracts have been signed for only ECU 1 023 million since Uzbekistan 
(ECU 129 million) and Azeerbaijan (ECU 68 million) do not satisfy one of the criteria for 
eligibility - they do not accept joint and several responsibility for the debt of the former 
Soviet Union. 
The capital repayment and interest payment dates for this operation vary depending on 
the amount of the loan and on the Republic: 
- Armenia (ECU 38 million), Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, 
Turkmenistan, Ukraine, Russia (ECU 150 million): 
- interest on 20 April and 20 October 
-capital on 20 August 1995 (20 August 1994 and 1995 for Belarus, Ukraine and 
Russia) 
- Armenia (ECU 20 million), Kazakhstan, Russia (ECU 349 million): 
- interest on 15 January and 15 July 
- capital on 15 January 1996 (15 January 1995 and 1996 for Russia). 
K. BORROWING CONTRACTED BY THE COMMUNITY TO GRANT 
MEDIUM-TERM FINANCIAL ASSISTANCE TO ESTONIA, LATVIA AND 
LITHUNIA 
As part of the G-24's total aid of ECU 440 million for these three countries, the 
Commission, on behalf of the Community, is empowered to borrow ECU 220 million for 
a period of seven years. The proceeds of this operation are to be on-lent on the same 
terms in two tranches: 
- ECU 40 million for Estonia; 
- ECU 80 million for Latvia; 
- ECU 100 million for Lithuania. 
The first tranches of the loan for Estonia (ECU 20 million) and for Latvia 
(ECU 40 million) were paid on 31 March 1993. The loans are to be paid in one 
instalment on 31 March 2000 and interst is repayable half-yearly every 31 March and 
30 September. 
HI. COMMUNITY GUARANTEE TO NON-COMMUNITY COUNTRIES 
A. EUROPEAN INVESTMENT BANK LOANS TO MEDITERRANEAN 
COUNTRIES GUARANTEED BY THE GENERAL BUDGET 
Under the terms of the Council Decision of 8 March 1977, the Community guarantees 
loans to be granted by the European Investment Bank as part of the Community's 
financial commitments towards the Mediterranean countries. 
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This decision was the basis for the contract of guarantee signed by the European 
Economic Community and the European Investment Bank on 30 October 1978 in 
Brussels and 10 November 1978 in Luxembourg introducing a global guarantee of 75% 
on all credit lines made available for loans in the following countries: Portugal (Financial 
Protocol, pre-accession aid), Greece, Spain (financial cooperation), Malta, Tunisia, 
Algeria, Morocco, Turkey, Cyprus, Egypt, Jordan, Syria, Israel, Yugoslavia and 
Lebanon. 
In addition, by way of exception, a 100% guarantee covers loans allocated for emergency 
aid to Portugal ii* accordance with the Council Decision of 7 October 1975. 
A new extension of the contract of guarantee is established for each new Financial 
Protocol. 
The loans authorized at 30 June 1993 total ECU 7 517 million, of which 
ECU 1 500 million is for Spain, Greece and Portugal and ECU 6 017 million for the 
non-member Mediterranean countries. At 30 June 1993 the total of outstanding loans 
came to ECU 2 161 million (taking account of the 75% limit), of which ECU 629 million 
was accounted for by Spain, Greece and Portugal and ECU 1 532 million by the 
non-member Mediterranean countries. 
With the signature of a fourth series of protocols, the breakdown of authorizations by 
country (non-member countries only) is as follows: 
Old protocols 4th protocols Total 
Authorizations 
Algeria 360 280 640 
Cyprus 92 92 
Egypt 492 310 802 
Israel 133 82 215 
Jordan 118 80 198 
Lebanon 177 45 222 
Malta 55 55 
Morocco 297 220 517 
Syria 208 208 
Tunisia 250 168 418 
Turkey 90 90 
Yugoslavia i 760 760 
3 032 1 185 4 217 
The second protocol with Yugoslavia was suspended on 25 November 1991 but as part 
of the programme of positive measures for Bosnia-Hercegovina, the former Yugoslav 
Republic of Macedonia, Slovenia and Coratia, the EIB was asked to resume payments 
for projects covered by contracts signed before 8 November 1991 (ECU 290 million is 
still to be disbursed) as far as circumstances permit. At 31 December 1992 the Bank had 
resumed payments in Slovenia and Croatia. 
There is also provision for EIB loans outside these protocols und2r Council Regulation 
(EEC) No 1763/92 of 29 June 1992 concerning financial cooperation in respect of all 
Mediterranean non-member countries. 
1 The second protocol with Yugoslavia was suspended when ECU 100 million of credits were still to 
be agreed. 
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At 30 June 1993 ECU 297 million had been made available but no disbursements had 
taken place. 
The loans are generally for 15 years with 3 to 4-year periods of grace on capital 
repayments. 
B. LOANS GRANTED BY THE EUROPEAN INVESTMENT BANK IN 
COUNTRIES OF CENTRAL AND EASTERN EUROPE 
In response to a call made by the Council on 9 October 1989, the Board of Governors of 
the European Investment Bank decided on 29 November 1989 to authorize the Bank to 
provide loans from its own resources to finance investment projects in Hungary and 
Poland for a total amount not exceeding ECU 1 billion. These loans are granted to 
finance investment projects which satisfy the Bank's usual requirements for loans from its 
own resources. The contract of guarantee was signed on 24 April 1990 in Brussels and 
14 May 1990 in Luxembourg. 
On 14 May 1991 the budgetary authority extended this guarantee to loans made in 
Czechoslovakia, Bulgaria and Romania up to a maximum of ECU 700 million. 
The extension of the contract of guarantee was signed on 31 July 1991. 
On 23 October 1992 the Commission presented a proposal for a Council Decision 
extending this Community guarantee to losses incurred by the EIB as a result of loans 
granted to Estonia, Latvia and Lithuania; this has been approved by the budgetary 
authority. 
The overall ceiling on loans which the EIB may grant in these countries was set at 
ECU 200 million for a period of three years. 
On 18 December 1992 the Commission also proposed the extension of this guarantee to 
losses incurred by the EIB as a result of loans granted in Albania. 
The overall ceiling on loans which the EIB may grant in Albania was set at 
ECU 50 million for a period of three years. 
The loans are generally long-term: 15 years on average with 3 to 4-year periods of grace 
on capital repayments. 
At 30 June 1993, ECU 1 090 million had been made available in these six Eastern 
European countries but only ECU 178.8 million had been disbursed. 
On 17 May 1993 the Commission presented a proposal for a Council Decision renewing 
the Community guarantee for a period of three years for loans granted by the EIB in the 
countries of Central and Eastern Europe (including the Baltic States and Albania) up to a 
maximum of ECU 3 billion. 
C. LOANS GRANTED BY THE EUROPEAN INVESTMENT BANK_ IN 
NON-MEMBER COUNTRIES 
At its meeting of 19 May 1992 the Council (Economic and Financial Affairs) adopted the 
guidelines proposed by the Commission for thee extension of EIB activities outside the 
Community and asked it to gi ant loans in accordance with its statutes and its usual critria 
11 
to projects of mutual interest in countries with which the Community has concluded 
cooperation agreements. 
An overall limite of ECU 250 million per year has been set for a 3-year period; this 
ceiling will be reviewed at the end of the period. 
These loans benefit from Community budget guarantees. The Commission presented a 
proposal for a decision to this effect on 3 June 1992. The formam Council Decision 
followed on 15 February 1993. 
The budgetary authority set up a heading for this purpose in the 1993 budget. 
D. COMMUNITY CREDIT GUARANTEE FOR EXPORTS OF AGRICULTURAL 
PRODUCTS AND FOODSTUFFS FROM THE COMMUNITY TO THE 
FORMER SOVIET UNION 
The Community has decided to guarantee loans granted to the former Soviet Union by a 
pool of banks to finance imports of agricultural products and foodstuffs originating in the 
Community and the countries of Central and Eastern Europe. 
The Community guarantee covers 98%, up to a maximum of ECU 500 million, of any 
losses in principal (around ECU 408 million) and interest (around ECU 92 million). 
As the credit line has not been used in full and as the time limit for use has not been 
extended, the amount guaranteed comes to only ECU 375 million in principal and 
ECU 52 million in interest. 
The Community will receive a surety commission of 0.67% of the amount guaranteed in 
consideration for this guarantee. Half of this commission was paid on 
26 December 1991 under the terms of the contract. The balance was paid on 
28 January 1993; the reduction in the Community guaranteee was taken into account. 
On 26 November 1991 the terms of the loan and the arrangements for the utilization of 
the funds were laid down in an exchange of letters between the Commission and the 
Soviet authorities. On the same day the Community and the banks signed a contract of 
guarantee. 
Following the disappearance of the Soviet Union, it has been decided that the funds will 
be used by the Russian Republic. 
The loan is for three and a half years from the date of signature. 
Interest will be payable half-yearly and the principal will be repaid in three instalments, 
20, 31 and 42 months after the agreement has been signed. 
The first repayment of capital is due on 26 July 1993. 
The first interest payment was due on 9 September 1992 and was made on 
25 September 1992. 
The second interest payment was due on 9 March 1993 and was made on 2 April 1993 
together with the interest for late payment of the September instalment. 
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PART TWO: RISK SITUATION 
There are two possible methods for evaluating the risks borne by the Community budget: 
- the method, often used by bankers, of the total amount of capital outstanding for the 
operations concerned on a given date; 
- the more budgetary approach of calculating the maximum amount which the 
Community could have to pay out in each financial year. 
The second approach itself has been applied in two different ways: 
- by reference only to actual disbursements at 30 June 1993, giving the minimum level of 
risk to the Community assuming that there are no early repayments; 
- on a more forward-looking basis, by reference to all the operations proposed by the 
Commission in order to estimate the impact on future budgets, giving the maximum risk 
borne by the Community assuming that the Commission's proposals are accepted. 
For the latter exercise a number of assumptions have to be made about dates of 
disbursement, terms of repayment, interest and exchange rates, etc.; details are given in 
the annex. However, this method does give some idea about the future level of risks 
connected with the proposals made. 
The results are shown in the attached tables, which assess the risk relating to countries 
inside the Community and countries outside the Community. 
