REPORT FROM THE COMMISSION TO THE BUDGETARY AUTHORITY ON GUARANTEES COVERED BY THE GENERAL BUDGET-SITUATION AT 31 DECEMBER 1995
Date: 1996-06-05
Institutions: European Commission
Subjects: Community budget, Community loan, EU borrowing, budgetary reserve (EU), report

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

Brussels, 05.06.1996 
COM(96)  243  final 

REPORT FROM THE COMMISSION 

TO THE BUDGETARY AUTHORITY 

ON GUARANTEES  COVERED BY THE GENERAL BUDGET 

SITUATION AT 31 DECEMBER 1995 

This report describes the situation as regards budget guarantees at 31 December  1995. 

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  nine reports to the budgetary authority. 

The report is in three parts: 

1. 

2. 

3. 

Events  since  the  last  report,  the  risk  situation  and  the  activation  of  budget 
guarantees. 

Description  of operations entered  in the budget. 

Assessment of the economic and financial  situation of non-Community  countries 
benefiting  from  the most important operations. 

A 

Contents 

PART  ONE:  EVENTS  SINCE  THE  REPORT  AT  30  JUNE  1995,  THE  RISK 
SITUATION  AND ACTIVATION  OF BUDGET  GUARANTEES 
EVENTS  SINCE THE  REPORT  AT 30 JUNE  1995 

. . . . . . .. 

I. 
LA.  Macrofinancial  assistance to  Ukraine 
I.B. 

European  Investment  Bank  loans  to  the  Mediterranean  countries  guaranteed  by 
the  general  budget 
RISK  SITUATION 

n. 
n.A.  Total  risk 
II.B.  Risk  in  respect  of  the  Member  States 
U.C.  Risk  in  respect  of  non-member  countries 
IE. 
III.A.  EIB loans  to  non-member  countries 
III.B. 

ACTIVATION  OF  BUDGET  GUARANTEES 

BORROWING/LENDING  OPERATIONS  OR LOAN  GUARANTEES 
FOR  NON-MEMBER  COUNTRIES 

PART  TWO:  OPERATIONS  ALREADY  ENTERED  IN  THE  BUDGET 
I. 
LA. 
LB. 
LC. 
II. 

BORROWINGS  TO  BE  ON-LENT  WITHIN  THE  COMMUNITY 
Community  borrowing  operations  to  provide  balance-of-payments  support 
Euratom  borrowing  operations 
Borrowing  operations  for  the  promotion  of  investment  in the  Community 
LOANS  RAISED 
COUNTRIES 

FOR  ON-LENDING  TO  NON-COMMUNITY 

II.A.  Euratom  borrowings  for  certain  non-Community  countries 
II.B. 

Programme  of  borrowings  contracted  by 
macrofinancial  assistance  to  the  countries  of  Central  and  Eastern  Europe 
ILC.  Borrowings  contracted  by  the  Community  to  grant  macrofinancial  assistance  to 

the  Community 

to  provide 

the new  independent  States  of  the former  Soviet  Union 

II.D.  Borrowings  contracted  by  the Community  to  grant  macrofinancial  assistance to 

the Baltic  States 

ILE.  Borrowings  contracted  by  the  Community  to  grant  macrofinancial  assistance to 

the  Mediterranean  countries 
COMMUNITY  GUARANTEE  TO  NON-COMMUNITY  COUNTRIES 

III. 
. .. 
III.A.  European  Investment  Bank  loans  to  Mediterranean  countries  guaranteed  by  the 

general  budget 

III.B.  Loans  granted  by  the  European  Investment  Bank  in  countries  of  Central  and^ 

Eastern  Europe 

IILC.  Loans  granted  by  the  European  Investment  Bank  in  non-member  countries  . . .. 
III.D.  Loans  granted  by  the  European  Investment  Bank  in  South  Africa 

PART  THREE:  CHANGES  IN  POTENTIAL  RISKS 
I. 
LA. 
I.B. 
IL 

TYPES  OF  OPERATION 
Operations  with  macroeconomic  objectives 
Operations  with  microeconomic  objectives 
GENERAL  ECONOMIC 
COUNTRIES 

. 

SITUATION  OF  THE  NON-MEMBER 

1 
1 
1 

1 
1 
2 
2 
3 
4 
4 

4 

6 
6 
6 
6 
6 

7 
7 

8 

11 

13 

14 
15 

15 

16 
17 
17 

18 
18 
18 
18 

19 

W 

A 

STATISTICAL ANNEX 

TABLES OF STATISTICS 
EXPLANATORY NOTES 
ANNEX: DEFINITION OF FIGURES USED IN THE REPORT 

iir 

^ 

PART ONE: EVENTS SINCE THE REPORT AT 30 JUNE 1995, THE RISK SITUATION 
AND ACTIVATION  OF BUDGET GUARANTEES 

I. 

EVENTS SINCE THE REPORT AT 30 JUNE 1995 

I.A.  Macrofinancial  assistance to Ukraine 

As part  of  an  overall  aid  programme  for  Ukraine,  the  Council  Decision  of  23 October  1995 
empowered  the Commission,  on behalf of the Community,  to borrow  ECU 200  million  for  a 
maximum period often  years. The proceeds of this operation are to be on-lent to Ukraine in two 
tranches. 
At 31 December  1995 the first tranche had not yet been paid. 

I.B.  European Investment Bank loans to the Mediterranean countries guaranteed by 

the  general budget 

Council Decisions of 30 October  1995 on the conclusion of protocols on financial  and technical 
cooperation between the Community  and the Republics of Malta and Cyprus. 
Under these protocols, the EIB may commit ECU 30 million and ECU 50 million  respectively 
for  a three-year period  in the form  of loans from its own resources. 

II. 

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 31 December  1995, giving the minimum 
level  of risk to the Community  assuming that there are no early repayments  (see Table 
2 on page 2 of the statistical annex); 

on  a  more  forward-looking  basis,  by'reference  to  all  the  operations  decided-by  the 
Council  or  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  (see Table 3 on page 3 of the statistical annex). 

For the latter  exercise a number of assumptions  have to be made about dates of  disbursement, 
terms of repayment,  interest and exchange rates; 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 tables in the annex (pages  1  to 3), 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 
macrofinancial  assistance and loans for projects guaranteed  by the borrowers  in the case of NCI 
and EIB operations, for example. 

lc 

A 

The following analysis distinguishes between total risk, the risk in respect of Member States and 
the risk in respect of non-member countries. 

H.A.  Total risk 

II. A. 1.  Amount outstanding at 31 December 1995 (see Table 1 on page 1 of the statistical annex) 

The total risk at 31 December  1995 came to ECU  13 114 million, the same as at 30 June 1995. 

II.A.2. Maximum  annual  risk borne by  the  community  budget: operations  disbursed at  31 

December 1995 (see  Table 2 on page 2 of the statistical annex) 

The total risk,  which comes to ECU 3  149 million  in  1996, will develop as follows: 

Year 

1997 

1998 

1999* 

2000 

2001 

2002 

2003 

Annual  risk 
(ECU  million) 
%  change 

3049 

3238 

994 

3481 

776 

600 

360 

-3% 

+6% 

-69% 

+250% 

-78% 

-23% 

^ 0% 

* 

No capital  repayments  for the balance-of-payments  loans to the Member  States; capital 
repayments  on loans to Hungary, the Czech  and Slovak Republics  and Bulgaria end in 
1998. 

II. A. 3.  Maximum theoretical annual risk borne by the community budget (see Table 3 on page 3 

of the statistical annex) 

This risk comes to ECU 3 500 million in  1996 and will increase regularly until 2000 (except in 
1999 when it will total ECU 2 508 million) as follows: 

Years 
Annual  risk 
(ECU  million) 
%  change 

1997 
3858 

1998 
4425 

1999 
2508 

2000 
5267 

2001 
2716 

2002 
4617 

2003 
4783 

+ 10% 

+  15% 

-43% 

+ 110% 

-48% 

+70% 

+4% 

II.B.  Risk in respect  of the Member  States 

II.B.l.  Amount outstanding at 31 December 1995 (see Table 1 on page 1 of the statistical annex) 

The capital outstanding  in respect of operations  in the Member  States was ECU 7 263 million 
at 31 December  1995, a fall of 3.7%  compared  with 30 June 1995. 

This fall  is mainly  due to the reduction  in outstanding  Euratom  loans and NCI loans. 

The amount outstanding from  the other operations has remained  stable. 

A 

ILB.2. Maximum  annual risk borne by  the  Community  budget: operations  disbursed at 31 

December 1995 (see Table 2 on page 2 of the statistical annex) 

The risk for 1996 comes to ECU 2 068 million. 

The total maximum annual risk to the Community budget in relation to disbursements. (Table 2) 
changes in line with  the capital  repayments  (every  two years) on balance-of-payment  loans to 
Greece and Italy. The maximum risk  is highest in the even years up to 2000 when it will reach 
ECU 2 821 million. 

II.B. 3.  Maximum theoretical annual risk borne by the Community budget (see Table 3 on page 3 

of the statistical annex) 

The  trend  is  much  the  same  as  in  Table 2  up  to  2000  when  the  risk  will  amount  to 
ECU 3 215 million. It will fall to ECU 2 370 million  in 2002 and ECU 2  196 million  in 2003. 

n.C.  Risk in respect  of non-member  countries 

//. C.l.  Amount outstanding at 31 December 1995 (see Table 1 on page 1 of the statistical annex) 

The  capital  outstanding  at  31  December  1995  was  ECU 5 851 million,  an  increase  of 5.% 
compared with 30 June 1995-. 

II.C.2. Maximum  annual .risk borne by  the  Community  budget: operations  disbursed at  31 

December 1995 (see  Table 2 on page 2'of the statistical annex) 

The risk for  1996 comes to ECU  1  081 million. 

The risk will  increase in  1997 to ECU  1  586 million  as the following  payments fall due: 

ECU  80" million  from  Hungary; 

ECU  127 million from the Czech Republic; 

ECU 63 million from the Slovak Republic; 

ECU  140 million from Bulgaria; 

ECU 250 million from  Algeria; 

ECU  160 million from Israel. 

ECU  143 million from the Republics of the former  Soviet Union. 

Years 
Annual risk 
(ECU million) 

1997 
1586 

1998 
1178 

1999 
695 

2000 
660 

2001 
670 

2002 
570 

2003 
334 

A 

//. C.3.  Maximum theoretical annual risk borne by the Community budget (see Table 3 on page 3 

of the statistical annex)) 

The risk will rise from ECU  1 263 million in 1996 to ECU 2 057 million in 1997. 

Years 
Annual risk 
(ECU million) 

1997 
2057 

1998 
1942 

1999 
1817 

2000 
2053 

2001 
2269 

2002 
2247 

2003 
2587 

m. 

