WRITTEN QUESTION P-0214/03

by Olivier Dupuis (NI) to the Commission

(27 January 2003)

Subject: Economic and financial situation in Tunisia

The Association Agreement between the EU and Tunisia is entering an important phase but very little information is available about progress in the measures to support the establishment of a free trade area. The need for much greater transparency reflects the importance of this Association Agreement. It is therefore crucial that Parliament should be informed of the Commission's assessment of the use made of MEDA funding during the past seven years. The programmes for upgrading undertakings and important sectors of the Tunisian economy have merely been the subject of expressions of self-satisfaction on the Tunisian side, despite the fact that there are clearly very serious problems. As an illustration, the reform of the banking system has been the subject of very little public information in Tunisia. The recent financial scandal involving the Batam company and the Bonprix network has once again highlighted the problem of doubtful and non-recoverable debts which is seriously jeopardising the reform of the banking system supported by the European Union. This lack of transparency also encourages the development of large-scale corruption in the circles of power, which has been the subject of intense comment in the foreign press during the past few months.

What is the Commission's assessment of the use made by the Tunisian authorities of MEDA support funds during the past seven years? What information does the Commission have on progress and problems in the reform of the banking sector? What information does the Commission have about the recent financial scandals and the alleged development of illicit get-rich practices primarily among circles close to power and what measures does it intend to take on this matter?

Answer given by Mr Patten on behalf of the Commission

(19 February 2003)

Tunisia occupies a special place in the MEDA programme, receiving a total of EUR 841 million over the period 1995-2004 in the form of bilateral grants under MEDA I and II.

The MEDA programme in Tunisia, consisting exclusively of grants, comprises 18 projects and programmes in progress with two others in the pipeline for a total of EUR 440 million in commitments, 41 % of which has already been disbursed. There are two distinct financing arrangements for the MEDA-funded programmes and projects: direct budgetary support to the Tunisian state (structural adjustment facilities and sectoral support) and the financing of direct investment projects on the ground (rural development, support for small and medium-sized enterprises, etc.). Last year was a record year for payments, which totalled almost EUR 93 million.

Tunisia's use of MEDA funds is by and large positive. The country's uptake of funds is good thanks to the policies implemented by the Government. This has made it possible to switch from classic assistance programmes to more sophisticated instruments such as structural and sectoral adjustment facilities. As from 2002, third-generation programmes which provide support for good governance and civil society have been included in Tunisia's MEDA programming.

The economic results posted by Tunisia in recent years show that MEDA assistance is being provided against a favourable development background.

The current and future difficulties with using MEDA in Tunisia are twofold: on the one hand, there is the objective difficulty of implementing reforms such as the overhaul of sickness insurance or the ports sector and, on the other hand, certain structural weaknesses in the Tunisian economy persist, for example in the legislative and regulatory framework and investment services. These weaknesses need to be eliminated so that the country can complete its economic modernisation and benefit fully from partnership with the Union. It is too soon to say what impact the third-generation projects will have.

The Union is actively supporting the reform of the Tunisian banking system and, more generally, the country's financial system. As part of the structural adjustment operation under way, which is jointly financed by the World Bank and the African Development Bank, the EU is giving its backing to: the privatisation of two public banks; regulatory modernisation, which will help deal more effectively with the very high level of bad and doubtful debts putting a strain on the banks' balance sheets and holding back their development; devising a strategy for developing the financial markets which will offer businesses alternative sources of funding. The Community is also supporting training schemes for Tunisian central bank and commercial bank staff to familiarise them with regulatory procedures and banking management techniques used in EU banks.

The slowdown in economic growth in 2002 due to a number of external and internal difficulties has affected the level of bad and doubtful debts in the banking system and probably halted the reduction in those debts in the banks' balance sheets.

Against that background, and given the preponderance of bank financing in the economy and of public bodies in the total of bank credits, continuing the reform of the banking system is one of the Commission's core concerns in its economic cooperation with Tunisia. This reform will in particular involve adopting credit allocation techniques based on a serious assessment of a project's economic and financial profitability, a sustained drive to cut back provision for bad debts and reduce their level, and developing alternative sources of financing for businesses.

The Commission is keeping a close eye on political and economic developments in Tunisia. It is aware of the events surrounding the collapse of the Batam group. Batam, which includes the network of Bonprix stores, developed too rapidly for its modest financial base. With the slowdown in domestic demand and increasing competition, this fragile financial structure led the banks to suspend their support and the company was declared bankrupt.

The Commission has no precise information on the illicit get-rich practices to which the Honourable Member refers.