The overall figures quoted cover risks of different types; loans to one country in the case 
of financial assistance and loans for projects guaranteed by the borrowers in the case of 
NCI and EIB operations, for example. 
The following analysis distinguishes btween total risk, the risk in rspect of Member 
States and the risk in respect of non-member countries. 
L TOTAL RISK 
A. MOUNT OUTSTANDING AT 30 JUNE 1993 (Table U 
The total risk at 30 June 1993 came to ECU 12 834 million, 14.4% more than at 
31 December 1992. 
B- MAXIMUM ANNUAL RISK BORNE BY THE COMMUNITY BUDGET: 
OPERATIONS DISBURSED AT 30 JUNE 1993 (Tabic 2V 
The total risk comes to ECU 3 270 million in 1993 and will drop sharply to 
ECU 2 412 million in 1994 after which it will rise to ECU 2 83-2'million in 1996 and 
then fall again before increasing to ECU 2 038 million in 2000. 
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C. MAXIMUM THEORETICAL ANNUAL RISK BORNE BY THE 
COMMUNITY BUDGET (Table 3) 
This risk comes to ECU 3 394 million in 1993 and will fall to ECU 2 990 million in 
1994 before increasing gradually to ECU 4 333 million in 1997; it will fall to 
ECU 4 103 million in 1998 and increase to ECU 5 488 million in 1999 and 
ECU 7 154 million in 2000. 
n. RISK IN RESPECT OF THE MEMBER STATES 
A. AMOUNT OUTSTANDING AT 30 JUNE 1993 (Table 1) 
The amount of capital outstanding in respect of operations in the Member States 
came to ECU 7 764 million at 30 June 1993, an increase of 10.7% compared with 
31 December 1992. 
This increase is mainly due to to the operation in Italy which accounts for 
ECU 1 979 million. 
The amount outstanding from the other operations has continued to fall; in 
particular, part of the first borrowing granted to Greece has been repaid. 
B. MAXIMUM ANNUAL RISK BORNE BY THE COMMUNITY BUDGET; 
OPERATIONS DISBURSED AT 30 JUNE 1993 (Table 21 
The risk for 1993 comes to ECU 2 744 million. Of this total, Greece has already 
repaid ECU 569 million in principal in the first half of 1993 and ECU 541 million in 
NCI loans. 
The risk will then drop to ECU 1 974 million in 1996 and will again fall to a very 
low level in 1999 (ECU 228 million) before rising to ECU 1 688 million in 2000 
when part of the loan granted to Italy fells due (ECU 1 575 million in principal and 
interest). 
C MAXIMUM THEEORETICAL ANNUAL RISK BORNE BY THE 
COMMUNITY BUDGET (Table 31 
The trend is the same as in the previous case up to 1996 when the risk will amount 
to EECU 2 694 million. It will then drop by ECU 500 million in both 1997 and 
1998 and increase to ECU 3 547 million in 1999 before reaching a peak of 
ECU 4 749 million in 2000, most of it accounted for by Italy (ECU 3 975 million) 
and, to a lesser extent, Greece (ECU 660 million). 
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HE RISK IN RESPECT OF NON-MEMBER COUNTRIES 
A. AMOUNT OUTSTANDING AT 30 JUNE 1993 (Table 1) 
The amount of capital outstanding at 30 June 1993 came to ECU 5 070 million, an 
increease of 20.5% compared with 31 December 1992. 
Thee countries of Central and Eastern Europe accounted for 60% of the risk and the 
Mediterranean countries for 40%. 
At 31 December 1992 the proportion had been 55% for the countries of Central and 
Eastern Europee and 45% for the Mediterranean countries. 
B. MAXIMUM ANNUAL RISK BORNE BY THE COMMUNITY BUDGET: 
OPERATIONS DISBURSED AT 30 JUNE 1993 (Table?) 
The risk for 1993 comes to ECU 526 million and will increase to ECU 1 433 million 
in 1995, mainly because two repayments of principal then fall due: 
- ECU 350 million from Hungary; 
- ECU 393 million from the Republics of the former Soviet Union. 
The risk will then drop in 1996 and increase again in 1997 to ECU 1 245 million as 
the following payments fall due: 
- ECU 80 million from Hungary; 
- ECU 190 million from the Czech and Slovak Republics; 
- ECU 140 million from Bulgaria; 
- ECU 250 million from Algeria; 
- ECU 160 million from Israel. 
At ECU 954 million, the risk will drop but still be at a high level in 1998, but should 
fall to less than ECU 500 million in 1999 and 2000. 
C. MAXIMUM THEORETICAL ANNUAL RISK BORNE BY THE 
COMMUNITY BUDGET (Table 31 
The risk for 1995 should come to ECU 2 366 million; in particular, the Republics of 
the former Soviet Union are to repay principal of ECU 929 million that year. 
The risk will drop to ECU 1 488 million in 1996, rise again to ECU 2 135 million in 
1997, ECU 2 454 million in 1998 and, after a fall to ECU 1 941 million in 1999, to 
ECU 2 405 million in 2000. 
IV. ACTIVATION OF GUARANTEES 
In the first half of 1993, the EIB again called on the budget guarantee in respect of 
loans of around ECU 6.7 million to the Republics of former Yugoslavia 
(Bosnia-Hercegovina, Macedonia and Serbia). This was paid from the budget on 
19 May 1993. 
At 30 June the Republics of former Yugoslavia still had to repay ECU 15.2 million 
in reespect of debts paid by the Community. 
- 15-
The Commission also made payments from its cash resources under Article 12 of 
Council Regulation No 1552/89 of 29 May 1989 implementing Decision 
88/376/EEC, Euratom on the system of the Communities' own resources. 
This possibility was used for the payment of interest: 
- due from Russia on 9 March 1993 in respect of a loan granted by a consortium 
of banks and guaranteed by the Community; 
- due from nine Republics of the former Soviet Union on 20 April 1993 in 
respect of the borrowing and lending operation of ECU 1 250 million for these 
Republics. 
This interest was eventually paid by the debtors concerned after a delay. 
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PART THREE: CHANGES IN POTENTIAL RISKS 
The figures given in the previous parts provide information on the quantitative aspects of 
the risks borne by the general budget. 
However, these data should be weighted in accordance with aspects relating to the 
quality of the risk, which depend on the type of operation and the standing of the 
borrower. 
I. TYPES OF OPERATION 
The risks to which the above figures relate derive from a variety of operations which can 
be divided into two categories: operations with macroeconomic objectives and those 
with microeconomic objectives. 
A. OPERATIONS WITH MACROECONOMIC OBJECTIVES 
The first of these are the balance of payments loans for Member States, normally carrying 
strict economic conditions and undertakings. 
Financial assistance operations are similar in nature but are intended for non-member 
countries. 
Finally, this category includes the credit guarantee of ECU 500 million and the loan of 
ECU 1 250 million to finance imports of agricultural products and foodstuffs into the 
Soviet Union, since the risk involved in these two operations depends to a large extent 
on macroeconomic and political developments in the country. 
B. OPERATIONS WITH MICROECONOMIC OBJECTIVES 
These are loans to finance specific projects which are usually repaid over the long term 
from funds which these projects are expected to generate; as a rule, they are granted to 
State companies or financial institutions and, in addition to the Community guarantee, 
are covered by the usual guarantees demanded by banks. 
They are the Euratom and NCI loans in Member States and the Euratom and EIB loans 
outside the Community (Mediterranean and Central and Eastern Europe). 
H. ECONOMIC AND FINANCIAL SITUATION OF NON-MEMBER 
COUNTRIES RECEIVING ASSISTANCE UNDER OPERATIONS WITH 
MACROECONOMIC OBJECTIVES 
All countries receiving assistance under operations with macroeconomic objectives 
have been implementing stabilization and reform programmes. The economic and 
financial performance of these countries largely depends on the degree of progress 
with the far-reaching structural reforms that the assistance supports. 
17-
This section also provides information on a number of countries of Central and 
Easter Europe that are not receiving this type of assistance - the successor States to 
Yugoslavia and the ex-Soviet Republics. 
A. HUNGARY 
The Hungarian economy has suffered a severe contraction during the last three 
years. After a fall of 5% in 1992, real GDP is expected to decline between 0% and 
3% this year. Prices increased by 10.8% in the first five months of 1993, in line with 
the annual target of 20-22% and just slightly below last year's 23%. Unemployment 
stabilized at 677,000 (or 13.0% of the workforce) by the end of May 1993, after 
having dropped for three straight months. 
In 1993, the government intends to generate an income of Ft 105 bn (some 3.3% of 
GDP) from privatization. In 1992, companies to remain permanently state-owned 
have been selected and screening of the companies up for privatization has started. 
Within this framework, 16 companies have been chosen for short-term relief. 
The financial sector reform is underway. Measures to clear-off banks' bad debts 
were implemented in 1992 and further steps are expected in 1993. Financial support 
is needed in agriculture, which has suffered from disorganisation and recession. 
The government intends to proceed with the public finance reform by increasing tax 
revenues and streamlining expenditures, especially those connected with social 
security. In July 1993, Parliament approved a supplementary budget which brings 
the deficit this year to Ft 213.3 bn, corresponding to 6.8% of GDP. Within the 
framework of a 3-year deficit consolidation programme and as part of its recent 
commitments with the IMF, the government plans to reduce the deficit in 1994 to 
around 5.5% of GDP. 
In 1992 the current account showed another (moderate) improvement with the 
surplus increasing from $ 267 mio to $ 325. This improvement in 1992 as a whole, 
however, hides a significant and rapid deterioration of the current account in the 
second half of the year, a deterioration that has continued in the first half of 1993. 
The worsening of the Hungarian current account since last summer reflects both a 
sharp fall of exports and an acceleration of imports. While the deterioration of the 
trade balance is no doubt exaggerated by some special transitory factors (the 
negative effect on agricultural exports of the recent draught, "leads and lags" 
behaviour of importers and exporters on the expectation of a more rapid 
depreciation of the forint, etc.), it basically reflects two underlying problems : first, 
while domestic demand started a mild recovery in the middle of 1992, demand in 
Hungary's main trading partners (and, in particular Germany, Austria and Italy) has 
weakened considerably. Secondly, Hungary has suffered a severe loss of 
international competitiveness since 1990, as reflected in the dramatic appreciation of 
the real exchange rate of the forint. 