ACTIVATION  OF BUDGET GUARANTEES 

III.A.  EIB loans to non-member countries 

On  5 July  1995,  the  EIB  called  on  the  budget  guarantee  in  respect  of  loans  of  around 
ECU 8.6 million  to  the  Republics  of  former  Yugoslavia  (the  Former  Yugoslav  Republic  of 
Macedonia - FYROM - and Serbia). The payment was made to the EIB on  11 October 1995. 

On 18 October  1995, the EIB again called on the budget guarantee in respect of loans of around 
ECU 5.2 million  to  the  Republics  of  former  Yugoslavia  (FYROM,  Serbia  and  Bosnia-
Hercegovina). The payment was made to the EIB on 26 January  1996. 

At 31 December  1995 the total amount of debts settled by the Community and not yet repaid by 
the defaulting debtors came to ECU 68.2 million. These debts were owed by all the Republics 
of  former  Yugoslavia  with  the  exception  of  Slovenia  and  Croatia,  which  have  no  payments 
overdue. 

Of  the  ECU 68.2  million  due  but  not  paid,  ECU 28.6 million  was  entered  in  the  budget  in 
respect of the amount owed from before 1994 and a total of ECU 39.6 million was called in  from 
the  Guarantee  Fund  on  11 January  1995 
(ECU 5.3  million),  on  30 January  1995 
(ECU  6.08  million),  on  11 October  1995 
(ECU  14.3 million),  on  24  May  1995 
(ECU 8.6 million)  and on 26 January  1996 (ECU 5.2 million). 

in.B. 

BORROWING/LENDING  OPERATIONS  OR LOAN GUARANTEES 
FOR NON-MEMBER  COUNTRIES 

III.B. 1. 

Payments from cash resources 

The Commission draws on its cash resources under Article  12 of Council Regulation No-4552/89 
of  29 May  1989  implementing  Decision  88/376/EEC,  Euratom  on  the  system  of  the 
Communities* own resources to avoid delays in servicing its borrowing operations when a debtor 
is la,te in paying. 

III.B.2. 

Activation of the Guarantee Fund 

In the event of late payment  by a recipient of a loan granted or guaranteed  by the Community, 
the Guarantee Fund  is called  on to cover the default  within three months of the date on which 
is payment is due. 

Penalty  interest  for  the time between the date on which  cash  resources  are made available and 
the date of activation of the Fund  is drawn from the Fund and repaid to the cash resources. 

A 

In the last  six  months  the  Fund  has  been  called  on to  honour  guarantees  for  the  following 
debtors: 

/ 

' 

Country 

Date 

I  Amount (principal 

Tajikistan 
Georgia 
Georgia 
Kazakhstan 
Georgia 
Armenia 
Tajikistan 
Turkmenistan 
Total 

20.07.95 
20.07.95 
17.10.95 
17.10.95 
21.11.95 
21.11.95 
21.11.95 
21.11.95 

J 

~ 

+" interest) 
1713 431.10 
2  182 277.63 
1471300.30 
835 614.83 
70 931 856.06 
37 996 507.14 
55 692 660.94 
45 850  146.11 
216 673 794.11 

III.B.3. Late repayments 

During  the period  covered  by this  report  the following  country  repaid  debts  on  which  it had 
defaulted  and for which the Guarantee Fund had already been activated. The amounts recovered 
are repaid to the Fund  under  Article 2 of Council Regulation  (EC) No 2728/94 of  31 October 
1994 establishing  a Guarantee Fund for  external  action. 

Country 

Repayment date 

Kazakhstan 

15.11.95 

Amount  (principal 
+  interest) 
835 614.83 

III.B.4. 

Situation as regards unpaid debts at 31 December 1995 

The following  amounts had not been paid  at 31 December  1995: 

Country 

Tajikistan 
Georgia 
Armenia 
Turkmenistan 

Amount  (principal 
+  interest) 
63  181 389.89 
81306 915.94 
37 996 507.14 
45 850 146.11 

"Total 

228 334 959.08 

A 

PART TWO: OPERATIONS ALREADY ENTERED IN THE BUDGET 

The budgetary authority authorized 29 headings with token entries in the 1995 budget to cover 
any payment of guarantees. 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. 

I. 

BORROWINGS  TO BE ON-LENT  WITHIN THE COMMUNITY 

LA.  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  31  December  1995  there  was  one  operation  in  respect  of  Greece  under  the  decision  of 
4 March  1991 and one operation  in respect of Italy under the decision of  18 January  1993. 

At 31 December  1995 the amount outstanding was ECU  1 000 million  in loans to  Greece and 
ECU 4 045 million  in loans to Italy (Table  1  on page  1  of the statistical annex). 

I.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.  The  amount  borrowed  comes  to  around 
ECU 2 900 million,  leaving ECU  1 100 million  which may still  be raised. 

At 31 December  1995 the total outstanding was ECU 720 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. 

The Council  adopted  a decision to this effect  on 21 March  1994 (see Part II - Loans raised  for 
non-Community  countries). 

I.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 men raised by ECU  1 billion by the Decision of 15 March  1982. The ceiling was further 

A-

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 EIB, 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 31 December  1995 the total  outstanding  was  ECU  1 113 million,  29.11%  less  than  on 31 
December  1994. 

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 appeared  on this list. 

II. 

LOANS RAISED FOR ON-LENDING  TO NON-COMMUNITY  COUNTRIES 

II.A.  Euratom borrowings  for certain non-Community countries 

On  21 March  1994  the  Council  decided  to  amend  Decision 77/270/Euratom  to  authorize  the 
Commission to contract Euratom borrowings in order to contribute to the financing  required  for 
improving the degree of safety  and  efficiency  of nuclear power stations  in certain  non-member 
countries. 

This Decision  will  allow  a considerable proportion  of Euratom's  available borrowing  capacity 
(some ECU  1 100 million) to be used to finance projects.  For these projects  to be eligible they 
must relate to: 

nuclear power stations or installations  in the nuclear fuel  cycle which  are in service, or 
under  construction; 

or to the dismantling of installations which cannot be brought up to standard for technical 
or economic reasons. 

The following  non-member  countries  qualify: 

Republic of Bulgaria 
Republic of Hungary 
Republic of Lithuania 
Romania 
Republic of Slovenia 

A 

Czech Republic 
Slovak Republic 
Russian Federation 
Republic of Armenia 
Ukraine 

The idea of international financial aid for the closure of the Chernobyl nuclear power plant was 
entered in the conclusions of both the Corfu European  Council of 24 and 25 June 1994 and the 
G7 summit at Naples on 7 and 8 July 1994. 

II.B.  Programme of borrowings contracted by the Community to provide 

macrofinancial  assistance to the countries of Central and Eastern Europe 

II.B.l.  Hungary 

Hungary I 

n.B.l(a) 
In  1990 the  Community  granted  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. 

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  has  not  been  paid  out  as  Hungary's  balance of 
payments has been 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. 

Hungary repaid the first tranche of ECU 350 million  in full  on 20 April 1995. 

n.B.l(b) 

Hungary II 

As me 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, the Council 
decided  to  grant  additional  macrofinancial  assistance  to  Hungary  in  the  form  of  a  loan  of 
ECU  180 million under a general  G-24 programme of financial  assistance. 

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  paid  on  15 January  1993.  It  will  be  repaid  in 
January  1997 and  interest,  which is at a fixed rate, is payable annually. 

At  31  December  1995  the  amount  outstanding  on  borrowings  for  Hungary  came  to 
ECU 440 million. 

ILB.2.  Czech Republic and Slovak Republic 

As  part  of  G-24's  overall  financial  assistance,  the  Commission,  on  behalf  of  the 
Community, was 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. 

A 

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. 

Under  the  Council  decision  of  24 January  1994,  two  thirds  of  the 
loan  -
ECU  250  million - will  be for the Czech Republic and one third - ECU  125 million - for 
the Slovak  Republic. 

At 31 December  1995 the amount outstanding on borrowings for  the two republics  came 
to  ECU  375  million. 

Slovak  Republic 

As  part  of  the  new  financial  assistance  to  the  Slovak  Republic,  the  Commission,  on 
behalf  of the  Community,  was  empowered  by  a Council  decision  of  22  December  1994 
to borrow,  in two tranches,  ECU  130 million  for  a period  of seven  years. The proceeds 
of this  operation  were to  be  on-lent  on the same terms  to  Slovakia. 

This  assistance  has  not  been  implemented  because  of the  delay  in  structural  reforms  in 
these  countries.  Furthermore,  there  has  been  a  distinct  improvement  in  the  Slovak 
Republic's  balance  of  payments  and  currency  reserves  since  October  1995.  The 
Commission  has therefore submitted to the Council a proposal to cancel the medium-term 
loan  authorized  by  Decision  94/939/EC  of 22  October  1994. 

II.B J.  Bulgaria 

II.B.3(a) 

Bulgaria  I 

As part of G-24's overall financial  assistance, the Commission,  on behalf of the Community,  was 
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. 

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  five  years.  Interest,  which  is at  variable  rates,  is payable  half-yearly. 

II.B.3(b) 

Bulgaria  II 

As  part  of  G-24's  new  aid  for  1992  and  1993, the  Commission,  on  behalf  of  the  Community, 
was  empowered  to  borrow  ECU  110 million  in  two  tranches  for  a  maximum  period  of  seven 
years.  The  proceeds  of  this  operation  were  to  be on-lent  to  Bulgaria.  Because  of  delays  in  the 
process  of  economic  reform  in  Bulgaria,  implementation  of  this  operation  was  deferred  until 
December  1994 when  the  first  tranche  of ECU  70  million  was  finally  paid.  It  will  be repaid  in 

A 

one instalment on 7 December 2001 and the interest, which is at variable rates, is payable half-
yearly. 

At  31  December  1995  the  amount  outstanding  on  borrowings  for  Bulgaria  came  to 
ECU 360 million. 

II.B.4.  Romania 

II.B.4(a) 

Romania I 

As part of G-24's overall financial assistance, the Commission, on behalf of the Community, was 
empowered to borrow ECU 375 million in two tranches for a maximum 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  in April  1992 and will 
be repaid  in one  instalment  on  18 March  1998. Interest,  which  is at variable  rates,  is payable 
half-yearly. 

II.B.4(b) 

Romania II 

As part of G-24's  new aid, the Commission,  on behalf of the Community,  was empowered  to 
borrow  ECU 80 million  for  a maximum  period  of seven years. The proceeds of this operation 
were to be on-lent on the same terms to Romania. 

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. 

II.B.4(c) 

Romania HI 

As part of G-24's new overall macrofinancial  aid, the Commission, on behalf of the Community, 
was empowered  by the Council  Decision  of 20 June  1994 to borrow  ECU  125 million  in two 
tranches  of  ECU 90 million  and  ECU 35 million  for  a maximum  period  of  seven  years.  The 
proceeds of this operation  are to be on-lent on the same terms to Romania. 

The first tranche of ECU 55 million for a term of seven years was paid on 20 November  1995. 
It will be repaid in one instalment on 20 November 2002, and interest, which is at variable rates, 
is payable half-yearly. 

The second  tranche had not yet been paid at 31 December  1995. 

