Proposal for a COUNCIL DECISION granting a medium­term loan to the USSR and its constituent Republics
Date: 1991-11-08
Institutions: European Commission
Subjects: Community loan, USSR, medium-term credit, redemption

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

C0M(91) 443 final 

Brussels,  8 November 1991 

Proposal  for a 

COUNCIL DECISION 

grcinting a medium-term loan 
to the USSR and its constituent Republics 

(presented by the Commission) 

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Explanatory  memorandum 

On 10 September the Soviet authorities presented the Community  with a 
request  for assistance totalling ECU 5-6 billion.  Requests were also 
addressed to other industrialized  countries. The Council, meeting on 
7 October  1991 to discuss economic and financial affairs, agreed  in 
principle to the granting of the aid covered by this Decision and 
representing the Community's  contribution to an emergency aid package 
coordinated with the other main  industrialized  countries. 

The purpose of this measure is to grant a back-to-back  loan to the USSR and 
its constituent Republics for the purchase of food, agricultural products 
and medical  supplies.  The corresponding  funds will be borrowed  on the 
market by the Commission,  acting on behalf of the European Economic 
Community. 

The initiative will come on top of the assistance to the USSR already 
decided on by the Community,  namely  food aid amounting to ECU 250 million 
and an ECU 500 million credit guarantee. 

At  least  50% of the loan will be allocated to the  financing of  imports  from 
the Community,  the remainder being used to finance imports  from the 
countries of Central and Eastern Europe in so far as the latter are able to 
supply the goods needed.  The aim  is to help restore trade between those 
countries and between them and the USSR. 

Economic  conditions will be attached to the granting of the loan, which 
will be made available to the USSR and its constituent Republics  in three 
successive  instalments.  They may cover  in particular the reform of the 
agri-foodstuffs industry and markets in the USSR. 

The following procedural arrangements will have to be  implemented: 

(a) a Council Decision on the granting of the loan will have to be adopted; 

(b) the granting of the loan will require a token entry  (p.m.) in the 1992 

budget; 

(c) a protocol to the agreement between the Commission  and its Soviet 

partners will have to define accurately the identity of borrowers and 
the necessary guarantees to ensure that the loan is repaid.  The 
detailed  rules and conditions attached to the loan will also have to be 
defined  and  agreed. 

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PROPOSAL FOR A COUNCIL DECISION 

granting a medium-term  loan 
to the USSR and  its constituent  Republics 

THE COUNCIL OP THE EUROPEAN  COMMUNITIES, 

Having regard to the Treaty establishing the European Economic  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 bilateral  links between the Community  and the USSR were 
strengthened  by the cooperation  agreement which entered  into force on 
1 April 1990; 

Whereas the Community  wishes to support the efforts of the USSR and its 
constituent Republics to bring about political reform  and economic 
restructuring; 

Whereas the USSR and its constituent  Republics are facing a critical 
economic and financial  situation; 

Whereas the Soviet authorities have asked the European Community,  the 
United States of America, Japan, Canada and other  industrialized  countries 
for financial assistance to underpin the development  of democratic 
processes within the USSR and its constituent Republics and to help the 
country  face up to the worsening  food and medical  situation;  whereas the 
Soviet authorities have supplied  adequate information on their needs in 
these areas; 

Whereas the granting by the Community  of a medium-term  loan of 
ECU 1 250 million to the USSR and  its constituent  Republics  is an 
appropriate means of providing  food and medical aid and supporting the 
continuation of the economic reforms; 

Whereas the assistance granted pursuant to this Decision  is in addition to 
that already committed  in the form of food aid to the USSR  (direct food aid 
amounting to ECU 250 million and a credit guarantee of ECU 500 million for 
exports of agricultural and food products); 

Whereas Community  assistance to the USSR and its constituent  Republics 

> 

forms part of an overall package which should be based on balanced 
contributions by the main industrialized  countries; 

Whereas provision should be made for measures to ensure that, while not 
compromising  the normal conditions of supply according to the rules of the 
market, the Community  loan is used to finance imports of agricultural and 
food products and medical supplies from the Community  and  from Bulgaria, 
Czechoslovakia, Hungary, Poland, Romania, Lithuania, Latvia, Estonia  (and 
Yugoslavia) in so far as they are able to supply them; 

Whereas exports financed pursuant to this Decision may help to restore 
trade between the countries of Central and Eastern Europe and between those 
countries and the USSR on the basis of transactions being paid  for in 
convertible currencies; 

Whereas the Community  loan 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 grant to the USSR and its constituent  Republics a 
medium-term  loan of not more than ECU 1 250 million  in principal, in three 
successive  instalments and for a maximum duration of five years, in order 
to enable agricultural and food products and medical  supplies to be 
imported  from the Community,  Bulgaria, Czechoslovakia, Hungary,  Poland, 
Romania, Lithuania, Latvia, Estonia  (and Yugoslavia), thereby helping to 
restore trade between the USSR and the countries of Central and Eastern 
Europe. 

2.  The proportion of the loan used to finance imports  from the  Community 
shall be at least 50%, taking account of the possibilities of products 
being supplied by Bulgaria, Czechoslovakia, Hungary, Poland, Romania, 
Lithuania, Latvia, Estonia  (and Yugoslavia). 