In this context, a substantial deterioration of the current account is forecasted for 
this year and next, which could lead to deficits of around S 0.9 bn and $ 1.7 bn in 
18 
to be high in the next two years (at between $ 1 bn and $ 1.4 bn per year), and the 
country has a quite comfortable foreign exchange reserve cushion (some $ 5 bn in 
March 1993). Also, with around $ 2 bn raised in the first half of 1993 through issues of 
international public bonds, Hungary has confirmed that it continues to enjoy rather easy 
access to the international capital markets In this respect, both Moody's and Standard 
and Poor's have maintained Hungary's long-t~rm foreign currency bond ratings at Bal 
and BB+, respectively. Finally, Hungary has agreed in principle with the IMF on a 18-
month stand-by credit out of which the first drawing is expected in fall. 
The country's gross external debt in convertible currencies amounted to $ 21.4 bn at the 
end of 1992 (65% of GDP), down from $ 22.3 bn at the end of 1991. However, the 
structure of the debt, which had improved significantly in recent years, deteriorated 
somewhat in 1992, as the proportion of short-term loans increased from 9.6 to 10.7%. 
Total debt service amounted to $ 4.4 bn in 1992, an increase from $ 4 bn in 1991, but 
was little changed as a percentage of exports of goods and services (about 34%). 
Principal repayments ($ 2.8 bn in 1992) are projected to decline to around $ 2.2 bn in 
1993 and 1994 but will rise sharply to $ 3 bn and 3.5 bn in 1995 and 1996, respectively 
In view of the present deterioration of the current account, this could increase the 
pressure on Hungary's balance of payments in the coming years. 
B. CZECH AND SLOVAK REPUBLICS 
Real GDP in the whole of the former Czech and Slovak Federal Republic (CSFR) fell 
again by an estimated 7% in 1992, after having decreased by 15% in the previous year. 
However, over the year the decline in output was partially halted and at the end of 1992 
some sectors began to show sings of recovery. The authorities of the CSFR continued 
to implement tight monetary and fiscal policies, and inflation, having increased by 
58.7% in 1991 in the wake of the liberalization of prices, slowed down to 12% in 1992. 
The introduction of a VAT in January of 1993 has, however, pushed year-on-year 
inflation in the new independent republics again above 20%. 
The split of the federation has so far had quite unfavourable economic repercussions for 
the successor republics, particularly for Slovakia which has lost a large fiscal transfer 
from the Czech Republic and is confronted with the need to finance an important trade 
deficit vis-à-vis the latter. Both countries agreed on the creation of a customs and 
monetary union after the dissolution of the CSFR. But uncertainty about the 
consequences of the break-up of the federation and speculation about the future of the 
monetary union (which was seen as a transitory arrangement), gave rise to a strong 
capital flight, produced large losses of reserves in both republics and provoked the 
collapse of the monetary union only one month after it was set up. Although the 
custom union remains in force and a clearing system has been agreed between both 
republics, inter-republican trade has dropped sharply since the currency split. Initially, 
Slovakia tried to keep its currency at parity with the Czech crown but it finally accepted 
the IMF recommendations and devalued by 10% its currency against the Czech unit last 
July. 
- 19-
after it was set up. Although the custom union remains in force and a clearing 
system has been agreed between both republics, inter-republican trade has dropped 
sharply since the currency split. Initially, Slovakia tried to keep its currency at parity 
with the Czech crown but it finally accepted the IMF recommendations and devalued 
by 10% its currency against the Czech unit last July. 
The Czech and Slovak republics face quite different economic situations and 
prospects. While Czech real GDP may grow by 0-3% in 1993, Slovak output is 
expected to decline this year by another 3-6%. Also, unemployment is much higher 
in Slovakia (12% of the labour force) than in the Czech Republic (less than 3%) and 
Slovakia has a weaker industrial structure and a greater share of the defence and 
heavy industries where CMEA markets have collapsed. In addition, while after the 
VAT-induced price "jump" of last January prices have been quite stable in the Czech 
Republic and may show at the end of 1993 a year-on-year increase of around 16% 
(9-10% excluding the VAT effect), the recent devaluation of the Slovak crown may 
put Slovak inflation at 25-3 0% by the end of the year. 
Although the dissolution of the CSFR has since last summer tended to dominate the 
political debate and has diverted some attention from structural reforms, progress in 
some areas has continued to be made. Thus, the bidding rounds of the first wave of 
large-scale "voucher privatisation", involving 1,500 companies, were completed in 
December 1992. The Czech Republic has already announced plans for a second 
wave of large-scale voucher-based privatisation, which is expected to begin in the 
second half of 1993 and should affect over 2,000 additional firms. Meanwhile, the 
Slovak republic is planning to privatise around 500 enterprises in the second wave 
although instead of voucher-based methods the Slovak government intends to rely 
more on traditional privatisation methods, such as direct sales to foreign investors, 
"management bug-outs" and tenders. Other recent noteworthy structural reform 
measures are the new, quite tough, Czech bankruptcy law that came into effect last 
April, the opening last June of the Prague Stock Exchange and the comprehensive 
tax reform implemented by both republics in January 1993. 
The convertible trade balance of the CSFR suffered an important deterioration in 
1992, with the deficit increasing from $ 0.4 bn to $1.6 bn. The deterioration 
occurred entirely in the second half of the year and, particularly, in the last months of 
the year as consumers anticipated imports ahead of the introduction of the VAT and 
companies accelerated import payments fearing a devaluation or a restriction of 
currency convertibility after the split of the federation. Therefore, part of the 
worsening of the trade balance reflected transitory factors, but was also due to the 
recovery of domestic demand as the economy started to, slowly and unevenly, move 
out of recession. Strengthened net invisible receipts, however, offset to a large 
extent the trade deterioration, with the result that the convertible current account 
surplus of the CSFR fell only moderately (from $ 0.4 bn to $ 0.2 bn). Furthermore, 
the net inflow of foreign direct investment (FDI) increased dramatically (from $ 0.6 
bn in 1991 to $ 1.1 bn) despite a very weak fourth quarter due to the uncertainties 
caused by the upcoming division of the country. 
20 
Balance of payments prospects for 1993 and 1994 differ substantially between the 
Czech and the Slovak republics. The Czech Republic is likely to see its trade surplus 
turn into a growing deficit as domestic demand continues to recover and Slovakia 
struggles to reduce its bilateral trade deficit. However, the Czech Republic should 
have no problems in the next two years to finance the resulting current account 
deficit. The deterioration of the current account will actually occur from a very 
comfortable initial position and should not be dramatic since the Czech Republic 
continues to enjoy a competitive real exchange rate. Furthermore, the Czech 
Republic, which in the last 2 years has received about 90% of the total amount of 
FDI flowing into the former CSFR, should continue to attract in the coming years a 
net inflow of FDI of between $ 0.8 bn and $ 1 bn per annum. Finally, the Czech 
Republic has already recovered much of the foreign exchange reserves lost in the 
months that preceded the collapse of the monetary union with Slovakia; it has signed 
last March a 12-month $ 250 mio stand-by credit with the IMF; and enjoys good 
access to the international capital markets. The Czech government has, in effect, 
inherited (and reinforced) the CSFR federal government's solid reputation for sound 
and orthodox macroeconomic policies and is perceived by the markets to be strongly 
committed to market-oriented reforms. This has been reflected in the upgrading to 
an "investment grade" of Moody's rating (from the Bal previously assigned to the 
CSFR to Aa3). 
The balance of payments situation and prospects in Slovakia are more difficult. 
Slovakia has lost the large fiscal transfer from the Czech side, a transfer that more 
than financed its trade deficit vis-à-vis the Czech Republic in 1992. Its current 
account will probably improve this year and next owing to the continuing recession 
which depresses imports and the expected effects of recent devaluation of the Slovak 
crown and the import surcharge on consumer goods to be shortly introduced; But 
Slovakia has a vulnerable foreign exchange reserves position and the risk of balance 
of payments difficulties provoked by capital flight has not entirely disappeared, even 
after the 10% devaluation of the Slovak crown. Furthermore, and in contrast with 
the Czech Republic, the Slovak authorities can no longer benefit from the 
international reputation that the federal government had built up over the last three 
years. Accordingly, its sovereign rating and its degree of access to the international 
capital markets are much lower than those of the Czech Republic (Moody's has not 
yet reassigned a rating to Slovakia as an independent country but, when and if it 
does, it will probably be slightly below the Bal rating the CSFR used to have). 
The devaluation and the $ 90 mio loan agreed in principle last June with the IMF 
under the newly created "Systemic Transformation Facility" should help ease the 
balance of payments situation and will contribute to restore confidence in the Slovak 
economy. The devaluation, in particular, will allow tô reduce the trade deficit vis-à-
vis the Czech Republic without having to rely only on import compression. But if a 
re-emergence of balance of payments pressure is to be avoided, the Slovak 
government must apply the right macro-economic stabilization policies (in particular 
a restrictive fiscal policy) and press ahead with structural reform. 
21 
Regarding foreign debt, the former CSFR had a low foreign debt burden. 
Convertible currency external debt amounted to only $ 9.4 bn in 1991 and fell 
further to $ 9.2 bn (or 26% of GDP) at the end of 1992. At the 2:1 ratio at which 
the Czech and Slovak authorities have agreed to split most of the former CSFR 
outstanding liabilities, the convertible debt of the Czech Republic totalled $ 6.2 bn at 
the start of 1993 (24% of Czech GDP) and that of the Slovak Republic $3.1 bn 
(30% of Slovak GDP). Total debt service (interest and repayments) in the CSFR 
amounted last year to $ 1.9 bn (12.2% of exports of goods and services). If the total 
debt service is allocated between the successor republics at the 2:1 ratio, this results 
in total debt services of $1.3 bn and $ 0.7 bn in the Czech Republic and Slovakia, 
respectively, or 11.6% and 12.6% of the estimated values of their respective exports 
of goods and services. Principal repayments associated with the total foreign 
obligations of the former CSFR are expected to rise gradually from 1992 ($ 1,3 bn) 
to 1994 ($1.5 bn), increase quite sharply in 1995 (to $ 1.2 bn) and, then, fall even 
more sharply in 1996 (to $1.2 bn) and 1997 (to $870 bn). While the sharp increase 
in debt repayments of 1995 should create no particular problems for the Czech 
Republic, it could add some pressure to the more fragile balance of payments of 
Slovakia. 