10 

A 

At  31  December  1995  the  amount  outstanding  on  borrowings  for  Romania  came  to 
ECU 510 million. 

n.C.  Borrowings contracted by the Community to grant macrofinancial  assistance to 

the new independent States of the former Soviet Union  . 

II.C.l  Medium-term loan of ECU 1 250 million 

In December  1991 the Council decided to grant a credit facility of up to ECU  1 250 million for 
the Soviet Union and its Republics in order to finance imports of agricultural products,  foodstuffs 
and medicines from  the Community  and Eastern Europe for  a maximum  period of three years. 

After  the Soviet  Union  broke up,  the loan  was divided  between  the various  new  independent 
States at the beginning of 1992. 

U.C. 1(a) 

Loan contracts signed on the basis of the original  breakdown 

Most of the loan contracts were signed  in the course of 1992: 

(ECU 38 million),  Kyrgyzstan 

with  Armenia 
(ECU 32 million),  Turkmenistan 
(ECU 45 million)  and  Moldova  (ECU 27 million)  on  10 July  1992;  the  amount  for 
Kyrgyzstan has since been reduced to ECU 23.7 million at the request of the Kyrgyzstan 
authorities; 
with Ukraine (ECU  130 million) on  13 July  1992; 
with  Belarus 
(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; 

(ECU 55 million)  and  Georgia 

(ECU  102 million),  Tajikistan 

n.C.1(b) 

Loan contracts signed on the basis of the amended  breakdown 

Some loan contracts were also signed in  1993 after  the initial breakdown of the total amount of 
the loan had been changed: 

On 5 May  1993 two further  contracts were signed  with Armenia  (ECU 20 million) and 
Georgia  (ECU  10 million).  The amount  represented  by these two loans had  originally 
been allocated to Kazakhstan. 

On  6 December  1993  a  further  loan  contract  of  ECU 40 million  was  signed  with 
Georgia. This loan was financed  by reducing Uzbekistan's  allocation. 

On 14 September  1994 a contract for ECU 59 million was signed  with Uzbekistan. 

On  12 October  1994 a contract for  ECU 68 million  was signed  with  Azerbaijan. 

11 

A 

n.C. 1(c) 

Utilization of the ECU  1 250 million loan 

Loans 

Initial breakdown 
(1992) 

Breakdown at 
31.12.1995 

Actual utilization at 
31.12.1995 

Armenia a 
Armenia b 
Azerbaijan 
Belarus 
Georgia a 
Georgia b 
Georgia c 
Kazakhstan a 
Kazakhstan b 
Kyrgyzstan 
Moldova 
Russia a 
Russia b 
Tajikistan 
Turkmenistan 
Ukraine 
Uzbekistan 

Total 

38 

68 
102 
70 

55 

32 
27 
150 
349 
55 
45 
130 
129 

38 
20 
68 
100.5 
70 
10 
40 
25 
0 
23.7 
27 
72.9 
349 
55 
45 
129.8 
59 

37.9 
19.6 
50.3 
100.5 
69.4 
9.8 
34.1 
24.9 

22.7 
27.0 
70.0 
299.7 
54.5 
44.9 
129.8 
58.8 

1250 

1132.9 

1053.9 

At 31 December  1995 the amount of loans actually being used came to ECU  1053.9 million. 

n.C. 1(d) 

Capital  repayment  and  interest payment dates 

The capital repayment and  interest payment dates for this operation vary depending on the date 
on which the loan contract was signed  and the amount of the loan: 

Armenia (ECU 38 million), Belarus, Georgia (ECU 70 million), Kyrgyzstan, Moldova, 
Tajikistan,  Turkmenistan,  Ukraine, Russia (ECU  150 million): 

interest on 20 April  and 20 October 
capital on 20 August  1995 (half on 20 August  1994 and half on 20 August  1995 
for  Belarus,  Ukraine and Russia) 

Armenia  (ECU 20 million),  Kazakhstan, Russia (ECU 349 million),  Georgia-(ECU 10 
million  and ECU 40 million): 

interest on  15 January  and  15 July 
(half  on  15 January  1995  and  half  on 
capital  on  15 January  1996 
15 January  1996 for Russia and 15 January  1997 for Georgia (ECU 40 million)). 

Azerbaijan  and  Uzbekistan: 

interest on 28 March and 28 September 
capital  on 28 September  1997. 

At 31 December  1995 Georgia, Armenia, Turkmenistan and Tajikistan had defaulted on principal 
and  interest  totalling  ECU 228.33 million  (see  Part One,  Section  III -  Activation  of  budget 
guarantees). 

12 

A 

ILC.2  Macrofinancial assistance for Moldova 

As  part of  the  Community's  contribution  to  the  international  aid  scheme  for  Moldova,  the 
Commission,  on behalf of the Community,  was empowered by a decision of  13 June 1994 to 
borrow ECU 45 million in two tranches for a maximum period often years. The proceeds of this 
operation were to be on-lent on the same terms to Moldova. 

The first tranche of ECU 25 million was paid to Moldova in December  1994. The loan is to be 
repaid in five equal annual instalments from the sixth year onwards. The full loan will have been 
paid by 7 December 2004. The interest,  which  is at variable rates, is payable half-yearly. 

The second tranche of ECU 20 million for  a term of  10 years was paid on 8 August  1995. The 
loan is to be repaid  in five equal annual instalments from the sixth year onwards. The full  loan 
will have been paid by 8 August 2005. The interest, which is at variable rates, is payable half-
yearly. 

At  31  December  1995  the  amount  outstanding  on  borrowings  for  Moldova  came  to 
ECU 45 million. 

IL C.3  Macrofinancial assistance for Ukraine 

As part of the overall aid programme for Ukraine, the Commission, on behalf of the Community, 
was empowered  by the Council  Decision of 22 December  1994 to borrow ECU 85 million  for 
a maximum period  often  years. The proceeds of this operation  are to be on-lent to Ukraine in 
one tranche. 

The loan was paid  in one tranche on 28 December  1995. The loan is to be repaid  in five equal 
annual  instalments  from  the  sixth  year  onwards.  The  full  loan  will  have  been  paid  by  28 
December 2005. The interest,  which  is at variable rates, is payable half-yearly. 

At  31  December  1995  the  amount  outstanding  on  borrowings  for  Ukraine  came  to 
ECU 85 million. 

//. C. 4  Macrofinancial assistance for Belarus 

As part of the overall aid programme for Belarus, the Commission, on behalf of the Community, 
was empowered  by a Council  decision of  10 April  1995 to borrow up to ECU 75 million  for a 
maximum period often  years. The proceeds of this operation were to be on-lent in twojtranches 

The first tranche of ECU 30 million was paid on 28 December  1995 and is to be repaid  in five 
equal annual  instalments from the sixth year onwards. The full  loan will have been paid by 28 
December 2005. The interest,  which  is at variable rates, is payable half-yearly. 

At  31  December  1995  the  amount  outstanding  on  borrowings  for  Belarus  came  to 
ECU 30 million. 

II.D.  Borrowings  contracted  by the Community  to grant  macrofinancial  assistance to 

the Baltic States 

As part of the G-24's  overall  programme  of  financial  assistance for  these three countries,  the 
Commission,  on behalf  of the Community,  was empowered  to borrow  ECU 220 million  for  a 

13 

f\ 

period of seven years. The proceeds of this operation were to be on-lent on similar 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 repaid  in one instalment on 31 March 2000 and 
interest, which is at variable rates, is payable half-yearly  every 31 March and 30 September. 

The first tranche of ECU 50 million for  Lithuania was paid on 27 July  1993; it is to be repaid 
in one instalment on 27 July 2000 and interest, which is at a fixed  rate, is payable annually every 
27 July. 

Half  of  the second  tranche,  ie.  ECU 25 million  of  the  ECU 50 million  planned,  was  paid  to 
Lithuania  on  16 August  1995;  it  is  to  be  repaid  in  one  instalment  on  16 August 2002  and 
interest, which  is at a variable rate, is payable half-yearly  every  16 February  and  16 August. 

At 31 December  1995 the amount outstanding on the borrowings  for  the Baltic States  came to 
ECU  135 million. 

ILE.  Borrowings contracted  by the Community  to grant  macrofinancial  assistance to 

the Mediterranean  countries 

ILEA. Israel 

As part of the financial  assistance agreed for Israel and the population of the occupied territories, 
the  Commission  was  empowered  in  June  1991  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. 

At  31  December  1995  the  amount  outstanding  on  the  borrowings  for  Israel  came  to 
ECU  160 million. 

_ 

II.E.2.  Algeria 

In September  1991 the Commission,  on behalf  of the Community,  was empowered  to  borrow 
ECU 400 million  in two tranches for  a maximum  period  of seven  years. 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 of ECU 250 million 
and  was  repaid  from  the  net  proceeds  of  the  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. 

14 

A: 

Payment of the second tranche of ECU 150 million was deferred because of delays in AJgeria's 
economic reform programme and was not made until August 1994 when the process of structural 
adjustment resumed. The loan is to be repaid in full on 17 August 2001 and interest is payable 
annually every 17 August. 

In December  1994 the Council decided to grant Algeria further macrofinancial  assistance. The 
Commission,  on behalf of the Community,  was empowered  to borrow ECU 200 million  for a 
maximum period of seven years. The proceeds of this operation are to be on-lent to Algeria in 
two tranches. 

The first tranche of ECU  100 million for a term of seven years was paid on 27 November 1995. 
It is to be repaid in one instalment on 27 November 2002 and interest, which is at a variable rate, 
is payable half-yearly. 

At  31  December  1995  the  amount  outstanding  on  the  borrowings  for  Algeria  came  to 
ECU 500 million. 

III.  COMMUNITY  GUARANTEE TO NON-COMMUNITY  COUNTRIES 

m.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. 

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  in accordance with the Council Decision of 7 October 1975. 

A new extension of the contract of guarantee is established  for  each new Financial  Protocol. 

loans  authorized  at  31  December  1995 

The 
total  ECU 7 862 million,  of  which 
ECU  1  500 million  is  for  Spain,  Greece  and  Portugal  and  ECU 6 362 million  for  the 
non-member Mediterranean countries. At 31 December  1995 the total of outstanding loans came 
to  ECU 2  167 million  (taking  account  of  the  75%  limit),  of  which  ECU 385 million  was 
accounted  for  by  Spain,  Greece  and  Portugal  and  ECU  1  782 million  by  the  non-member 
Mediterranean countries. 

There is also provision  for  EIB  loans outside these protocols  under  Council  Regulation  (EEC) 
No  1763/92 of 29 June  1992  concerning  financial  cooperation  in respect  of  all  Mediterranean 
non-member  countries. 

EIB loans under this operation  must  not exceed  ECU  1 800 million.  A 75% overall  guarantee 
is provided. 

15 

A 

At 31 December  1995 ECU  1 239  million had been made available; of this total, ECU  98  million 
had  been  paid;  this  figure  corresponds  to the  amount  currently  outstanding. 

