Amended proposal for a COUNCIL DECISION amending Council Decision 1999/733/EC providing supplementary macro-financial assistance to the former Yugoslav Republic of Macedonia (presented by the Commission pursuant to Article 250 (2) of the EC Treaty)

EXPLANATORY MEMORANDUM

On 8 November 1999, the Council decided to provide to the former Yugoslav Republic of Macedonia (fYRoM)) supplementary macro-financial assistance of up to EUR 80 million, comprising a loan element of up to EUR 50 million and a grant element of up to EUR 30 million (Council Decision 1999/733/EC). The implementation of this assistance was delayed due to difficulties with reaching agreement on a new Stand-by Arrangement between the authorities and the IMF, finally reached in November 2000. The first tranche of EUR 30 million was disbursed at the end of 2000.

In view of the delayed implementation of the Community macro-financial assistance the Commission on 19 September 2001 decided (COM(2001) 519 final) to propose to the Parliament and to the Council to amend Council Decision 1999/733/EC so as to extend the period of the implementation until end-2002. The overall amount of the assistance remained unchanged.

The Parliament has accepted the request for urgency and is scheduled to provide its opinion on this matter on 23 October.

Since then the authorities of the former Yugoslav Republic of Macedonia have been negotiating with the IMF on a new macroeconomic framework. In the course of these negotiations preliminary estimates by the IMF suggest that new external financing needs have emerged. The preliminary estimates of the external financing requirements are for a financing gap of some USD 76 million in 2001 and close to USD 100 million in 2002. The funds still to be disbursed under the EUR 80 million package are not sufficient to provide an appropriate Community support to this country.

After the signature of the Framework Agreement by the main political parties in the country on 13 August the Commission indicated its willingness to provide EUR 30 million of additional assistance to support the peace process provided that the Framework Agreement is adequately implemented, for example, through the adoption of certain amendments to the Constitution and to the Law of Local Government. EUR 12 million of this amount is being provided under the CARDS assistance programme while EUR 18 million could be provided as additional macro-financial assistance in the form of grants.

The consultation of the Economic and Financial Committee has been completed on 16 October, with the Committee expressing a favourable opinion.

Therefore, based on Article 250 (2) of the Treaty, two modifications have been made to the Commission proposal COM(2001) 519 final. (1) The proposed grant element of the assistance has been increased from an overall amount of EUR 30 million to EUR 48 million. (2) Given the need to implement the assistance in successive tranches, subject to appropriate conditionality, the proposed expiry rate has been extended until end-2003.

The Council is requested to adopt the above-mentioned Commission proposal as presently modified.

2001/0213 (CNS)

Amended proposal for a COUNCIL DECISION amending Council Decision 1999/733/EC providing supplementary macro-financial assistance to the former Yugoslav Republic of Macedonia

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 308 thereof,

Having regard to the proposal from the Commission [1],

[1] OJ C , , p. .

Having regard to the opinion of the European Parliament [2],

[2] OJ C , , p. .

Whereas:

(1) Council Decision 1999/733/EC [3] provides supplementary macro-financial assistance to the former Yugoslav Republic of Macedonia comprising a loan component of a maximum principal of EUR 50 million and a grant component of a maximum of EUR 30 million;

[3] OJ L 294, 16.11.1999, p. 31.

(2) The implementation of this assistance was delayed due to difficulties in reaching agreement on a new Stand-by Arrangement between former Yugoslav Republic of Macedonia and the International Monetary Fund (IMF);

(3) The former Yugoslav Republic of Macedonia is committed to a continued economic stabilisation and reform path and continues to require external financial support in addition to what can be provided by International Financial Institutions;

(4) Council decision 1999/733/EC does not permit the commitment of grant funds beyond the year 2000;

(5) The Commission has consulted the Economic and Financial Committee before submitting its proposal.

HAS DECIDED AS FOLLOWS:

Sole Article

Decision 1999/733/EC is hereby amended as follows:

1. Article 1 (3) shall be replaced by the following: "The grant component of this assistance shall amount to a maximum of EUR 48 million."

2. A new Article 6 shall be inserted: "This decision expires on 31 December 2003."

Done at Brussels,

For the Council

The President

FINANCIAL STATEMENT

1. Title of operation

Supplementary macro-financial assistance to the former Yugoslav Republic of Macedonia.