C. BULGARIA 
Bulgaria's economic performance has been worse than that of most other countries 
of the region. In 1991 real GDP fell by 17%, real wages fell by about half, and 
inflation was close to 300%. The decline continued in 1992, with GDP falling by a 
further 8% in real terms; industrial output is down about 20% over 1991, with only 
tentative signs of recovery; inflation remains high at 4-6% per month (80% overall in 
1992), and unemployment is over 15% of the labour force. External factors have 
exacerbated the crisis : the debt problem (Bulgaria has been cut off from foreign 
credits since 1990 when it declared a unilateral moratorium on debt-servicing); the 
collapse of the ex-USSR, on which Bulgaria was more dependent than other 
countries; large uncollectable claims on Libya and Iraq; and most recently, the 
embargo against Serbia, which was a major export market. 
Economic reform has so far mainly consisted of liberalization and stabilisation 
measures. In particular, cautious macroeconomic policies and an early introduction 
of internal convertibility allowed most domestic prices to adjust to market-clearing 
levels without triggering an inflationary spiral. Structural reform has proceeded 
more slowly, in part because of inadequate political consensus during 1991 and 
1992. However, considerable legislative progress on privatization and other 
structural measures has been made and small-scale privatization and restitution are 
advancing well. On the other hand, there have been considerable delays in large-
scale privatization. For medium-term prospects, much will depend on how 
vigorously the legislation is implemented. A resumotion of growth will need to be 
export-led - there is no room for monetary or fiscal stimuli. This requires that the 
debt crisis be resolved, and that export markets, especially in Europe, be sufficiently 
open. 
-22 
After the end of the political crisis, Bulgaria resumed its relations with the IMF in 
the framework of the stand-by arrangement with the Fund that expired in April 
1993. The government is at present negotiating a new programme, to be supported 
by a new SBA. 
The improvement of the external financial situation of the country continued in 
1992. The trade balance was slightly positive, following a bigger increase of exports 
than that of imports (imports are still low, mainly due to shortfalls in external 
financing). International reserves are close to $ 1 billion or three months' imports 
(they were over US$ 1.1 billion in the end of October 1992). They remain, 
however, weak in view of the likely needs that may arise in the context of the 
settlement of Bulgaria's commercial debt. The negotiations with the commercial 
banks on this issue have recently progressed and there are some reasons to believe 
that a generous debt reduction agreement may be reached by the end of 1993 (in 
November 1992, the two parties had reached an agreement on the main principles 
for a future debt and debt service reduction package). In December 1992, Bulgaria 
secured a further debt relief from its official creditors. The new Paris Club 
agreement reschedules the debt servicing due up to April 1993 together with the 
arrears incurred since the expiry of the consolidation period covered by the previous 
agreement (concluded in April 1991). As soon as a new stand-by arrangement with 
the IMF is concluded, a new round of discussions with the official creditors will take 
place with a view to reaching a further debt rescheduling agreement. Overall, the 
external debt is estimated to US$ 12 billion (some 126%» of GDP and 280% of 
exports) including some $ 9.3 billion owed to commercial creditors. About half of 
this debt is made up of arrears on short-term deposits and letters of credit. The debt 
has been increasing in 1992 since Bulgaria is still accumulating arrears (the interest 
payments that were resumed in September 1992 - but suspended temporarily in June 
this year - amounted to only 20% of current interest falling due). The debt-service 
ratio is estimated at some 50%» of convertible currency export earnings, and would 
reach 150% if principal and interest arrears are taken into consideration. The price 
of this debt on the secondary market has fluctuated around 20%. 
D. ROMANIA 
Romania has embarked since 1991 on comprehensive programmes aimed at 
restructuring the economy and eliminating major economic imbalances. Despite 
initial progress in liberalizing the economy, stabilization has yet to be achieved. 
Output declined substantially by 13 and 15%» respectively in 1991 and 1992; inflation 
has remained high (at some 200% per year); and official foreign exchange reserves 
were depleted by the end of 1992. 
The Romanian authorities strived to maintain prudent fiscal and monetary policies 
during most of the period, and exercised wage restraint. However, owing to policy 
shortcomings in the implementation of the reform programme (price liberalization, 
restructuring of enterprises and exchange rate policy), monetary and fiscal restraint 
failed to contain inflation and stabilize the exchange rate. On the fiscal side, despite 
a dramatic decline in government revenues and an initial increase in current transfers 
-23 
(in connection to price liberalization), the budget deficit narrowly defined was 
contained to 2% of GDP in 1991, owing in part to a compression of investment 
expenditure. In 1992, the budget deficit increased to 5% of GDP, due to growing 
consumer subsidies. However, the budget deficit does not accurately reflect the true 
fiscal stance, as extra-budgetary expenditure remained substantial. 
In the context of a shortage of foreign exchange, the authorities have pursued 
conflicting exchange rate policies. In principle, the exchange rate is determined by 
market forces since June 1992. However, the authorities have attempted to slow the 
devaluation process in step-wise adjustments in the hope of containing inflation. The 
exchange rate has been pegged at an unsustainable level in view of the prevailing 
inflation over long periods of time. This has resulted in large discounts on the 
parallel market, the rationing of imports and, following the elimination of surrender 
requirement for exporters in June 1992, in the build up of deposits in foreign 
currencies by exporters whereas official reserves were depleted. This policy has 
failed to contain inflation; but it has generated speculation against the leu. Thus, the 
leu remained pegged to the dollar at the increasingly overvalued rate of leu 430 per 
dollar during the last three months of 1992. Since then, the authorities have let the 
rate slip and at mid-June 1993, it was standing at leu 694 per dollar. 
One of the purposes of the exchange rate policy pursued has been to contain imports 
through rationing without hindering exports (the proceeds of which could be kept in 
foreign exchange). However, large public sector imports of grain (Romania 
experienced a severe draught in 1992) and energy products effected by end-1992 
resulted in a large deterioration of the current account deficit for 1992 to some 8 
1/2% of GDP (5% in 1991). Substantial capital inflows, reflecting the disbursement 
of foreign assistance, more than compensated current account deficit. However, 
whereas the external position of commercial banks improved substantially, official 
foreign reserves were depleted by end-1992. External debt increased substantially 
from 4% of GDP at the end of 1991 to over 13% by the end of 1992. Debt service 
ratio, however, remained below 10% of exports of goods and services. 
The Romanian authorities designed a reform strategy to transform the economy 
rapidly into a market-based system. To this end, the government developed and 
implemented a legal and institutional framework to establish the central role of 
private ownership and decision-making. The reform programme has achieved 
significant progress. Most consumer prices have been liberalized. Quantitative 
restrictions on imports have been removed, and tariffs used to protect domestic 
industries have been reduced to low levels. Wage determination has been freed, with 
the institution of collective bargaining. The financial system has been deregulated. 
Citizens have been given the right to establish businesses, to compete freely in the 
market, and to acquire, retain and dispose of property. Finally, the Government has 
proceeded to transfer state assets to the population. 
The reforms have also met with some setbacks. The exchange rate system has not 
been functioning as envisaged. Price liberalization has not been completed, with 
administrative intervention in price setting persisting for some goods at the 
24 
wholesale levels. Enterprise restructuring has not been as rapid as hoped and the 
government has not been able to impose strict financial discipline on enterprises. 
The late Stand-By Arrangement with the IMF expired in March 1993. The 
Romanian authorities are currently negotiating a new programme, to be supported 
by a new Arrangement. 
E. THE BALTIC STATES 
The economies of the Baltic states were highly integrated within the Soviet Union 
economic system, from which they regained their independence in August 1991. All 
three countries have suffered a severe downturn in economic activity as trade with 
former Soviet republics, particularly Russia, has declined. The situation was 
exacerbated in 1992 by a terms of trade shock caused by Russia's move to market 
prices for exports. It now appears that the severe output declines have been halted. 
Estonia 
In the first half of 1993, output seems to have stabilized, following declines in the 
order of 27% in 1992 and 11.8% in 1991. Unemployment is increasing; in May 
1993, registered unemployment stood at 21,733 (about 3.2% of the labour force), 
about double the level reached at the end of last year. But hidden unemployment is 
believed to be much higher. The budget for 1992 showed a surplus of 1.3% of GDP, 
in 1992; the surplus even reached 5% in the first quarter of 1993, supported by a 
decline of tax arrears and continued reluctance of state enterprises to lay off 
employees. Inflation came down substantially at the end of last year and continued 
to decline in July; in the last couple of months, the monthly increase in the consumer 
price index stabilized at 2-3 %. 
Price liberalization has largely been completed, and the emergence of a rational price 
structure has been assisted by the introduction of Estonia's own convertible currency 
the kroon. Privatization was at first limited to small-scale enterprises, with over 
40%» sold into private ownership by the end of 1992. The government has made 
progress in 1993 towards accelerating the process of privatization. In response to a 
liquidity crisis in the banking system in late 1992, the Estonian authorities decided to 
liquidate one major bank and to recapitalize and merge two others. Recapitalization 
was affected by means of a bond issue and limited support from central bank 
reserves. One further bank has since been liquidated. 
Negotiations on the sale of 25 out of 38 large enterprises offered for international 
tender last year are being finalized and the bids for another 52 large enterprises were 
received in Summer 1993. The government is also preparing legislation for creating 
a holding company that consolidates the ownership and sales of all state enterprises 
under a single agency. It is expected that the restitution process will accelerate now 
that the government has approved a final deadline of 1 April 1993 for filing claims. 
25-
In 1992, Estonia's current account, which had shown a substantial surplus in the 
previous year, deteriorated significantly as Russia started to charge world market 
prices for its exports to Estonia at the beginning of the year. However, contrary to 
earlier estimates, the current account recorded a small surplus, with exports and the 
services balance higher than expected and imports below programmed levels. There 
was as a result an unexpectedly high build-up of international reserves. The trade 
balance showed a small deficit in 1992, which seems to be increasing in 1993. 