At 31 December  1995, the breakdown of authorizations by country (non-member  countries only) 
was  as  follows: 

ECU  Million 

Algeria 
Cyprus 
Egypt 
Israel 
Jordan 
Lebanon 
Malta 
Morocco 
Slovenia 
Syria 
Tunisia 
Turkey 
Yugoslavia1 

Loans  authorized 
640 
142 
802 
215 
198 
222 
85 
517 
150 
323 
418 
90 
760 

Protocols  - Total 

Horizontal  financial  cooperation 

Mediterranean  - Total 

4  562 

1 800 

6  362 

The  loans  are  generally  for  15 years  with  3 to  4-year  periods  of  grace  on  capital  repayments. 

III.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 
covering  100%  of  the  lending  operations  was  signed  on  24  April  1990  in  Brussels  and 
14 May  1990  in  Luxembourg. 

On  14 May  1991  the  budgetary  authority  extended  this  100%  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 
100%  Community  guarantee to losses  incurred  by the EIB as a result of loans granted  to Estonia, 
Latvia  and  Lithuania;  this  was  approved  by  the  budgetary  authority  in  its  decision  of 
15 March  1993. 

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. 

The second  protocol  with  Yugoslavia  was suspended  when  ECU  100  million  of  credits  could  still  be 
granted. 

16 

ft 

On 18 December  1992 the Commission also proposed the extension of this  100% guarantee to 
losses incurred by the EIB as a result of loans granted in Albania. 

On 13 December  1993 the budgetary authority renewed the 100% Community guarantee for a 
period of three years for loans granted by the EEB in the countries of Central and Eastern Europe 
(including the Baltic States and Albania) up to a maximum of ECU 3 billion. 

The contract of  guarantee  was signed  on 22 July  1994 in Brussels  and  on  12 August  1994 in 
Luxembourg. 

The loans  are generally  long-term:  15 years  on average with  3 to 4-year  periods  of  grace on 
capital repayments. 

At 31 December  1995, ECU 3 541 million had been made available in the Central  and Eastern 
European countries but only ECU 952 million had been disbursed. 

III.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 the extension of EIB activities outside the Community 
and  asked  it  to  grant  loans  in  accordance  with  its  Statute and  its  usual  criteria  to  projects  of 
mutual  interest  in  certain  non-member  countries  (the  developing  countries  of  Asia  and 
Latin America) with  which the Community  has concluded  cooperation agreements. 

An overall limit 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  100%  Community  budget  guarantees.  The Commission  presented  a 
proposal for a decision to this effect  on 3 June  1992. The formal  Council Decision followed  on 
15 February  1993. The contract of guarantee between the Community  and the EIB was signed 
on 4 November  1993 in Brussels and on  17 November  1993 in Luxembourg. 

At  31  December  1995  credit  lines  of  ECU 607 million  had  been  signed  but  only 
ECU  149 million  had been disbursed. 

III.D.  Loans granted by the European Investment Bank in South Africa 

At its meeting of  1  June  1995 the Council  adopted the guidelines proposed by the Commission 
for the extension of EIB activities to South Africa  and asked it to grant loans in accordance with 
its Statute and  its usual  criteria to projects  of mutual  interest  in that country. 

An overall limit of ECU 300 million has been set for a two-year period which could be extended 
to two and a half years. 

These loans  benefit  from  100%  Community  budget  guarantees.  The Commission  presented  a 
proposal for a decision to this effect on 5 December  1994. The formal Council Decision followed 
on  1  June  1995. The contract of guarantee between the Community  and the EIB was signed on 
4 October  1995 in Brussels and on  16 October  1995 in Luxembourg. 

At 31 December  1995 credit lines of ECU 45 million had been signed but no amounts had been 
disbursed. 

17 

f\ 

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. 

I.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. 

Macrofinancial  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  former 
Soviet  Union,  since  the  risk  involved  in  these  two  operations  depends  to  a  large  extent  on 
macroeconomic  and political  developments  in the recipient countries. 

I.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, certain non-member countries -
developing countries of Asia and Latin America and South  Africa). 

A 

IL 

GENERAL ECONOMIC SITUATION OF THE NON-MEMBER 

COUNTRIES 

A.  ALGERIA 

1.  GENERAL  ECONOMIC  SITUATION 

Despite  some  progress  accomplished  in  the  field  of  stabilization  and  structural 
adjustment  in  both  1994  and  1995,  Algeria's  general  social  and  economic  situation 
remained  difficult.  The future  pace of economic growth,  output  recovery,  expansion in 
domestic  and  foreign  investment,  structural  reforms  and  the  implementation  of 
effective  social  and  labour  policies  would  critically  depend  upon  the  on-going 
democratizatization  process, associated with a positive outcome of current civil  strife. 

In  1994 real GDP increased  by a modest  1.1%  (which,  however,  favourably  compares 
with  a  2%  decline  in  1993).  According  to  preliminary  estimates,  in  1995  real  GDP 
increased by 5.3%. 

In  1994/95, Algerian economy witnessed  new, relevant  inflationary  pressures  (year-on-
year  CPI  inflation  was  34% in  April  1995),  reflecting  the  previous  implementation  of 
price  liberalization  policies,  associated  with  subsidy  reduction  and  the  dinars'  sharp 
depreciation  (40.17%)  decided  in April  1994. The inflation  rate  is projected  to  decline 
to  10.3% by the end of March  1996. 

The overall budget  deficit  sharply contracted  from  8.7%  in  1993 to  2.8% in  1995 and 
it  is  expected  to  further  decline  to  1.3%  of  GDP  in  1996,  reflecting  higher  revenue 
from indirect  taxation  and  custom  duties, the  enlargement  of the tax  base,  and  further 
cuts in public wages  and  salaries, food  subsidies,  agricultural  price  support,  Treasury's 
financing  of the Industrial Rehabilitation Fund and cash transfer  to the poor. 

In  1994/1995, the  Algerian  authorities  implemented  tight  monetary  and fiscal policies, 
in the  framework  of  a policy  programme  supported  by  an IMF  Stand-by  arrangement 
approved  in May  1994, followed  by a three-year Extended Financing Facility approved 
in  May  1995.  Economic  policies  also  emphasised  wage  restraint.  Market-based 
instruments for the management  of domestic liquidity are being adopted. 

These  policies  were  complemented  by  a  large  depreciation  of  the  Algerian  dinar,  the 
introduction  of  an  exchange  rate  regime  based  upon  a  managed  floating  mechanism, 
the  strengthening  of  the  external  reserve  position,  price  liberalization  and  subsidy 
reduction.  Imports  have  been  completely  liberalized  and  State  import  monopolies  are 
being gradually  dismantled. 

Progress  was  also  made  in structural  adjustment,  in particular,  and  banking  reform.  A 
new  Code  on  Foreign  Investment  has  been  approved  and  a  new  agency  aimed  at 
promoting foreign  and domestic private investment has been established. 

2. 

BALANCE OF PAYMENTS 

The  adoption  of  import  liberalization  policies  associated  with  a free  access to  foreign 
currency  for  current  account  transactions  by residents  led  to  a  sharp  deterioration  of 

19 

A 

Algeria's current  account balance which shifted from a surplus of  1.6%  of GDP in  1993 
to a deficit  of 6.9% in the  1994/1995 programme year. The current  account  situation is 
expected  to  remain  precarious  with  a  projected  deficit  of  5.7%  of  GDP  in  1995/96. 
While  imports  have  been  buoyant,  thus  contributing  to  alleviate  the  scarcity  of 
industrial  spare  parts,  raw  materials  and  basic  and  intermediate  consumption  goods, 
export  revenue  declined  somewhat  in both  1994  and  during  the  first  quarter  of  1995 
reflecting  the  unsatisfactory  performance  of  hydrocarbon  exports  (both  in  terms  of 
quantities  and  prices).The  sharp  nominal  devaluation  of  the  dinar  has  improved 
Algerian  exports'  competitiveness  and  will  encourage  export  diversification  towards 
new products and new markets. 

The  overall  balance  of  payments  situation  in  1995  is  estimated  to  have  sharply 
deteriorated  if  compared  to  the  previous  year,  reflecting  a  growing  trade  deficit  and 
the"  residual"  (after  Paris  and  London  Club  arrangements)  servicing  of  medium-long 
term external debt. 

In this respect,  new Paris and London Club reschedulings are envisaged  as well as new 
financing by the  IMF,  other  IFIs,  the  European  Union  and  other  bilaterals  (Japan  in 
particular). In  1995, FDI is expected to remain low. By  September  1995, the  country's 
foreign  currency  reserves decreased  to US$  1.9  bn,  equivalent  to  2 months  of  imports 
(against US$ 2.6 bn by end of  1994, or 2,9 months of imports). 

3. 

EXTERNAL  DEBT 

The amount  of  external  debt  (some  US$  33.8 bn  as of end  of  1995)  still  represents  a 
heavy  burden  for  Algeria's  public  finances  and  balance  of  payments.  Rescheduling 
arrangements  with  Paris  Club  official  bilateral  creditors  were  reached  in  1994  and 
1995.  These  arrangements  are  expected  to  continue  in  the  framework  of  the  IMF 
three-year  policy  programme.  Algerian  authorities  reached  also  an  arrangement  with 
commercial creditor banks (London Club) which implies a rescheduling  of debt  service 
obligations falling due from March  1, 1994 to December  31,  1997 (US$ 3.2 bn). 

The  foreign  debt/GDP  ratio  (which  was  around  78%  at  end  of  1995)  is  expected  to 
remain  relatively  stable  in  the  foreseeable  future.  Debt  service/exports  ratio  (which 
declined dramatically from 82% in  1993 to around  50% in  1995) is projected  tojiirther 
slim down  to  about  40%» in  1996,  reflecting  the  positive  impact  of  London  and  Paris 
Club debt relief arrangements. 

20 

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B. 

BELARUS 

1.  GENERAL  ECONOMIC  SITUATION 

Owing  to  conservatism  and  doubts  on  the  nature  of  future  ties  with  Russia  Belarus 
went  through  a  period  of  high  uncertainty  after  it  became  independent  in  1992.  The 
country  embarked  on  reforms  after  most  countries  in  the  region  and  left  the  Russian 
ruble zone only in April  1994. A considerable drop  of production  (-20%) was  recorded 
in  1994,  and  in  1995  real  GDP  is  estimated  to  have  declined  by  7%.  Price  increases, 
owing  to  central  bank  unlimited  refinancing  of  the  banking  system,  reached  hyper-
inflationary  levels in  1993 and  1994. 

Stringent  stabilisation  policies were implemented  as of early  1995, with  a tight  control 
of  monetary  expansion.  As  a  result,  inflation  dropped  down  from  40%  per  month  in 
January to  3% in August.  Market  mechanisms for  the allocation of central bank  credits 
were  introduced.  The  authorities  pursued  a  flexible  interest  rates  policy  aimed  at 
maintaining  positive  and  attractive  real  interest  rates,  so  as  to  mobilise  ruble  deposits 
within the banking  system.  The budget  deficit,  which  remained  below  2% in  1993 and 
1994, is estimated  at 3.2% of GDP for  1995. 