Article 2 

To this end, the Commission  is hereby empowered  to borrow, on behalf of the 
European Economic Community, the necessary resources that will be placed at 
the disposal of the USSR and its constituent  Republics  in the  form of a 
loan. 

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Article 3 

The loan shall be managed by the Commission. 

Article 4 

The Community  is hereby empowered to negotiate with the authorities of the 
USSR and its constituent Republics, after consultation with the Monetary 
Committee, the economic and financial conditions to be attached  to the 
loan, the rules governing the provision of funds and the necessary 
guarantees to ensure loan repayment. 

Article 5 

The economic conditions shall relate in particular to the economic  reforms 
in the agri-foodstuffs  industry and markets  in the USSR and  its constituent 
Republics. 

Article 6 

1.  Imports of products  financed by the loan shall be effected  at world 
market prices.  Free competition  shall be guaranteed  for the purchase and 
supply of products, which shall meet  internationally  recognized  standards 
of quality. 

2.  The other detailed rules relating to the purchase, receipt, transport 
and distribution of products from the Community  the importation of which is 
financed by the loan shall be adopted  in accordance with the procedure set 
out in Article 8(2), on the basis of the negotiations between the 
Commission  and the authorities of the USSR and  its constituent Republics. 

The Commission  shall verify at regular  intervals that the  loan conditions 
referred to in Articles 4, 5 and 6 are being  fulfilled. 

Article 7 

Article 8 

1.  The Commission  shall be assisted  in matters coming under Article 6(2) 
by an advisory  committee made up of representatives of the Member  States 
and chaired by the representative of the  Commission. 

2.  The representative of the Commission  shall present to the  committee 
proposals  for the measures to be taken.  The committee  shall deliver  its 
opinion on these proposals within a period which the chairman may determine 
according to the urgency of the matter, where appropriate putting the 
matter to a vote. 

The opinion  shall be recorded  in the minutes; each Member  State shall also 
have the right to request that  its own position be  indicated  in the same 
minutes. 

The Commission  shall take the greatest possible account of the opinion 
delivered by the committee.  It shall  inform the committee  of the manner in 
which it has taken account of that opinion. 

Article 9 

The loan shall be made available to the USSR and its constituent  Republics 
in three successive  instalments, subject to Articles  1 and 7. 

The initial instalment  shall be released as soon as the borrowing 
operations have been  concluded. 

The USSR and its constituent Republics shall be responsible  for repayment 
of the principal and  interest on the basis of the procedures  laid down 
pursuant  to Article 4. 

Article 10 

1.  The borrowing  and  lending operations referred to in Articles  1 and 2 
shall be carried out using the same value date and shall 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 the USSR and its 
constituent Republics so wish, to ensure that an early repayment  clause is 
included  in the loan conditions and can be exercised. 

3.  At the request of the USSR and its constituent Republics, and where 
circumstances permit a reduction in the interest  rate on the loan, 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 duration 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  costs incurred by the Community  in concluding and carrying 
out the operations provided  for in this Decision  shall be borne by the USSR 
and  its constituent Republics. 

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

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Article 11 

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

Done at Brussels, 

For the Council 

The President 

F I N A N C I AL 

R E C O RD 

1.  Budget line concerned 

Item  (BO-2131) medium-term  loan to the USSR and its Republics to be 
created  in the 1992 budget. 

2.  References  (legal base) 

Article 235 of the Treaty 

3.  classification of the Expenditure 

Obligatory 

4.  Description and justification  for the action 

-' 

a)  Description of the action 

Provision  medium-term  loan  to  the  USSR  and  its  Republics  for 
the exportation of  food products  and medical  supplies  from  the 
Community,  Bulgaria,  the  CSFR,  Hungary,  Poland,  Romania, 
Lituania, Latvia, Estonia  (and Yugoslavia) to the USSR and  its 
Republics. 

b)  Justification for the  action 

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- 

The  USSR  has  asked  the  Community  for  financial  assistance 
to support tne development of the democratic process and to 
help  supply  food  products  and  mediaines,  for  which  it  is 
necessary that the Community  grant the required  loan. 

The budget entry  is intended to provide a budgetary  support 
for  the  European  Community  loan  extended  to  the  USSR  and 
its Republics. 

5.  Nature of the expenditure and method of calculation 

a)  Nature of the expenditure 

Possible  financing  of  capital  and  interest  repayments  in  the 
case of default. 

b)  Method of calculation 

A  token  entry  is proposed  given  that  the  amount  and timing  of 
any  call  on  this  budget  line  cannot  be  calculated, .in  advance 
and  futhermore it is to be expected that this budget entry will 
not be called on. 

6.  Effect of the action on intervention  credits 

Only  in the case of an effective call on the budget due to default-

7.  Financing of intervention  expenditure 

Endownroent  of  the  line  by  transfer,  by  reutilisation  of 
reimbursed  amounts  (Article  27(3)  of  the  Financial  Regulation 
of  1977), or by amended and/or supplementary  budget. 

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In  order  to  fulfill  its  obligations,  the  Cocuaitision  can 
provisionally  ensure  the  debt  service  with  funds  ftora  its 
treasury-  In  that  case.  Article  12  of  the  Council  Regulation 
(EEC, Euratom) no. 15S2/89 of 29-5-1989 will apply-

ISSN 0254-1475 

COM(91) 443 final 

DOCUMENTS 

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Catalogue number : CB-CO-91-499-EN-C 

ISBN 92-77-77437-1 

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