Whereas trade with the FSU remained at low levels, it expanded rapidly with the 
Weot and now constitutes 70% of total trade. 
In September 1992, IMF Board approved a one-year stand-by loan totalling about 
$39 mio for the period 1 July 1992 - 30 June 1993 backing the Estonian 
government's reform and stabilization programme. Estonia purchased the first 
tranche (about $ 11 mio) in September 1992 and the second tranche in January, but 
it decided not to purchase the third and fourth tranches because of the unexpectedly 
comfortable reserve position. The IMF expects that all outstanding tranches will 
have been requested by September. At the end of March 1993, Estonia's foreign 
debt amounted to $ 47 mio (about 4.5% of GDP). 
Latvia 
As a consequence of the substantial terms of trade loss and the general breakdown 
of traditional trading patterns, real GDP fell by about 30% in 1992, following an 8% 
decline in 1991. In May 1993, the unemployment rate stood at 5.2% of the 
workforce, more than double the rate at the end of 1992. Moreover, hidden 
unemployment is widespread and the government expects unemployment to increase 
to 12% by the end of 1993. The 1992 budget showed a deficit of about 1.4% of 
GDP, resulting from difficulties in the enterprise and the accumulation of tax arrears. 
The budget for 1993 envisages balance for current expenditures, but revenues have 
not matched expectations so far this year, leading the government to seek a further 
loan from the central bank. Inflation has come down substantially since the Latvian 
monetary reform in July 1992. For the first time since the price liberalization started, 
the retail price index fell in May. 
Price liberalization has progressed well in Latvia; only a few items remain subject to 
control. Privatization, however, has so far been confined mainly to agricultural co­
operatives, small shops and service establishments. By the end of 1992 about 60% 
of eligible enterprises in this group had been privatized either through sales or leases. 
For large-scale enterprises, 433 privatization projects (out of a total of 844 eligible 
enterprises) were received by branch ministries by end-December 1992 and are now 
being evaluated. The government is currently organizing a voucher system approved 
by parliament in November. A law adopted last August identifies an initial 25 large-
scale enterprises suitable for early privatization. 
Latvia's current account situation worsened significantly in 1992 owing to the 
substantial terms of trade shock which affected the economy at the beginning of the 
year when Russia started to charge market prices for its exports to Latvia. 
26-
Nevertheless, the deficit in the trade balance, which was incurred entirely with the 
FSU, was more than compensated by a surplus in the services balance resulting in a 
current account surplus and an increase by $ 52 mio of gross national reserves. 
However, as external financing has increased substantially in the first half of 1993 
and economic activity is stabilizing, the current account seems now to have moved 
into deficit. Latvia's official external debt outstanding stood at $58 mio (about 5% 
of GDP) on 31 December 1992 and is likely to have increased considerably in the 
first half of 1993. Latvia never recognized the 1.14%» share of the FSU debt it was 
assigned during the negotiations of the FSU. Negotiations on this issue with Russia 
are still under way. 
Lithuania 
Real GDP fell by about 35% in 1992, following a decline of about 13% in 1991. 
Registered unemployment more than doubled since the end of 1992 and stood at 
29,000 in May 1993 (in the order of 1.5%). Contrary to the other two Baltic States, 
inflation remained high into 1993, but seems to finally be coming down (monthly 
rates of 25%» in April, 13%» in May, 6% in June) as monetary control is strengthened. 
The budget was in surplus (2% of GDP) in 1992 and for 1993 only a small deficit is 
expected. 
Price liberalization has progressed to the extent that all goods and services except 
household energy products and monopoly products are de-controlled. Privatization 
has progressed relatively fast in Lithuania. Vouchers have been given to citizens, 
which can be used together with cash as payment for various acquisitions including 
for residential property, small firms and larger enterprises. The government is 
concerned that privatization has proceeded without sufficient attention to 
restructuring, thus hindering rationalization and labour shedding. It is, therefore, 
reviewing the privatization programme. Agrarian reform is also under review. 
Privatization of large collectives has resulted in production units which seem too 
small to be efficient. 
Ir. 1992, Lithuania's current account situation deteriorated considerably. Negative 
factors were the severe drought and the terms of trade shock induced by Russia 
whose export prices for Lithuania reached world market levels in Fall 1992. For the 
year as a whole, the current account was in surplus as was the trade balance. Gross 
national reserves increased by $75 mio in 1992, excluding the return of gold from 
the Bank of England, France and Switzerland (totalling about $ 63 mio). At tlie end 
of 1992, the stock of Lithuania's external debt represented i>ome 8% of GDP but it is 
now likely to increase as assistance from EC/G-24 is flowing in. During the 
interstate negotiations on the FSU debt, Lithuania was assigned 1.41% of the overall 
debt (about $ 1 bn), which it never recognized. Negotiations are still under way 
with Russia on this issue. 
27 
F. ALGERIA 
Algeria's external debt stands at US$ 25 billion, with a strong short-term component. 
Against the background of a heavy external debt service, equivalent to 70% of 
export revenues, the authorities introduced further import and foreign exchange 
restrictions in September 1992, combined with a series of domestic austerity 
measures. These have triggered a recession in output and rising unemployment. 
Real GDP rose by about 3% in 1992 but is expected to fall in 1993. Social tensions 
have been relieved by the agreement of a "pact" between the government and the 
unions, trading a wage freeze for security of employment and price increase 
restrictions. 
Price liberalization measures and continued depreciation of the Dinar, fueled 
inflation in 1991 and early 1992. In the second half of 1992, the government 
stopped the gradual depreciation of the nominal exchange rate which, against the 
background of continuing strong inflation (over 30% in 1992), resulted in a real 
exchange rate appreciation (22% in 1992) and further loss of competitiveness of the 
Algerian economy. Since government revenue is heavily dependent upon taxes on 
oil exports, the real appreciation of the Dinar had a negative impact on fiscal 
revenues. Negative real interest rates have increased demand for credit, especially 
from public enterprises with access to financial institutions. 
Since 1992, a growing budget deficit has become a major contributor to inflation. 
The overall fiscal balance deteriorated from a surplus of 4.3% of GDP in 1991 to a 
deficit of 1% in 1992, which is expected to further increase to nearly 10% of GDP in 
the first half of 1993. 
Algeria is seeking bilateral financing agreements to meet growing external financing 
needs. This effort, however, might be complicated by the fact that the stand-by 
arrangement with the IMF went off-track in early 1992. Negotiations for a new 
programme have not so far been conclusive, as the new government's economic 
policy excludes any further nominal depreciation of the Dinar, advocates strict 
regulation of imports and foreign currency allocations, and leads to a slow-down in 
the economic reform and liberalization process in general. 
G. ISRAEL 
In 1992, Israel's macro-economic situation continued to improve. The country 
recorded a third year of strong growth, with real GDP increasing by 6.4% (5.8% in 
1991). Growth was fuelled by an 8.5% increase in industrial production and a 
strong upswing in tourism (+39%), reflecting restored confidence after the Gulf 
War. 
Although employment continued to grow, regular waves of immigration keep an 
upward pressure on the unemployment rate, which increased for the sixth 
consecutive year to 11%» of the labour force. A change in social legislation which 
allows immigrants to benefit from income support schemes after a 12-month stay 
(instead of 24-months) caused a 158% increase in the number of beneficiaries. 
-28-
In 1992, consumer price inflation fell, for the first time since 1969, to a single digit 
level of 9.8%, down from a peak level of 50% in 1990 and 18% in 1991. This 
allowed the Central Bank to relax monetary policy and interest rates declined from 
28% at the end of 1991 to 19% at the end of 1992. The government budget deficit 
stood at 6.2% in 1992 and is expected to fall to 5.7% in 1993. 
The downward trend in interest rates was temporarily reversed in January 1993 
because of a large demand for foreign currency, fuelled by expectations of a further 
devaluation of the Shekel. In 1992, the Shekel depreciated by approximately 10%» 
vis-à-vis a basket of currencies of major trading partners. For 1993, a further 9.5% 
nominal devaluation is forecasted. 
The current account has turned from a $ 1.2 bn surplus in 1989 to an estimated $ 1.5 
bn deficit in 1992. This is mainly due to a considerably worsening trade balance with 
fast rising imports and insufficient export growth. The trade balance deficit 
increased from $ 4.7 in 1991 to over 5 bn inn 1992. Towards the end of 1992, 
growth switched from the domestic market oriented construction sector (driven by 
housing needs of new immigrants) to the more export oriented manufacturing sector. 
This is likely to improve the trade balance in 1993. 
To finance the investment effort necessary to absorb the recent wave of immigration, 
Israel received a $ 250 million Compensatory and Contingency Facility from the 
IMF in 1992. The USA authorised a $ 10 billion loan guarantee which removed the 
constraint of foreign exchange shortage and opened up the way for further foreign 
borrowing to finance investments and the overall external deficit. The need for such 
foreign borrowing highlights the problem of an insufficient export orientation of the 
economy. 
Gross external debt stood at $ 3.8 billion (61% of GDP) end 1991. Debt service 
represented 27% of exports, down from 80% in 1985. This remains a relatively 
sound basis to attract further foreign borrowing to finance investment. 
H. FORMER SOVIET UNION 
The economic crisis in the former Soviet Union has grown increasingly acute during 
1992 and early 1993. Central planning has collapsed in most of the newly 
independent states and trade between them has declined by an estimated 20-30%. 
Throughout most of the area, monetary conditions are chaotic, credit policy is lax 
and the financial system barely functions. Budgets are out of control, especially 
because of tax collection problems. Hard-currency exports have plummeted, 
resulting in external payments crises. As a result, out-pilt is declining rapidly (real 
GDP is likely to have fallen by roughly 20%» in 1992), and inflation is very high. 
Industrial restructuring and labour shedding have not really started and 
unemployment is still low. 