Progress  in  the  area  of  structural  reforms  remains  the  weak  point  in  Belarus,  as  the 
initial  steps  have  been  undertaken  only  recently.  Significant  price  adjustments  took 
place in late  1994 and  early  1995  and  most  prices  have  now  been  freed.  Most  import 
licences  and  the  surrender  requirements  on exports  have now been  abolished.  External 
trade  however  remains  subject  to  some  limitations.  The  banking  sector  is  burdened 
with  bad  loans  and  remains  globally  inefficient.  Inter-enterprises  arrears  account  for 
more than  50% of  GDP.  Privatisation  is only  at  the very  initial  stage,  with  enterprises 
representing  only  6%  of  the  total  asset  value  earmarked  for  privatization  having 
already  been  privatised.  The  process  of  reforms  in  agriculture  has  been  particularly 
slow and land privatisation has not yet  started. 

On  12 September  1995, the IMF board  approved  the first Stand-By  Arrangement  with 
Belarus, to  support the country's programme of reforms  and external financing needs. 

2. 

BALANCE  OF  PAYMENTS 

The  current  account  was  in  deficit  in  1993  and  1994  (about  -10%  of  GDP).  Initial 
figures  for  1995  show  a  significant  growth  of  exports  over  the  first  half  of  the  year. 
The real appreciation  of the ruble, combined  with  a loss of competitiveness  due to  the 
rise  in  import  tariffs,  is  however  expected  to  hamper  export  growth  over  the  short 
term,  and  a  current  account  deficit  of  -4%  of  GDP  is  still  estimated  for  1995  and 
expected in  1996. 

Owing to  hard  currency  inflows  the  capital  account  was  in  surplus  in  the  first  half  of 
1995 but,  on account  of high amortisation  needs on the external  debt,  it is estimated  to 
have  again  been  in  deficit  in the  second  half  of  the  year.  Hard  currency  international 
reserves remain tight, representing only about  1.5  months of imports by end-1995. 

21 

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Despite  a  law  on  foreign  investment  enacted  in  1992  which  ensures  the  free 
repatriation of profits,  foreign  direct  investment  remains extremely  scarce (estimated  at 
only 20 mio dollars in 1995). 

The  positive  real  interest  rates  contributed  to  stabilise  the  Belarus  ruble  in  nominal 
terms  and  led  to  a  significant  appreciation  in  real  terms  against  the  dollar  and  the 
Russian  ruble  in  1995.  Under  a  two  digit  inflation  rate,  the  present  exchange  rate 
would  however  be  difficult 
to  hold  without  serously  damaging  the  country's 
competitiveness. 

By lifting  restrictions on foreign  exchange transactions, Belarus progressively  moved in 
1995  to  current  account  convertibility.  By  end-1995,  however,  the  authorities  gave 
confusing  signals  on  a  reintroduction  of  limitations  on  inter-bank  hard  currency 
transactions. 

3. 

FOREIGN  DEBT 

Belarus  has  abandoned  to  Russia  its relative  share of assets  and  liabilities  of the  FSU. 
Thus, the country's  only external  debts are those  contracted  after  1 January  1992.  The 
total  external debt was estimated  at US$ 2.1 bn by end-1995 (i.e. 22% of GDP). 

The  country's  main  creditor  is  Russia,  on  account  of  gas  arrears  which  accumulated 
until end-1994 and  which  are now  subject  to  a US$ 419  mio  ceiling under  the  current 
IMF programme, which was however  exceeded  by end-1995. They  are expected  to  be 
phased  out  under  a  long-term  framework  currently  under  discussion  between  the 
Russian  and  Belarus  authorities.  Debt  service increased  significantly  in  1995  owing  to 
the  repayment  of  German  and  EC  credits,  but  remained  nevertheless  moderate  (7.6% 
of exports, without including the settlement  of the gas arrears). 

22 

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C.  BULGARIA 

1.  GENERAL  ECONOMIC  SITUATION 

In  1995, the Bulgarian  economy  consolidated  the recovery  which  had  started  in  1994. 
Real  GDP  increased  by  2.5%  and  this  positive  real  trend  essentially  reflected  a 
favourable  export  performance,  despite  the  steady  real  appreciation  of  the  lev.  In 
September  1995, the unemployment  rate further  declined  to  11.1%  (which  favourably 
compares with a rate of around  13% as of end of 1994). 

In  1995,  inflation  fell  to  an  annual  rate  of  33%,  despite  the  increase  of  some 
administered  prices (energy in particular). 

Implementing  a tight  monetary  policy  in  1995 was made more difficult  by large capital 
inflows  which  exerted  upward  pressures  on  the  lev  exchange  rate.  The  Bulgarian 
National  Bank  (BNB)  intervened  with  a  view  to  preventing  a  nominal  currency 
appreciation.  Official  interest  rates were cut in order to contain interest-sensitive  (short 
-term)  capital  inflows.  However,  despite  efforts  to  keep  monetary  aggregates  under 
control,  the  1995  monetary  targets  were  exceeded.  The  BNB's  room  for  manoeuvre 
was  also  limited  by  the  still  huge  liquidity  requirements  of  the  State  budget,  ailing 
banks and loss-making,  state-owned  enterprises. 

A moderately  restrictive  incomes  policy  helped  the  government  in its  effort  to  subdue 
inflation.  As regards fiscal policy, in May  1995, the government  adopted  a new budget 
law  which  implied  a budget  deficit  of  5.5%  of  GDP  for  1995.  However,  preliminary 
indications  suggest  that  the  deficit  reached  6.7%  of  GDP  last  year,  a  level  virtually 
unchanged  from  1994 (6.6%). 

As  for  sectoral  adjustment  and  reform,  achievements  in  1995  were  mixed.  On  the 
negative  side,  some  restrictions  on  agricultural  land  sales  to  private  owners  and  new 
price controls have been introduced.  On the other hand,  some administered  prices have 
been  increased,  action  has  been  taken  to  reform  two  ailing  banks  and  a  list  of  more 
than  1200  state  owned  enterprises  (SOEs)  has  been  prepared  in  view  of  their 
subsequent  mass privatization  (via issuing vouchers)  due to  start  in March  1996.  Some 
further  200  medium-large  SOEs  have been  selected  for  privatization  (via  direct  sales) 
in 1996. 

Current  policies  aimed  at  coping with financial  problems of the banking  system  do  not 
seem to have produced  tangible results yet. 

As regards official  forecasts  for  1996, real GDP is projected  to expand  by 3%, inflation 
to  decline to  20-25%, the budget  deficit  is envisaged  to  contract  somewhat  to  around 
5-5.5%)  and  the  country's  external  position  (trade  and  current  account,  foreign 
exchange reserves  etc.)  is expected  to  improve.  However  both  the  inflation  target  and 
the  projected  trade  and  current  account  improvements  appear  to  be  rather  uncertain 
and probably are unrealistic. 

23 

\ 

2. 

B A L A N CE  OF  P A Y M E N TS 

By September  1995, Bulgaria's trade balance recorded  a surplus  of US$  300  mio.  The 
country  continued  to  benefit  from  increased  access  to  EU  market,  the  economic 
recovery  in Western  Europe,  the  resumption  of  trade  with  eastern  European  partners 
and the positive effects  of the real exchange rate adjustments  occurred  in  1994. 

By the same date, current  account  recorded  a small surplus of around  SU$  100 mio. In 
1995, FDI gave some signs of expansion (US$  165 mio against  105 mio in 1994). 

By  end-October  1995  gross  official  reserves  amounted  to  US$  1.8  bn,  equivalent  to 
around  3.6  months  of  imports  (which  compares  to  3 months  of  imports  as  of  end  of 
1994). 

3. 

FOREIGN  DEBT 

The  agreement  in  principle  reached  in  November  1993  with  the  London  Club 
commercial  creditors  on  a  debt  and  debt  service  reduction  programme  (DDSR)  was 
finalized  in  July  1994.  Overall,  it  is  estimated  that  the  agreement  reduced  Bulgaria's 
US$ 8.2 bn eligible debt to western commercial banks by around 46%. In April  1994, a 
third  Paris Club  debt  rescheduling  arrangement  was  reached  between  Bulgaria  and  its 
official  creditors,  covering  all  obligations  falling  due  from  the  previous  rescheduling 
until April 30, 1995. 

By  restoring  Bulgaria's  external  viability,  these  debt  agreements  should  help  the 
country  attract  further  FDI  and regain  access to  the  international  financial  markets.  At 
end-1995  the  external  debt/GDP  ratio  was  83.0%  (against  109.3%  in  1994)  and  the 
debt service ratio was reduced to  17.5% (18.4% in 1994). 

24 

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CENTRAL  ASIAN NEWLY INDEPENDENT STATES (NIS) 

1.  GENERAL ECONOMIC SITUATION 

In  1995, Kazakhstan's  GDP is estimated  to  have declined  by more than  10 %, but  the 
recovery  in  industrial  production  has  continued  and  exports  have  rebounded.  In  early 
October,  the  budget  was  nearly  balanced.  Monetary  and  credit  policies  have  been 
geared  towards the fight against  inflation.  As a result,  monthly  inflation  fell  to  around 
2.4  %  in  September  and  all  IMF  program  targets  under  the  current  Stand-By 
arrangement  were  met  with  large  margins.  Important  progress  have  been  made  in  the 
structural transformation  of the economy, in particular in liberalizing external trade. 

In  1994,  Tajikistan's  GDP  contracted  by  12 %  and  it  is tentatively  estimated  to  have 
declined again in  1995, though at a lower rate than in  1994. The budget  deficit  (13.8 % 
of GDP in  1994) should  be lower in  1995-96. In  1995, the positive effects  of the tight 
budgetary  control  were  jeopardized  by  the  excessive  banking  credit,  which  led  to  a 
very  sharp  acceleration  of  monthly  inflation  (70  %  in  August)  and  to  a  continued 
depreciation  of  the  Tajik  ruble.  In  1995,  simultaneously  with  the  introduction  of  the 
Tajik  ruble,  interest  rates  were  deregulated,  restrictions  on  bank  deposits  eliminated, 
bread prices adjusted  and foreign trade liberalized. 

to  curtail 

During  1994,  Turkmenistan,  which  was  forced 
its  gas  exports  to 
neighbouring countries because of recurrent  non-payments,  suffered  a  15% contraction 
in GDP. In  1995, non-payment  of gas  exports  reached  critical  levels, industrial  output 
fell by 20% (year-on-year) and cotton and grain harvests failed  to meet their targets. In 
1994, Turkmenistan had an inflation  rate of over 2,000%, reflecting  a strong expansion 
of  money  and  credit.  Inflation  is  estimated  to  have  accelerated  to  around  2.500%  in 
1995.  In  1995, the  authorities  made  strenuous  efforts  to  keep  the  budget  deficit  from 
rising but  not  enough  to  alleviate  the  inflation  problems.  With  regard  to  the  reform 
process, progress has been very slow. 