2. Budget heading involved

Grant component of the assistance

B7-548: Macro-economic assistance in favour of Western Balkan Countries.

Loan component of the assistance

Heading B0-211 reflecting the European Community guarantee for borrowing programmes contracted by the Community to provide financial assistance for non-member countries in Central and Eastern Europe.

3. Legal basis

Article 308 of the Treaty.

4. Description and justification for the action

a) Description of the action

Provision of a Community loan (to be financed by Community borrowing in the international capital markets), in the amount of up to EUR50 million, and a grant of up to EUR48 million (to be financed by the general budget) to the former Yugoslav Republic of Macedonia with a view to supporting the authorities' reform efforts and alleviating the social consequences of the economic disruptions caused by the conflict in Kosovo.

A first tranche of EUR 20 million grant and EUR 10 million loan has already been disbursed in December 2000.

b) Justification for the action

The viability of the former Yugoslav Republic of Macedonia's external position depends on external financial assistance from official sources.

5. Classification of the expenditure

Grant component: non compulsory expenditure, differentiated.

Loan component: compulsory.

6. Nature of the expenditure

Straight grants (100% subsidy), which would be released in at least two successive instalments.

Potential activation of budget guarantee for the Community borrowing aimed to fund the loan to the former Yugoslav Republic of Macedonia.

7. Financial impact

a) Method of calculation

The evaluation of the amount of the assistance deemed necessary was based on the estimates of the former Yugoslav Republic of Macedonia's residual external financing needs.

For the loan component of this assistance, a token entry is proposed because it is expected that the budget guarantee will not be called, and in any case the amount and timing of any call on this budget line cannot be calculated in advance.

b) Effect of the action on intervention credits

The budget entry corresponding to the grant component of this assistance will be activated subject to compliance with a number of policy conditions to be agreed with the authorities of the former Yugoslav Republic of Macedonia.

The budget entry reflecting the budget guarantee for the loan component of this assistance will be activated only in the case of an effective call on the guarantee.

c) Financing of the intervention expenditure

(i) Grants

- The financing of the expenditure is available at B7-548.

The following schedule of appropriations is proposed (in million EUR):

>TABLE POSITION>

(ii) In case of call on the budget guarantee:

- Recourse to the Guarantee Fund established by Council Regulation (EC, EURATOM) n° 2728 of 31 October 1994.

- In case the Guarantee Fund did not contain sufficient resources, additional payments would be called up from the budget by transfer:

- of any margin remaining in the Reserve for guarantees;

- of any late payments to the budget for which the budget guarantee has been activated (under article 27(3) of the Financial Regulation);

- of any margin available under the ceiling of category 4 of the financial perspectives or redeployment therein.

- In order to fulfil its obligations, the Commission can provisionally ensure the debt service with funds from its treasury. In that case, Article 12 of the Council Regulation (EEC, Euratom) n° 1552/89 of 29.5.1989 will apply.

8. Fraud prevention measures

The funds will be paid directly to the Central Bank of the beneficiary country only after verification by the Commission Services, in consultation of the Economic and Financial Committee and in liaison with the IMF and World Bank Services, that the macro-economic policies implemented in the former Yugoslav Republic of Macedonia are satisfactory and that the specific conditions attached to this assistance are fulfilled.

9. Elements of cost-effectiveness analysis

a) Grounds for the operation and specific objectives

By supporting the former Yugoslav Republic of Macedonia's macroeconomic reform efforts and complementing financing by the International Community provided in the context of a forthcoming IMF Staff Monitored Programme, this assistance would ease the country's external financing constraints, would improve its growth prospects and would help it face the economic and social consequences of the conflicts in the region.

b) Monitoring and evaluation

This assistance is of macro-economic nature and its monitoring and evaluation is undertaken in the framework of a forthcoming IMF Staff Monitored Programme that the former Yugoslav Republic of Macedonia is implementing.

The Commission services will monitor the action on the basis of a genuine system of macro-economic and structural policy indicators to be agreed with the authorities of the beneficiary country. They will also remain in close contact with the IMF and World Bank services and will benefit from their assessment of the former Yugoslav Republic of Macedonia's reform achievements.

An annual report to the European Parliament and to the Council is foreseen in the proposed Council decision, which will include an evaluation of the implementation of this operation.

10. Administrative expenditure

This action is exceptional in nature and will not involve an increase in the number of Commission staff.