Far-reaching economic reform has begun in many republics, but progress has been 
uneven. At the beginning of 1992 Russia set the tone by launching a bold, if 
insufficiently comprehensive, reform programme. From the spring onwards, the 
-29 
pace of reform began to falter as domestic opposition mounted, in particular from 
the parliament and the powerful state enterprise sector. As a result, macroeconomic 
stabilization failed and inflation has remained very high. Legal, institutional and 
structural reform has advanced only slowly, although some progress was made with 
privatization. In Ukraine, economic policy has been determined mainly by nationalist 
forces intent on asserting independence from Moscow, who have neglected to 
introduce the legal and institutional framework necessary for a market economy. 
The goal of a separate Ukrainian currency and reticence towards the CIS should also 
be seen in this context. The government which came to power in October appears 
to be more strongly committed to reform but economic policy-making has been 
paralyzed by sharp political divisions on the course of reform. Several other 
republics have made considerable strides in the transition to market-based systems : 
Kyrgyzstan is probably the most advanced : it has recently concluded a stand-by 
arrangement with the IMF; Kazakhstan, Belarus and Moldova are close to 
concluding transitional arrangements with the Fund under the newly created* 
Systemic Transformation Facility (Russia has already concluded such an 
arrangement). In other states, however, fewer efforts at reform have been made and 
either civil war or ethnic conflicts are disrupting the economy more than any attempt 
at transition. 
The external financial situation of the area is extremely weak. This is particularly the 
case in the short run while in a longer term perspective the new states that have 
succeeded the Soviet Union present rather variable profiles. Some have considerable 
hard currency earning potential and industrial capacity; others are clearly close to 
developing countries and will therefore strongly depend on external assistance. 
The external financial situation of the NIS is largely determined by the developments 
in the Soviet Union since the late eighties and, at present, by the questions related to 
the settlement of the external debt problem. 
Since 1990, the only way the former Soviet Union was able to service its external 
debt, which was owed mainly to private creditors, was to cut back on imports and 
run down its gold and hard currency reserves. It made also an extensive use of 
official and officially guaranteed credits provided by the main industrialized 
countries. However, in view of the growing difficulties in collecting hard currency 
resources, and the withdrawal of credit lines with Western commercial banks, the 
Vneshekonombank of the USSR had virtually to suspend payments at the end of 
1991. In December 1991-January 1992, the authorities of the new states concluded 
agreements with official and private creditors of the Soviet Union on deferral of 
principal repayments on medium- and long-term credits contracted prior to 1991. 
The agreements were based on the acceptance by the states of the principle of "joint 
and several liability" for the debt servicing. 
Despite the deferrals, the former Soviet Union's liquidity crisis did not ease in 1992. 
Furthermore, the legal framework of the debt servicing based on the joint and 
several liability proved not workable (Russia was the only state to make actual 
payments), and significant arrears (some $ 12 billion, including over $ 4 billion in 
interest arrears) have accumulated on non-deferred debt. As a result, the debt 
-30 
outstanding approached by the end of 1992 $ 78 billion (some 194% of Russia's 
exports in 1992), up from $ 67 billion a year earlier. Following these developments, 
the case for a longer-term solution to the debt-servicing problem gained support. 
After lengthy negotiations, the Paris Club of official creditors agreed in early April 
1993 on a comprehensive debt rescheduling package covering both principal and 
interest payments on virtually all the credits extended to the former Soviet Union up 
to its break-up at the end of 1991. 
The package was negotiated with Russia which is now viewed by the creditors as 
virtually the sole successor of the Soviet Union, with respect to its foreign liabilities. 
For months, Russia has been seeking to take over all the former Soviet Union's 
foreign debt, in exchange of its assets, through the so-called "zero-option" 
arrangements. Ukraine, the second largest former Soviet republic, has not agreed so 
far with this solution, but this did not prevent the creditors to agree with Russia on a 
comprehensive debt rescheduling. The Paris Club agreement and anticipated similar 
agreements with the other former Soviet Union's official and private creditors 
(negotiations with the London Club are underway) are expected to provide an 
overall relief on debt servicing in 1993 of some $30 billion (including the refinancing 
of arrears), and thus reduce debt servicing by Russia to less than $3.5 billion, or just 
9% of projected Russia's exports in 1993 (down from some 81% on due basis). 
Nevertheless, prospects for Russia's external situation in 1993 are still uncertain and 
strong domestic macro-economic policies are required to limit the large capital flight 
and to allow for a modest recovery of imports, necessary to slow down the output 
decline. 
L FORMER YUGOSLAVIA 
All successor republics to the former Yugoslavia are confronted with comparable 
problems : the transition to a market economy and to international competition. 
Worsened by the collapse of former CMEA trade, the effects of the war and the 
boycott of their bilateral relations, have resulted in a contraction of output, of 
employment, and increased inflation. The trade and current account deterioration is 
marked by the sharp contraction of imports (resulting from the drop in domestic 
activity). Furthermore, the widespread DM-ization of these inflationary economies 
and the provision of large-scale humanitarian aid (in the case of Croatia and Bosnia) 
make it particularly difficult to interpret balance of payments developments. 
The successor republics are in the process of discussing the division of internal and 
external assets and liabilities under the aegis of the Peace Conference in Geneva. 
These discussions were however progressively stalled at the beginning of 1993 as a 
result of the worsening of the polical and military situation. 
Yugoslavia's external debt amounting to $ 16 bn has already been largely divided 
between the successor republics except for a federal part equal to $ 3.1 billion, 
guaranteed by the National Bank of Yugoslavia, and largely owed to commercial 
banks. (The debt owed to commercial banks is equal to $ 4.7 billion, to international 
organizations $ 3.2 billion and to governments $ 5.5 billion). 
-31 
The Yugoslav debt was rescheduled in 1988 by the London and Paris Clubs. The 
agreements included grace periods through 1993 and 1994, respectively. Until 
March 1992, the entire debt was serviced by the National Bank of Yugoslavia and 
Slovenia for their respective parts in accordance with these agreements. Since then, 
only Slovenia is servicing its debt and the agreements will have to be renegotiated 
with each republic. 
Yugoslavia (Serbia and Montenegro) 
The Yugoslav economy and monetary system have practically collapsed due to the 
catastrophic effects of the civil war and sanctions. Real GPD is estimated to have 
fallen by 20% in 1992 and by 35% since 1989. The central bank funds nearly all the 
federal budget by money issue and has consequently lost control of the money 
supply; inflation in 1992 reached 20,000%. 
During 1992, Yugoslav exports were approximately $2.5 bn (-46% over 1991) while 
imports reached $ 3.9 bn (-33% over 1991). However the bulk of this trade took 
place before July 1992, when most countries began to apply on sanctions. In the 
first quarter of 1993 imports amounted to $ 386 million and exports to $ 249 
million. The value of the dinar has dwindled from YD 130/$ in May 1992 to YD 
580,000/$ a year later. Only one quarter of the labour force is employed full-time. 
The combined foreign debt of the new republic is US$ 5.5 bn plus its share of the 
federal debt. In June 1992, the National Bank stopped servicing its debt to 
commercial banks. It continued however to make small payments to the IMF. 
Slovenia 
Slovenia was Yugoslavia's wealthiest and most industrialized republic. Output fell 
by 6.5%o in 1992 (9.3% in 1991), mostly due to a large drop in industrial production 
(-13.0%). However, production is expected to stabilize in 1993. Retail prices 
during 1992 rose by 200% over 1991 but the annual rate has now dropped to 47% 
during the first five months of 1993. Unemployment was 14% of the labour force in 
April 1993 (13% in October 1993). 
Since independence, Slovenia has implemented drastic economic reforms. Prices 
and foreign exchange operations have been liberalized, the banking sector 
deregulated and the fiscal system completely restructured. Fiscal policy resulted in 
small surpluses in 1991 and 1992. Following a long debate in Parliament, a 
privatization law was passed in November 1992. 
Slovenia has introduced its own currency and has maintained rigorous monetary and 
fiscal policies. Foreign currency reserves have more than tripled during 1992, 
reaching $ 1.2 bn in May 1993. The country has also minimized the negative 
consequences of the loss of the internal Yugoslav market by successfully reorienting 
its foreign trade activity. During 1992 there was a small trade surplus ($ 0.1 billion) 
and a current account surplus of $ 0.9 billion. 
32 
Slovenia's share of the Yugoslav foreign debt is $ 1.7 bn, not including its part of the 
federal debt. The republic had continued to service its debt without interruption 
until May 1992. In June it refused to make payments to banks as long as the latter 
were referring to payments by Yugoslavia as a whole and were not explicitly 
acknowledging that Slovenia had paid its own share in the debt by itself. In 
November 1992, Slovenia regularized its situation. Banks are now beginning to 
negotiate with Slovenia on the servicing of the latter's part in the federal debt on the 
basis of the allocation of a part of the Yugoslav quota in the IMF to Slovenia. 
Croatia 
Croatia's economic performance continues to be adversely affected by the civil war. 
One third of its territory is occupied and the country is flooded by Croatian and 
Bosnian refugees. The tourist industry has come to a standstill. Real GDP declined 
by 25% during 1992, following a 23.4% drop in 1991. This is mainly due to the fall 
in industrial production and in tourism. Retail prices rose by 665% in 1992 over 
1991; recently inflation has been on an accelerating trend (1400%) during the first 
four months of 1993). The rate of unemployment reached 18% in April 1993. 
Economic reforms were at a very early stage when civil war broke out. The 
privatization law enacted in May 1991 has been widely criticized as inadequate, and 
there is an urgent need to streamlining the country's inefficient fiscal system. 
Croatia showed a $ 0.3 bn trade deficit in 1992 ($ 0.5 bn in 1991) but a current 
account surplus of $ 329 million (against a deficit of $ 590 million in 1991). Foreign 
exchange reserves at the Central Bank stood at only $ 340 million in the end of May 
1992 (against $ 170 million at the end of December 1992). 
The external debt is valued at $ 2.7 bn plus Croatia's share in the $ 3.1 bn federal 
debt. As of May 1992, Croatia ceased to service its share of the debt, alleging that 
part of it had been purchased on the secondary market by Serbia. Croatia is 
presently trying to convince the commercial banks to form another consortium with 
a view to re-negotiating a restructuring of the outstanding debt and interest arrears. 