Uzbekistan's  real  GDP  is  estimated  to  have  declined  by  about  2  %  in  1995  and  is 
expected  to  decline  again  moderately  in  1996.  In  1995,  the  authorities  tightened 
significantly  financial  policies,  and  as  a  result,  year-on-year  inflation  declined  from 
1.280  %  in  1994  to  about  250  %  in  September  1995,  and  seems  to  have  declined 
further  in the final months  of the year.  In the first half of  1995, the budget  deficit  was 
very  low  (1  %  of  GDP),  but  rose  to  about  4  %  of  GDP  in  late  1995  because  of 
significant  increases in public wages and  social benefits.  This, however,  still  represents 
an  important  improvement  with  respect  to  the  1994  deficit  (7  %  of  GDP).  The  1996 
budget  deficit  is  likely  to  be  limited  (4  %  of  GDP).  Despite  a  large  increase  in  net 
foreign  assets,  reserve  money  and  broad  money  were  approximately  in  line  with  the 
programmed  levels,  reflecting  tight  domestic  credit  policies.  In  the  area  of  structural 
reform,  a fast  liberalization  of prices and  a major  liberalization  of the foreign  exchange 
system were implemented,  while delays were experienced  in banking  sector reform  and 
in the privatization of medium-and large-scale enterprises. 

25 

A 

2. 

T HE  BALANCE  OF  PAYMENTS 

The  current  account  of  Kazakhstan  is  estimated  to  have  recorded  a  deficit  of  about 
US$ 600 mio (3 % of GDP)  in  1995. Reflecting  a large capital  account  surplus,  gross 
official  reserves  increased  from  US$  1.2  bn at  end-1994  to  about  1.7  bn  in  September 
1995.  Net  official  reserves  represented  2.7  months  of  imports  in  September  1995. 
Despite  a  nominal  depreciation  of  16 %  in  1995, the  real  exchange  rate  of  the  tenge 
vis-à-vis  the  dollar  appreciated  by  some  20  %,  reflecting  the  higher  rate  of  inflation. 
Kazakhstan  is benefiting  from  a World  Bank  Structural  Adjustment  Loan  and  from  an 
IMF  Stand-By  arrangement.  A  recent  comprehensive  medium-term  economic  and 
financial  program  could be supported  in early  1996 by an arrangement  under the  IMF's 
Extended  Facility. 

Despite an improvement  in the terms of trade and a sharp decline in import  volume, the 
current  account  deficit  of  Tajikistan  remained  very  high  in  1994  (15  %  of  GDP). 
Together  with  a  slight  deficit  of  the  capital  account,  this  left  an  overall  balance  of 
payments  deficit  of  16% of GDP  and  gross  official  reserves were  practically  depleted. 
In  1995,  the  current  account  experienced  an  impressive  correction,  reflecting  the 
improvement  in  the  terms  of  trade  and  a  sharp  contraction  in  import  volumes. 
Nevertheless,  the external  financing  needs remain very high  since.  The current  account 
deficit  is  expected  to  reach  9  %  of  GDP  in  1996  because  of  a  deteriorated  trade 
balance and large interest  payments falling  due. The resulting financing  gap is expected 
to  be  partly  covered  by  a  substantial  debt  service  relief  and  by  IMF  and  World  Bank 
disbursements.  In early  1996, the IMF board  could  approve a first credit  tranche  under 
a  new  Stand-By  arrangement  which  would  require  complementary  financing  from  the 
official  donors. 

In recent  years, the inadequate financial policies and the nonpayment  for  gas  deliveries 
put  strong  pressure  on  Turkmenistan's  current  account.  As  a  result,  the  Turkmen 
authorities  restricted  severely  the  access  to  foreign  exchange  to  compress  imports.  In 
spite  of these  measures,  the  current  account  on  a cash  basis  weakened  further  from  a 
deficit  of  8 %  of  GDP  in  1993  to  a  deficit  of  14  %  of  GDP  in  1994.  In  1995,  gas 
exports  have  shown  an  extremely  weak  performance.  Nevertheless,  gross  official 
reserves  have  continued  to  grow  and  stand  at  a very  high  level  (1.2  bn  of  US$  or  10 
months of imports  at  end-1995).  The manat has dropped  by 2,500  % in nominal  terms 
in  the  two  years  since  its  introduction  in November  1993.  The  official  exchange  rate 
has been  kept  significantly  overvalued  with  respect  to  the  parallel  market  rate  in  order 
to  keep  import  costs  low.  There  is  not  an  IMF  agreement  in  place  but  on-going 
discussions  between  the  authorities  and  the  IMF  could  lead  to  an  IMF-supported 
stabilization  programme. 

In  1995, Uzbekistan's trade balance is estimated  to  have been balanced  and  the  current 
account  deficit  was  low  (about  2.5  %  of  GDP).  New  loan  agreements,  foreign  direct 
investments  and  significant  unexpected  inflows  allowed  a  substantial  increase  in  gross 
official  reserves  (of  about  US$  500  mio)  to  US$  1.8  bn  (6  months  of  imports).  In 
infrastructure 
1996,  the  current  account  could  deteriorate  owing  to  growing 
investments.  The resulting financing gap would  be largely filled by purchases from the 

26 

A 

IMF  and  from  the  World  Bank.  In  1995, the  exchange  rate  for  the  sum  depreciated 
significantly  in nominal terms, but  appreciated  in real terms against the US dollar, 

3. 

FOREIGN DEBT 

At end-September  1995, Kazakhstan's  stock of external debt was estimated  at US$  3.3 
bn (around  19 % of GDP), of which US$  1.4  bn was owed to Russia,  and the  external 
debt  service  ratio  was  estimated  to  represent  about  10  %  of  exports.  In  1995, 
difficulties  continued to be experienced with respect to the timely servicing of this debt. 
However,  a  recent  redefinition  of  responsibilities  among  the  institutions  in  charge  of 
debt  management  should  prevent  this from recurring.  The total  amount  of  arrears  has 
been reduced to US$ 6 mio at end-October  1995. 

At  end  1995,  the  external  debt  of  Tajikistan  (US$  800  mio)  exceeded  the  country's 
GDP, most  of it contracted  on non-concessional  terms with relatively  short  maturities. 
Most  of  it  was  due  to  FSU  countries.  The  external  payments  situation  is likely  to  be 
very difficult  in  1996, when large principal repayments fall  due and when grace periods 
expire on deferred  payments. 

In  1994,  Turkmenistan's  total  external  debt  rose  sharply  to  18  %  of  GDP,  mainly 
reflecting  loans  aiming  at  financing  the  current  account  deficit,  and  debt  service 
represented  23  %  of  exports.  The  short-term  maturity  of  most  loans  is  a  source  of 
particular  concern. 

In  1995, Uzbekistan's  external  debt  stock represented  slightly more than  15 % of GDP 
(about  US$  1.3  bn)  and  debt  service  slightly  more  than  15 %  of  exports.  Under  the 
current  IMF programmes  (SBA  and  STF), the  authorities  have  committed  themselves 
to  observe  cumulative  quarterly  ceilings  on  the  amount  of  new  loans  contracted  or 
guaranteed. 

27 

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D.  THE  CZECH  REPUBLIC 

1.  GENERAL  ECONOMIC  SITUATION 

The  recovery  of  the  Czech  economy  that  started  in  1994  strengthened  markedly  in 
1995, with year-on-year  real  GDP growth  accelerating  to  5.2%.  This  stronger  growth 
is  being  led  by  domestic  demand,  and  in  particular  by  investment.  Industrial  output 
posted  a  12.9% year-on-year  increase  in November  1995.  The unemployment  rate,  at 
2.9% in December  1995, remains very low. Real  GDP growth  is projected  to  reach  5-
6% in 1996. 

Despite the strength of the recovery,  CPI inflation  declined  from  10.2% at end-1994  to 
7.9%  in  November  1995.  The  Czech  National  Bank  (CNB),  however,  expects  the 
year's  average  inflation  rate  to  be  about  9.5%, which  means that  the  official  target  of 
bringing  average  inflation  below  9%  in  1995  is  unlikely  to  be  attained.  Furthermore, 
the boom  in domestic  demand,  the  destabilising  effects  of  the  capital  inflow  surge  on 
the money  supply  and the tightness  of the labour  market  (which  has  contributed  to  an 
acceleration  of real wage growth to around  7.5% in  1995) will make it  difficult  for  the 
authorities to meet that target  in the coming two years. 

Money  supply  grew by  20.2% in  1995,  compared  to  an  original  official  target  of  14-
17%.  This  rapid  growth  of  liquidity  reflects  the  impact  of  the  strong  foreign  capital 
inflows,  which  the  CNB  has  only  been  able  to  sterilize  partially  through  open  market 
operations, the increase in the banks' minimum reserve requirements and the transfer  of 
deposits  of  the  National  Property  Fund  from  commercial  banks  to  the  central  bank. 
Regarding fiscal  policy, preliminary figures show that the state budget  ended  1995 with 
a  surplus  of  Kc  8.6  bn  (about  US$  331  mn).  In  December  1995,  the  Parliament 
approved  a balanced budget for  1996. 

As  far  as  structural  reform  is  concerned,  the  second  wave  of  large-scale  voucher 
privatization  was  concluded  in  November  1994.  The  privatization  of  the  remaining 
enterprises  controlled  by the  state  has  gathered  momentum  in  1995  with  the  sale  of a 
27%  stake in the  country's telephone  monopoly  SPT, worth  US$  1.32  bn, to  a Dutch-
Swiss  telecommunications  consortium,  the  decision  to  sell  a  49%  stake  in  Czech 
Refineries,  and  the  announcement  by the  government  of  a  plan  to  privatize  additional 
stakes in 53 big state enterprises. 

— 

2. 

THE  BALANCE  OF PAYMENTS 

The  current  account  surplus  (2.2%  of  GDP  in  1993)  disappeared  in  1994  and  is 
expected  to  turn  into  a  3.5%  of  GDP  (about  US$  1.5  bn)  deficit  in  1995.  This 
deterioration  in the  current  account  reflects  the  acceleration  of  domestic  demand,  the 
real  appreciation  of  the  Czech  crown  and  trade  restrictions  introduced  by  Slovakia. 
Between January  and  September  1995, the trade and  current  account  balances  reached 
deficits  of,  respectively, US$ 2.7 bn and US$  1  bn. 

The  current  account  deficit,  however,  is  being  amply  financed  by  a  huge  inflow  of 
foreign  capital.  The  capital  account  showed  a US$  6 bn  surplus  in  January-September 
1995.  This  figure  includes  almost  US$  2  bn  in  net  FDI,  US$  0.7  bn  in  portfolio 

28 

A 

investment,  US$ 2.1 bn in other long-term capital and US$  1.2 bn in short-term capital. 
The record  amount  of FDI largely reflects the SPT operation.  The high inflow  of short-
term  capital,  for  its part,  mostly  reflects  arbitrage  operations  to  take  advantage  of the 
combination of a relatively  high differential  between  domestic and foreign  interest  rates 
and the strength  of the Czech  crown. 

