Proposal for a Council Decision providing exceptional financial assistance to Armenia, Georgia and, if appropriate, Tajikistan (97/C 95/12) COM(97) 24 final - 97/0028(CNS)

(Submitted by the Commission on 3 February 1997)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty established the European Community, and in particular Article 235 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Whereas the Commission has consulted the Monetary Committee before submitting its proposal;

Whereas Armenia and Georgia are undertaking fundamental political and economic reforms and are making substantial efforts to implement a market economy model; whereas Tajikistan is expected to implement similar stabilization and structural change policies;

Whereas trade, commercial and economic links will develop between the Community, Armenia and Georgia within the framework of the Partnership and Cooperation Agreements signed on 22 April 1995;

Whereas Armenia and Georgia agreed with the International Monetary Fund (IMF) in 1994 on a first set of stabilization and policy reform measures which was supported by the IMF's systemic transformation facility, and whereas the IMF Board approved in June 1995 stand-by arrangements in support of further ambitious stabilization and structural adjustment reforms, for the period July 1995 to June 1996;

Whereas the IMF board approved in February 1996 a three-year enhanced structural adjustment facility (ESAF) at concessional terms for Armenia and Georgia, in replacement of the current stand-by arrangements;

Whereas the Armenian and Georgian authorities have formally undertaken to fully service their outstanding financial obligations towards the Community;

Whereas the authorities of Armenia and Georgia have requested exceptional financial support from the Community;

Whereas Tajikistan implemented in 1995 and early 1996 important budgetary and monetary stabilization measures and whereas a first credit tranche arrangement with this country was approved by the IMF Board in May 1996; whereas, subject to a peaceful settlement of internal conflicts, further policy discussions of the IMF and the World Bank with the Tajik authorities, and complementary financing assurances from the international donor community, the IMF management is expected to recommend the conclusion with Tajikistan of a multi-year programme of adjustment and reform to be supported by an upper credit tranche stand-by and concessional facilities pursuant to an ESAF arrangement;

Whereas Armenia, Georgia and Tajikistan are low income countries and are facing particular critical economic and social circumstances; and whereas these countries are eligible for highly concessional loans from the World Bank and the IMF;

Whereas concessional financial assistance from the Community in the form of long-term loans and straight grants is an appropriate measure to help the beneficiary countries at this critical juncture by supporting the policy objectives attached to their governments' reform efforts and alleviating the social cost of adjustment measures;

Whereas this assistance is exceptional and only justified on account of the particularly harsh economic and social conditions presently faced by the beneficiary countries;

Whereas the inclusion of a grant component in the assistance is without prejudice to the competences of the budgetary authority;

Whereas this assistance should be managed by the Commission;

Whereas the Treaty does not provide, for the adoption of this Decision, powers other than those of Article 235,

HAS DECIDED AS FOLLOWS:

Article 1

1. The Community shall make available to Armenia and Georgia exceptional financial assistance, in the form of long-term loans and straight grants, with a view to supporting the governments' reform efforts and alleviating the social hardship of the accompanying austerity measures.

2. Tajikistan will be made eligible to this assistance on the condition that: (i) the Tajik authorities have formally undertaken to fully service their outstanding financial obligations towards the Community; and (ii) the Board of the IMF has agreed on an upper-credit tranche arrangement with Tajikistan.

3. The loan component of this assistance shall amount to a maximum principal of ECU 170 million, with a maximum maturity of 15 years. To this end, the Commission is empowered to borrow, on behalf of the European Community, the necessary resources that will be placed at the disposal of the beneficiary countries in the form of loans.

4. The grant component of this assistance will consist of an annual amount of up to ECU 10 million for the 1997 to 2001 period.

5. The Community financial assistance shall be managed by the Commission in close consultation with the Monetary Committee and taking into account the provisions of any agreement reached between the IMF and the beneficiary countries.

6. The implementation of this assistance is conditional on full servicing by the recipient countries of their outstanding financial obligations towards the Community.

Article 2

1. Subject to the provisions of Article 1, the Commission is empowered to agree with the authorities of the beneficiary countries the specific amounts and terms, and the conditions attached to his assistance.

2. The Commission shall verify, in consultation with the Monetary Committee, that the policies in the recipient countries are in accordance with the objectives of this assistance and that its conditions are being fulfilled.

Article 3

1. Subject to the provisions of Article 2, the loans and the grants shall be made available in successive instalments.

2. The funds shall be paid to the central banks of the recipient countries.

Article 4

1. The borrowing and lending operations referred to in Article 1 shall be carried out using the same value date and must not involve the Community in the transformation of maturities, in any exchange or interest rate risk, or in any other commercial risk.

2. The Commission shall take the necessary steps, if a beneficiary country so requests, to ensure that an early repayment clause is included in the loan terms and conditions and that it may be exercised.

3. At the request of the beneficiary countries, and where circumstances permit an improvement in the interest rate on the loans, the Commission may refinance all or part of its initial borrowings or restructure the corresponding financial conditions. Refinancing or restructuring operations shall be carried out in accordance with the conditions set out in paragraph 1 and shall not have the effect of extending the average maturity of the borrowing concerned or increasing the amount, expressed at the current exchange rate, of capital outstanding at the date of the refinancing or restructuring.

4. All related cost, incurred by the Community in concluding and carrying out the operations pursuant to this Decision shall be borne by the beneficiary countries.

5. The Monetary Committee shall be kept informed of developments in the operations referred to in paragraphs 2 and 3 at least once a year.

Article 5

At least once a year, the Commission shall address to the European Parliament and to the Council a report, which will include an evaluation, on the implementation of this Decision.