The total debt attributable to the former yugoslav republic of Macedonia is valued at 
some $ 1 bn and that of Bosnia-Herzegovina at $ 2 bn. 
- 33 -
TABLE 1 
CAPITAL OUTSTANDING IN RESPECT OF OPERATIONS DISBURSED 
(in ECU million) 
Operation 
MEMBER STATES 
A. Balance of payments 
1. Greece I 
2. Greece II 
3. Italy 
B. Other 
4. Euratom 
5. NCI and NCI earthquakes 
6. EIB Mediterranean, 
Spain, Greece .Port. 
MEMBER STATES - TOTAL 
THIRD COUNTRIES 
A. Financial assistance 
1. Hungary 
2. Czechoslovakia 
3. Bulgaria 
4. Romania 
5. Algeria 
6. Israel 
7. Baltic States 
i 8. Former Soviet Union 
3. Other 
9. EIB Mediterranean 
1U. EIB Central and Eastern Europe 
11. Guarantee, CIS 
THIRD COUNTRIES - TOTAL 
GRAND TOTAL Authorized 
ceiling 
14000 
4000 
6830 
1500 
26330 
1050 
375 
400 
455 
400 
160 
220 
1250 
6017 
1700 
500 
12527 
38857 Amount 
outstanding 
31.12.1992 
721 
1000 
1338 
3305 
645 
7009 
710 
375 
290 
375 
250 
160 
93 
1444 
147 
363 
4207 
11216 Amount 
outstanding 
30.6.1993 
200 
1000 
1979 
1144 
2813 
629 
7764 
790 
375 
290 
455 '• 
250 
160 
60 
616 
1532 
179 
363 
5070 
12834 
-5b-
TABLE 2 
MAXIMUM ANNUAL RISK BORNE BY THE COMMUNITY BUOGET 
(Estimate in ECU million based on all operations disbursed at 30 June 1993) 
MEMBER STATES 
CAPITAL 
A Balance of payments 
I.Greece 
2. Nary 
B. Structural loans 
3. Euratom 
4. NCI and NCI EQ 
5. EIB Med. Old. Prot 
So. Or. Port. 
Capital - subtotal 
INTEREST 
A. Balance of payments 
1. Greece 
2. Italy 
B. Structural loans 
3. Euratom 
4. NCI and NCI EQ 
5. EIB Med. Old. Prat 
Sp. Gr. Port 
Interest - subtotal 
MEMBER STATES • TOTAL 
NON-MEMBER COUNTRIES 
CAPITAL 
A. Financial assistance 
6. Hungary 
7. Ci*choslovaWa 
8. Bulgaria 
9. Romania 
10. Algeria 
11. Israel 
12. Ex USSR 
13. Baltic States 
B. Guarantees 
14. EIB Med. 
15. EIB C+E Eur. 
16. Aid, Russia 600m 
Capital - subtotal 
INTEREST 
A. Financial assistance 
6. Hungary 
7. Czechoslovakia 
8. Bulgaria 
9. Romania 
10. Algeria 
11. Israel 
12. Ex USSR 
13. Baltic States 
B. Guarantees 
14. EIB Med. 
15. ElBC+EEur. 
16. Aid. Russia 500m 
Interest <• subtotal 
NON-MEMBER COUNTRIES • TOTAL 
GRAND TOTAL 
(Eastern Europe) 
(Other non-member countries) 1993 
569 
358 
1177 
54 
2158 
147 
112 
296 
31 
586 
2744 
56 
103 
15» 
81 
38 
29 
42 
25 
16 
30 
3 
61 
8 
34 
367 
526 
3270 
368 
158 1994 
200 
101 
657 
90 
1048 
110 
136 
80 
186 
50 
562 
1610 
91 
127 
2 
133 
353 
81 
38 
29 
46 
2S 
16 
57 
6 
112 
15 
24 
449 
802 
2412 
521 
281 1995 
46 
484 
83 
613 
95 
136 
72 
131 
42 
476 
1089 
350 
393 
134 
11 
133 
1020 
81 
38 
29 
46 
25 
16 
46 
6 
102 
14 
9 
412 
1433 
2522 
1156 
277 1996 
500 
500 
152 
321 
77 
1550 
95 
136 
68 
91 
34 
424 
1974 
260 
133 
131 
18 
542 
44 
38 
29 
46 
25 
16 
7 
6 
92 
13 
316 
857 
2832 
594 
264 1997 
585 
528 
76 
1189 
46 
96 
55 
64 
27 
288 
1477 
80 
190 
140 
250 
160 
133 
20 
974 
1B 
38 
29 
46 
25 
16 
6 
82 
12 
272 
1245 
2723 
579 
666 1998 
600 
91 
92 
58 
741 
46 
96 
10 
16 
21 
189 
929 
100 
185 
150 
186 
136 
21 
776 
10 
19 
15 
46 
6 
72 
10 
178 
954 
1884 
747 
207 1999 
16 
39 
51 
106 
96 
3 
8 
15 
122 
228 
190 
130 
19 
339 
27 
6 
62 
9 
104 
443 
«71 
251 
192 2000 
1479 
12 
39 
45 
1575 
96 
1 
5 
11 
113 
1688 
80 
60 
119 
17 
276 
8 
6 
5? 
7 
74 
350 
2038 
179 
171 TOTAL 
1769 
1979 
1361 
3337 
534 
8980 
539 
792 
401 
797 
231 
2760 
11740 
790 
375 
290 
456 
250 
160 
616 
60 
108 
369 
4439 
315 
209 
160 
307 
125 
80 
140 
45 
635 
89 
67 
2171 
6610 
18351 
4395 
2216 
- 35 -
TABLE 3 
MAXIMUM THEORETICAL ANNUAL RISK BORNE BY THE COMMUNITY BUDGET 
(Estimate in ECU million based on all operations disbursements, decisions and Commission proposals) 
MEMBER STATES 
CAPITAL 
A Balance of payments 
1. Greece 
2. Italy 
B. Structural loans 
3. Euratom + NCI 
4. EIB Sp. Gr. Port. 
Capital - subtotal 
INTEREST 
A. Balance of nsyme^ts 
1. Greece 
2. Italy 
B. Structural loans 
3. Euratom • NCI 
4. EIB Sp. Gr. Port. 
Interes* - subtotal 
MEMBER STATES - TOTAL 
NON-MEMBER COUNTRIES 
CAPITAL 
A. Financial assistance 
6. Hungary 
6. Czechoslovakia 
7. Bulgaria 
8. Romania 
9. Israel 
10. Algeria 
11. Ex USSR 
12. Baltic States 
13. Euratom, C+E Eur. 
B. Guarantees 
14. EIB Med. 
15. EIB C+E Eur. 
16. EIB, other third countries 
17. Aid, Russia, Guar. 500m 
Capital - subtotal 
INTEREST 
A. Financial assistance 
6. Hungary 
6. Czechoslovakia 
7. Bulgaria 
8. Romania 
9. Israel 
10. Algeria 
11. Ex USSR 
12. Baltic States 
13. Euratom, C+E Eur. 
B. Guarantees 
14. EIB Med. 
15. EIB C+E Eur. 
16. EIB, other third countries 
17. Aid, Russia, Guar. 500m 
Interest - subtotal 
NON-MEMBER COUNTRIES - TOTAL 
GRAND TOTAL 
(Eastern Europe) 
(Other non-member countries) 1993 
569 
1635 
54 
2158 
147 
408 
31 
586 
2744 
56 
103 
169 
81 
38 
35 
42 
16 
32 
30 
11 
153 
19 
34 
491 
650 
3394 
393 
257 1994 
200 
758 
90 
1049 
170 
336 
267 
60 
823 
1871 
146 
127 
2 
133 
408 
107 
38 
40 
46 
16 
40 
126 
22 
15 
190 
46 
1 
24 
710 
1118 
2990 
744 
374 1995 
630 
83 
613 
216 
636 
203 
42 
996 
1609 
350 
929 
134 
11 
133 
1657 
107 
38 
40 
46 
16 
40 
110 
22 
36 
245 
97 
4 
9 
809 
2366 
3976 
192/ 
439 1996 
600 
500 
473 
77 
1550 
215 
736 
159 
34 
11/4 
2694 
260 
176 
167 
40 
642 
70 
38 
40 
46 
16 
40 
9 
22 
66 
324 
174 
12 
846 
1488 
4182 
929 
559 1997 
1113 
76 
1189 
166 
696 
120 
27 
1009 
2198 
80 
190 
140 
160 
250 
225 
85 
3 
1133 
44 
38 
40 
46 
16 
40 
22 
75 
392 
261 
28 
1002 
2135 
4333 
1021 
1114 1998 
500 
183 
58 
741 
166 
696 
26 
21 
909 
1649 
360 
185 
150 
185 
10 
305 
161 
10 
1356 
36 
19 
26 
46 
15 
22 
96 
447 
345 
47 
1098 
2454 
4103 
1630 
824 1999 
600 
2000 
55 
51 
2706 
120 
696 
10 
16 
841 
3547 
190 
23 
369 
225 
23 
830 
11 
27 
15 
22 
109 
469 
397 
61 
1111 
1941 
5488 
1004 
937 2000 
600 
3479 
52 
45 
4176 
60 
496 
6 
11 
573 
4749 
55 
80 
150 
220 
37 
423 
300 
40 
1305 
11 
8 
15 
22 
107 
459 
412 
66 
1100 
2405 
7154 
1252 
1153 TOTAL 
2969 
5979 
4699 
534 
14181 
1259 
4192 
1199 
231 
6881 
21063 
1050 
375 
345 
456 
160 
400 
1250 
220 
70 
1806 
814 
76 
369 
7390 
445 
209 
243 
307 
80 
237 
274 
165 
491 
2679 
1751 
219 
67 
7167 
14667 
35620 
8900 
6657 
-36-
EXPLANATORY NOTES 
The purpose of these tables is to show the annual repayments of capital and interest in 
respect of borrowing and lending operations for which the risk is covered by the 
Community budget. The figures show the maximum possible risk for the Community in 
respect of these operations and must not be read as meaning that these amounts will 
actually be drawn from the budget. In the case of Table 3, it is not certain that all the 
operations described will actually be disbursed. No account has been taken of interest on 
late payment or any additional costs such as lawyers' fees. 