The Czech Republic's access to the international  capital markets has been reinforced  by 
successive  upgradings  of  its  ratings.  In  August  1995,  the  London  agency  IBCA 
assigned  to  the  Czech  Republic  an  A" rating;  in  September  1995,  Moody's  upgraded 
the  country's  rating  from  Baa2  to  Baal;  and,  in  November  1995,  Standard  &  Poor's 
upgraded  its rating from BBB+  to  A.  The Czech  Republic  has, therefore,  become  one 
of  the  few  non-developed  countries  that  can  boast  a  "A"  level  rating.  The  official 
integration  of  the  Czech  Republic  into  the  OECD  as  of  21  December  1995  should 
contribute to a further  improvement  of the foreign  perception of the country. 

The surge in capital inflows  has put upward  pressure on the nominal exchange rate and 
has  resulted  in  a  rapid  growth  of  official  foreign  exchange  reserves,  which  stood  at 
US$  12.9 bn  (or  about  8 months  of imports)  in November  1995, up  from  US$  6.2  bn 
at  end-1994.  In  order  to  offset  or  restrict  part  of  the  capital  inflows,  the  authorities 
have  repaid  ahead  of  schedule  all  the  remaining  IMF  debts  (worth  US$  1.1  bn)  and 
imposed  in  late  June  1995  limits  on  the  total  amount  of  short-term  foreign  credits 
Czech  banks  may  take.  Also,  a  new  Foreign  Exchange  Law  entered  into  force  on  1 
October  1995  making  the  Czech  crown  fully  convertible  for  current  account 
transactions (including the immediate termination  of the Czech-Slovak  clearing  system) 
and  providing  for  a gradual  introduction  of  full  capital  account  convertibility.  Finally, 
the  CNB  is  considering  possible  options  to  increase  the flexibility of  their  exchange 
rate policy, including the widening of the fluctuation  band  around the D-mark/US$ peg 
and  the  revaluation  of  the  central  rate.  No  decision  regarding  exchange  rate  policy 
however is expected  to be taken before the June  1996 general elections. 

3. 

FOREIGN  DEBT 

Mostly  reflecting  strong  foreign  borrowing  by  Czech  enterprises  and  banks,  foreign 
debt  has risen  substantially  since  1993, with  the  pace  of increase  accelerating  in  1995. 
Nonetheless,  the  Czech  Republic  continues  to  enjoy  a low  foreign  debt  burden.  Total 
convertible  debt  increased  from  US$  6.9  bn  at  end-1992  to  US$  15 bn  in  June  1995, 
but  this  still  implied  a  relatively  moderate  debt/GDP  ratio  of  31%.  The  debt  service-
over-exports  ratio,  at  below  15%,  remains  low.  While  projections  for  1995  and  1996 
point  towards  a continued  increase  in the debt  and  debt  service indicators,  these  ratios 
are expected  to remain at reasonable levels. 

29 

A 

E.  ESTONIA 

1. 

GENERAL ECONOMIC SITUATION 

After  a  sharp  decline  in  1992  and  early  1993,  the  Estonian  economy  emerged  from 
recession  by the end  of  1993.  GDP grew by 4% in  1994 and probably  at  a  similar  rate 
in  1995. Unemployment,  at about  5.4% of the labour force,  remains moderate. 

Macro-economic  stabilisation  was  to  a  large  extent  achieved  after  the  introduction  in 
June  1992  of  a  currency  board  arrangement  under  which  the  growth  of  the  monetary 
base is limited  by the amount  of hard  currencies and gold  detained  by the central  bank. 
A  new  currency,  the  Estonian  kroon,  was  introduced  at  the  same  time.  This  proved 
successful  in  stabilising  the  economy:  inflation  continued  to  decline  in  1995,  reaching 
29%  at  year-end  compared 
to  47%  at  end-1994.  Under  the  currency  board 
arrangement,  central  bank  lending  to  the  state  is  prohibited,  which  contributes  to 
budgetary  discipline.  In  1995  the  financial  balance  was  in  surplus  (0.8%  of  GDP). 
Increased  government  deposits  in the banking  sector  resulted  in  a  slightly  lower  fiscal 
balance  surplus  (0.3%  of  GDP).  The  1996  budget  envisages  an  almost  balanced 
budget. 

Estonia  has  already  implemented  the  bulk  of  structural  reforms  leading  to  a  market 
economy.  Prices  and  foreign  trade  have been  liberalised.  The  small  scale  privatisation 
covering  some  1000  small  enterprises  is  now  virtually  completed.  Out  of  the  500 
medium  and  large  scale  enterprises,  about  100  remain  in  the  state's  hands.  Land 
privatisation,  which  was  slow to  initiate,  is being  accelerated.  Financial  sector  reform 
appears  as the  most  sensitive  area.  The Bank  of Estonia  has  increased  its  supervision 
capacities  and  reduced  its  share  of  assets  in  the  Savings  Bank  to  25% of  the  capital. 
The  state  also  reduced  below  10%  its  minority  shareholding  in  commercial  banks. 
Capital adequacy requirements are being gradually increased. 

Estonia  maintains  liberal foreign  investment  laws.  The Free  Trade  Agreement  with  the 
European Union entered  into force  on  1  January  1995. 

2. 

THE  BALANCE  OF  PAYMENTS 

trade  with 

the  European  Union 

External trade continued  to grow  at a high pace, particularly  imports (including^  large 
share  of  investment-related  goods)  which  increased  in  1995  by  33%  over  1994. 
increased  markedly  after 
Estonia's  external 
independence.  However,  it  is characterised  by  a  large  deficit  on  the  Estonian  side.  In 
1994, the bilateral  trade  deficit  amounted  to  US$  1.3  bn,  and  increased  even  faster  in 
1995, when it  amounted  to US$  1.2  bn over the first seven months1.  The overall  trade 
deficit  considerably  increased  to  an estimated  US$  620  mio,  or  17%  of  GDP  in  1995. 
The current  account  also deteriorated  sharply,  reaching a deficit  of about  10% of GDP 
(excluding official  transfers). 

Data  between  1994  and  1995  arc  not  strictly  comparable.  1995  trade  with  the  EU  includes 
Sweden  and  Finland,  tAvo very  significant  commercial  partners of  Estonia. 

30 

A 

Under  the  currency  board  arrangement,  the  Estonian  kroon  is pegged  to  the  DM  at  a 
fixed 8 to  1 rate. This has led, given the remaining two  digit  inflation,  to  a relative  loss 
of external  competitiveness which will have to be assessed  against  future  developments 
in the external trade. 

In  March  1995, the  IMF  approved  a  new  fifteen-month  Stand-By  arrangement  in  the 
amount  of  SDR  14  mio  (US$  21  mio),  but  the  authorities  do  not  intend  to  make 
purchases under it unless the balance of payments weakens unexpectedly.  For the third 
consecutive  year,  the  capital  account  was  in  surplus,  mainly  owing  to  high  inflows  of 
foreign  direct  investment  of  about  US$  200  mio  (approximately  5.9%  of  GDP). 
Official  foreign  exchange  reserves  continued  to  grow  and,  at  US  dollars  580  mio  at 
end-1995, covered  approximately  3 months of imports. 

3. 

FOREIGN  DEBT 

Estonia  has  no  legacy  of  foreign  debts from the  FSU.  In  1995,  the  stock  of  external 
debts  increased  from  US$  271  mio  to  an  estimated  US$  353  mio  level  (or  9.9%  of 
GDP).  Debt  service  remained  low  with  a  ratio  to  exports  of  goods  and  non-factor 
services of about  1%. 

A  substantial  part  of  Estonia's  foreign  debt  is  owed  to  international  financial 
institutions.  The  IMF has awarded  Estonia  a US$  35  mio  STF  and  disbursed  US$  59 
mio under the successive  Stand-By programmes  since  1992. 

31 

A 

F.  HUNGARY 

1. 

GENERAL  ECONOMIC  SITUATION 

Despite  the  stabilization  measures  adopted  by  the  Hungarian  government  in  March 
1995,  real  GDP  is  estimated  to  have  expanded  by  about  2%  in  1995,  only  slightly 
below  the  2.9%» rate  recorded  in  1994.  Although  economic  growth  decelerated  in the 
second  half of  1995, GDP is projected  to remain within the 2-3% range in  1996.  After 
reaching a peak  of  11.8% in early  1993, the unemployment  rate has declined  to  10.4% 
at end-1995. 

Largely reflecting  the faster  devaluation  of the forint,  the introduction  of an 8% import 
surcharge  and  the  increase  in  indirect  taxes  as  part  of  the  government's  March  1995 
"austerity  package",  inflation  worsened  significantly  in  1995.  CPI  inflation  has  risen 
from  21.2% in December  1994 to  28.5% in December  1995. Wages, however,  grew at 
a  relatively  moderate  pace  (19%)  in  1995  and,  as  a  result,  real  wages  fell  by  about 
10%.  For  1996,  the  authorities  aim  at  bringing  inflation  back  to  around  20%,  an 
ambitious target. 

Thanks  to  higher  than  expected  income  from  privatization  (see  below)  and  from 
the  year 
corporate  and  custom  taxes,  the  central  government  deficit  finished 
significantly  below  the  targets  contained  in  the  March  1995  supplementary  budget. 
However,  the  fiscal  performance  of  social  security  funds  seems  to  have  been  worse 
than  programmed  and  the general  government  deficit  excluding  privatization  revenues 
remains high (6% of GDP). 

Disagreements  within  the  government  coalition  that  took  office  in  July  1994  initially 
resulted  in a deadlock  in the  privatization  process.  Privatization,  however,  accelerated 
in the second  half of  1995, and particularly at the end of the year. The sale of important 
parts  of  the  electricity,  gas  supply,  banking  and  telecommunication  and  chemical 
sectors,  mostly  involving  foreign  investors,  has  resulted  in  privatization  revenues  of 
about US$ 3.3 bn, largely exceeding the initial government  target. 

2. 

THE  BALANCE  OF  PAYMENTS 

After  reaching US$ 3.9 bn (9.5% of GDP) in  1994 and further  widening in earjy  1995, 
the  current  account  deficit  responded  favourably  to  the  March  1995  package.  The 
current  account  is estimated  to  have finished  1995 with  a deficit  of about  US$  2.3-2.5 
bn (about  6% of GDP) and to have been in balance in the final months of the year. 

The  capital  account  also  strengthened  markedly  in  1995.  The  National  Bank  of 
Hungary  (NBH)  continued  to  place  a  substantial  amount  of international  bonds  in the 
first  half  of  1995  (US$  1.8  bn),  resident  enterprises  and  banks  borrowed  abroad 
heavily, and FDI is estimated  to have increased from  US$  1.2 bn in  1994 to a record  of 
more  than  US$  3 bn  in  1995.  In  the  fourth  quarter  of  1995,  a  significant  part  of  the 
capital  inflows  has  consisted  of  short-term  arbitrage  operations  through  which 
investors  seek  to  take  advantage  of  the  combination  of  a  high  differential  between 
domestic  and  foreign  interest  rates  and  a  relatively  moderate  rate  of  pre-announced 
monthly devaluation  of the forint  within the crawling-peg system. 