I. TYPES OF OPERATION AND PAYMENT OF THE BUDGET 
GUARANTEE 
A. Types of operation 
The risk covered by the Community budget results from two types of operation: 
- borrowing/lending operations; 
- guarantees given to third parties. 
In the first type of operation, the Community borrows on the financial market and on-
lends the proceeds (at the same rate and for the same term) to Member States (balance of 
payments), non-member countries (medium-term financial assistance) or firms (NCI, 
Euratom). 
The loan repayments are scheduled to match the repayments of the borrowings due from 
the Community. If the recipient of the loan defaults, the Commission must draw on its 
budgetary resources to repay the borrowing on the due date. 
The loan guarantee is in respect of loans granted by a financial institution (EIB or 
commercial banks in the case of the former Soviet Union). When the recipient of a 
guaranteed loan fails to make a payment on the due date, the bank asks the Commission 
to pay the amounts owed by the defaulter. 
B. Mobilization of funds 
The funds needed can be raised by re-using amounts repaid or by means of transfers. 
The re-use of amounts repaid by debtors allows payments to be made within a short 
period of time always providing, of course, that there are funds available for re-use. 
Where there are insufficient funds for re-use or insufficient time for a transfer, the 
amount required will be taken provisionally from cash resources with an adjustment 
being made later by means of a transfer and/or a supplementary/amending budget as 
appropriate. 
H. CALCULATION 
Some of the amounts indicated are the result of estimates made on the basis of the 
following assumptions. 
37-
operations should not involve exchange risks for the Community. Unless otherwise stated, 
the average rate of interest is estimated at 10% This rate is probably a little high for EIB 
loans, which often attract interest subsidies under the protocols. 
A. Member States 
1 Greece I: The figures for repayments of capital and fixed-rate interest are final and 
certain. 
Greece II: A total of ECU 2.2 billion has been granted and the first tranche of 
ECU 1 billion has actually been disbursed. Half of this tranche is repayable in 1996 and 
the other half in 1998. The second and third tranches of ECU 600 million will be paid 
only if Greece makes a formal request for them and if the Council endorses the 
favourable conclusions of the Commission's examination of the outcome of the 
Government's economic programme. For the purposes of this exercise, however, it is 
assumed that the second tranche will be disbursed in 1993 and the third tranche in 1994, 
both with a term of six years. This assumption will have to be verified in due course 
Italy: The first tranche of ECU 2 billion out of the total of ECU 8 billion was paid out in 
the first half of 1993; ECU 500 million is repayable in 1996 and the equivalent of 
DM 2 900 million in 2000. It was assumed that the second tranche of ECU 2 billion 
would be paid in the second half of 1993, as indeed it was, to be repaid in 1999. The 
Council Decision granting the loan to Italy states that the third and fourth tranches of 
ECU 2 billion cannot be released before 1 February 1994 and 1 February 1995 
respectively and then only if an examination by the Commission shows that the measures 
necessary to achieve the annual budget targets to be set have actually been implemented 
and if the Council endorses this conclusion. The uncertainties surrounding these 
procedures have not been taken into consideration for the purposes of this exercise and it 
is assumed that the third tranche will be paid in 1994, to be repaid in 2000, and that the 
fourth tranche will be paid in 1995, to be repaid in 2001. This assumption will have to be 
verified in due course. 
4. EIB. Mediterranean, old protocols: Spain, Greece. Portugal: These are Community 
guarantees for EIB operations in these countries prior to accession. The amounts are 
now final, since all the loans authorized have been disbursed. 
B Non-member countries 
a. Financial assistance 
1 Hungary I: The amounts of the first two tranches are final and certain. It is assumed 
that the third tranche will be paid in 1993 for a five-year term. 
2. Hungary II: ECU 180 million has been granted in two tranches and paid out in full. 
3. Czechoslovakia: ECU 375 million has been granted in two tranches for a maximum term 
of seven years (bullet), with a first tranche of ECU 185 million and a second tranche of 
ECU 190 million for a term of six years. 
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4. Bulgaria: ECU 290 million has been granted in two tranches for a maximum term of 
seven years (bullet), with a first tranche of ECU 150 million and a second tranche of 
ECU 140 million for a term of six years. 
The new operation involving ECU 110 million for a maximum term of seven years to be 
paid in two tranches in 1993 for a term of seven years and the second in 1994 with the 
same term. 
5. P.omania: An estimated ECU 375 million in two tranches for a maximum term of seven 
years (bullet). The first tranche of ECU 190 million was disbursed in 1992 with a term 
of seven years and the second was disbursed in 1992 with a term of six years. 
The new operation involving ECU 80 million for a maximum term of seven years was 
disbursed in 1993. 
6. Baltic States 
It is assumed that this loan of ECU 220 million will be paid in full in two tranches in the 
course of 1993 and repaid in one tranche seven years later. 
7. Algeria: ECU 400 million has been granted in two tranches of ECU 250 million and 
ECU 150 million. The first was paid in December 1991 for a term of six years: it is 
assumed that the second will be paid in 1993 for a term of six years. 
8. Israel: A loan of ECU 160 million has been paid in full and is repayable in 1997. 
b. Guarantees 
1 Effi 
Figures provided by the EIB for loans disbursed at 30 June 1993. 
For the others, we have made the following assumptions concerning the signature of loans. 
Year 1993 1994 1995 1996 TOTAL 
Mediterranean countries 800 850 850 900 3400 
Central and Eastern Europe 2 800 765 965 1270 3800 
Other non-member countries 50 150 250 250 700 
In the case of these loans and those already signed at the end of June 1993 but not yet 
disbursed (ECU 1 043 million for the Mediterranean countries and ECU 566 million for the 
countries of Central and Eastern Europe), we have assumed that an average of 10% of the 
loan will be disbursed in the year of signature and 30% in each of the three following years 
In the case of the new operations following the renewal of EIB loans of ECU 3 000 million 
in the countries of Central and Eastern Europe for a period of threa years, it is assumed that 
the signatures will take place as indicated in the financial statement drawn up by the 
Commission 
It is estimated that the average term will be fifteen years with a three-year period of grace. 
2. Food aid for the former Soviet Union 
2 Including renewal from 1993. 
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(a) Guarantee 
This is a guarantee for a bank loan of ECU 500 million, fully covered by the budget, with a 
term of three and a half years with three repayments at intervals of eleven months starting 
from the twentieth month 
(b) Borrowing/lending 
An operation involving ECU 1 250 million for a maximum term of three years. 
This borrowing will be divided between the various Republics of the former Soviet Union. 
Loans amounting to less than ECU 100 million will be repaid in one instalment three years 
after the start of the period in which the funds may be drawn. Borrowings exceeding 
ECU 100 million will be repaid in two instalments two years and three years after the start 
of the period in which the funds may be drawn. 
Depending on the type of contract, there are two periods in which funds may be drawn, one 
starts on 20 August, the other on 15 January. 
3. Euratom, countries of Central and Eastern Europe 
Of the ECU 1 124 million involved, it is assumed that ECU 300 million will be disbursed in 
1993, ECU 224 million in 1994 and ECU 200 million in each of the three following years 
It is assumed that the loans will be for an average term of twenty years with a five-year 
period of grace. 
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ANNEX 
DEFINITION OF FIGURES USED IN THE REPORT 
A. Authorized ceiling (Table 1) 
This is the aggregate of the maximum amounts of capital authorized (ceilings) for each 
operation decided or of the amount proposed by the Commission for operations for 
which there has not yet been a Council decision. 
In order to relate it to the risk which the budget might have to cover, account should be 
taken of the interest, which would increase the figure, and of three factors which would 
reduce it: 
- limitation of the guarantee given to the EIB to 75% of the loans signed in the 
Mediterranean countries; 
- operations already repaid, since the amounts concerned, except in the case of balance 
of payments support, are the maximum amount of loans granted and not outstanding 
amounts authorized; 
- the amounts authorized are not necessarily taken up in full. 
The breakdown of authorizations is as follows: 
Member States 
Balance of payments 14 000 3 
NCI 6 830 
Euratom 4 000 4 
EIB; Spain, Greece, Portugal 1 500 
Member States - total 26 330 
3 Authorized amount outstanding: once this figure is reached, further loans may be granted as 
previous operations are repaid. 
4 Including ECU 1 124 million which may be granted to the countries of Eastern Europe and the CIS. 
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Non-member countries 
Hungary I 870 
Hungary II 180 
Czechoslovakia 375 
Bulgaria I 290 
Bulgarian 110 
Romania I 375 
Romania II 80 
Israel 160 
Algeria 400 
former Soviet Union I 408 
former Soviet Union II 1 250 
Baltic States 220 
EIB, old protocols 3 032 
EIB, Eastern Europe I 1 700 
EIB, Eastern Europe II 2 750 
EIB, Baltic States 200 
EIB, Albania 50 
EIB, new protocols 1 185 
EIB, horizontal cooperation 1 800 
Other non-member countries 750 
Non-member countries - total 16 185 
Grand total 42 515 
B. Amount outstanding (Table 1 ) 
This is the amount of capital still to be repaid on a given date in respect of operations 
disbursed. 
Compared with the previous aggregate, the amount outstanding does not include loans 
which have not yet been disbursed nor the proportion of disbursed loans which have 
already been repaid. It may be described as the amount of loans which exist on a given 
date. 
C. Annual risk 
Estimated amount of principal and interest due each financial year. 
This amount is calculated for: 
- disbursements alone (Table 2), in which case the capital to be repaid corresponds to 
the amount outstanding; 
- disbursements, decisions still awaiting disbursement and Commission proposals still 
awaiting decisions (Table 3), in which case the capital to be repaid corresponds to the 
ceiling on loans authorized plus, where applicable, the amounts in respect of 
operations proposed by the Commission and not yet decided and the amount still to be 
used for balance of payments operations which are much less likely to be called on 
than the other types of assistance. 
ISSN 0254-1475 
COM(93) 687 final 
DOCUMENTS 
EN 01 
Catalogue number : CB-CO-93-752-EN-C 
ISBN 92-77-63159 7 
Office for Official Publications of the European Communities 
L-2985 Luxembourg