32 

A 

The  surge  in  capital  inflows  has  not  only  allowed  Hungary  to  finance  its  still  high 
current  account  deficit  but  has  also  resulted  in  a  sharp  increase  in  foreign  exchange 
reserves.  Official  reserves  have risen  from  US$  6.8  bn  at  end-1993  to  almost  US$  12 
bn at end-1995, representing about  12 months of imports. 

After  more  than  a  year  of  difficult  discussions,  the  Hungarian  authorities  reached  in 
December  1995  a  preliminary  agreement  with  the  IMF  on  the  terms  of  a  18-month 
Stand-By  arrangement.  This  arrangement,  however,  will  be  of  a  "precautionary 
nature", that  is, the authorities  do  not  intend  to  make  in principle  any  purchases  under 
it.  In fact,  Hungary  decided  in November  1995 to  repay  ahead  of  schedule  about  US$ 
600 mio of IMF debt maturing before  end-1998. 

As a result  of the  new  foreign  exchange  law  and  accompanying  regulations  that  came 
into effect  on  1 January  1996, the Hungarian  currency has become fully  convertible  for 
current  account  transactions.  In  March  1995, the  forint  was  devalued  by  8.3%  and  a 
crawling peg  system was introduced  whereby the currency is devalued  each  month at a 
pre-announced  rate.  The monthly  rate of devaluation  was reduced  from  1.9%  to  1.3% 
in the second  half of  1995 and again to  1.2%  in January  1996. The exchange rate of the 
forint  is defined  against  a basket  of currencies  comprising the  ECU  (70%)  and  the US 
dollar (30%). 

3. 

FOREIGN  DEBT 

With  the  current  account  deficit  considerably  exceeding  the  net  inflow  of  FDI,  both 
gross  and  net  foreign  debt  rose  rapidly  between  end-1992  and  the  third  quarter  of 
1995, and from  already high levels. Gross convertible foreign  debt increased from US$ 
21.5  at  end-1992  to  US$  31.7  bn  (74.1%  of  GDP)  in  November  1995.  Net  foreign 
debt,  for  its  part,  increased  from  US$  13.1  bn  to  US$  20.4  bn  over  the  same  period. 
Debt  service (including  early repayments)  has also risen since  1992 and is estimated  to 
have represented  about  50% of annual exports in  1995. 

On the positive  side, the maturity  structure of the debt has substantially improved  since 
1992  and  is  at  present  very  favourable  (medium-  and  long-term  debt  accounts  for 
about  90%  of  total  debt).  Also,  the  reduction  in  the  current  account  deficit  and  the 
sharp increase  in privatization-related  FDI  should  have resulted  in a substantiaLdecline 
in net foreign  debt  in the  second  half of  1995. The NBH has announced  that  it will use 
its high reserves to  repay  some US$ 3 bn in foreign  debts (including  US$  1 bn of early 
repayments)  in  the  first  four  months  of  1996,  which  should  ensure  a  decline  in  total 
gross debt  during that  period. 

33 

A 

G.  ISRAEL 

1. 

GENERAL ECONOMIC  SITUATION 

According to  the first estimates,  Israel's economy  grew by  6.9  %  in  1995, the  highest 
growth  rate  in  23  years.  The  acceleration  in  growth  has  been  fuelled  by  investment. 
The  peace  process  also  enhanced  economic  growth,  triggering  a  partial  lifting  of  the 
Arab  boycott  against  conducting  business  with  Israel.  Unemployment  fell  to  an 
estimated  6.3  %  from  7.8  %  in  1994.  Nevertheless,  Israel's  economy  faces  some 
serious problems, especially on the trade front. 

The  inflation  in  1995  is  expected  to  have  reached  about  8.0  %,  the  lowest  level  in  a 
generation  and  at the bottom  end  of the  government's  initial  8-11 % target.  However, 
the  Bank  of  Israel  considers  that  economic  conditions  still  require  a  very  prudent 
monetary  policy because of strong  domestic  demand,  declining unemployment  and  the 
large current  account  deficit. 

Business  complained  the  strong  shekel  has  hurt  the  exports  and  widened  the  current 
account  deficit.  However,  in the  last  weeks  of the  year,  the  shekel  started  weakening 
after  talks on budget  cuts, likely to be announced  in January,  which  would  prompt  the 
central bank to ease up on interest rates. 

The government  budget  deficit  increased  from  2 % of GDP  in  1994 to  3.5  %  in  1995, 
reflecting  lower  than  expected  state  revenues  mainly  as  a  consequence  of  tax  reform 
and  greater  than  anticipated  transfers  to  the  Palestinian  Authority.  Revenue  from 
privatisation  totalled  US$  600  mio in  1995  against  a target  of  US$  1.5  bn.  There  is a 
plan  for  tradable  vouchers  to  be  used  to  subsidise  privatisation  investments  and 
increase  public  support  for  the  privatisation  process.  This  scheme  would  aim  at 
achieving an equitable distribution  of the benefits  across the general  population,  which 
should contribute to overcome the interference  of influential  lobbies and  the  reluctance 
of  some  political  groups.  Moreover,  it  should  contribute  to  the  development  of  the 
Israeli capital market. 

2. 

THE BALANCE OF PAYMENTS 

The estimated  deficit  in the balance  of goods  and  services,  excluding  defence  imports, 
jumped  to  US$  10.2 bn in  1995 from  US$  7.9  bn in  1994. The current  account  deficit 
also  worsened  sharply.  While  Israel  is  still  expecting  US$  1 bn  in  US  civilian  aid, 
delayed  by the budget  crisis  in Washington,  the  Central  Bureau  of  Statistics  estimated 
that without  this aid, the current  account  deficit  would total  US$  5.2  bn,  or  about  6 % 
of GDP. This represent  a sharp rise from US$ 2.5 bn (3 % of GDP) in  1994. 

Foreign  investment  in  Israel  soared  to  US$  1.5  bn  in  the  first  nine  months  of  1995, 
almost  double  the  figure  for  the  whole  year  1994.  Foreign  direct  investment  totalled 
US$  826  mio,  financial  investment  by  foreigners  US$  358  mio  and  foreigners 
investment  in  Israeli  shares  traded  abroad  US$  329  mio,  compared  respectively  with 
US$ 241, 146, and 242 mio in the same period in 1994. 

34 

A 

Official  foreign  exchange reserves increased  substantially over the last year and reached 
a  satisfying  level  of  US$  8.2  bn  (equivalent  to  2.6  months  of  imports)  at  the  end  of 
1995. 

The  Bank  of  Israel  maintains  a  "crawling  peg"  exchange  rate  regime,  with  an  annual 
rate  of  crawl  (currently  set  at  6%)  and  a  fluctuation  band  of  7  percentage  points  on 
either side of the central rate. 

3. 

FOREIGN  DEBT 

Israel's  net  foreign  debt  grew  to  US$  18.5 bn  at  end-1995  from  US$  16.5 bn  at  end-
1994.  However,  as  a percentage  of  GDP,  net  external  liabilities  continued  to  decline, 
reaching 22 % in  1995 compared to 28.6 % at the beginning of the decade. 

In November  1995, the  US  Administration  approved  Israel's request  to  use  the  whole 
1996  financial  guarantees,  totalling  US$  2  bn,  to  fund  the  national  budget  deficit. 
Previously,  a  clause  had  restricted  budget  financing  to  US$  900  mio,  the  remaining 
being used for infrastructure  projects,  such as water,  roads, schools and hospitals. 

In  November  1995,  Moody's  awarded  the  country's  debt  an  A3  rating  and  in 
December,  Standard  and  Poor's  upgraded  Israel's  debt  to  A-  from  BBB+.  Both 
Moody's  and  S&P  said  that  these  improved  ratings  reflect  an  increased  political 
domestic  consensus behind  fiscal  restraint  solid  enough  to  ensure that  the  government 
debt's burden,  estimated  at  114  %  GDP  this year,  will  continue  to  trend  downwards. 
Israel's 
long-term  growth 
prospects,  and  high per  capita  GDP  (estimated  at US$  15,000 this year,  a level similar 
to that of a number of European  countries) also support the upgrade. 

increasingly  secure  geopolitical  position, 

improving 

In  December  1995,  Israel  issued  for  the  first  time  international  debt  without  a  US 
government  guarantee.  The deal, which was finally  oversubscribed  3.5  times, is widely 
seen  as  indicative  of  Israel's  determination  to  establish  a  sovereign  presence  in  the 
international  capital  markets  ahead  of  the  ending  of  the  US-sponsored  guarantee 
programme  in  1998. Other  issues  without  the  use  of  US  loan  guarantees  are  planned 
for the first half of 1996. 

35 

A 

H.  LATVIA 

1. 

G E N E R AL  E C O N O M IC 

S I T U A T I ON 

After  a  sharp  output  drop  in  1992  and  1993, Latvia's  overall  economic  situation  had 
strengthened  in  1994 with  a 2% growth  of GDP.  In April  1995, the IMF  confirmed  its 
support  for  the authorities' policies by approving  a second  Stand-By  arrangement  for a 
13-month period. 

In  1995, the budget  deficit  had  initially been  programmed  to  remain  at  2% of  GDP  as 
in  1994,  to  be  financed  mainly  by  issuing  treasury  bills.  However,  Latvia's  budget 
situation deteriorated  in early  1995 and the budget  deficit  rose to 92 mio lats (US$  184 
mio) in  1995, or 4% of GDP. Additionally,  a major  crisis in the banking  sector blew up 
in  April  1995,  with  the  main  Latvian  commercial  bank,  Banka  Baltija  (which  alone 
accounted  for  20% of the  country's  deposits),  being  declared  insolvent.  By  mid-1995, 
eight other banks had been declared  insolvent. 

As  a  result  of  the  financial  crisis,  broad  money  dropped  by  10%  over  the  second 
quarter, which is expected  to have had a contractionary  effect  on the economy  (there is 
a  lack  of  comprehensive  figures  to  assess the  real  impact  of the  crisis).  However,  the 
its 
in  cash 
high  percentage  of  savings  held 
contractionary  effect.  Unemployment  remained  stable,  standing  at  about  6.3% by end-
1995. The present  estimate is that  Latvia went  through  a zero  growth  over  1995.  The 
Bank  of Latvia  maintained  its  conservative  monetary  policy  stance,  and  inflation  thus 
continued to  slow down, falling from 26% in  1994 to about  23% in 1995. 

in  foreign  currencies  dampened 

The  authorities  have  adopted  a  package  of  measures  to  address  immediate  and  long 
term needs of the financial sector,  by enhancing  prudential  regulations  and  setting up a 
deposit 
in  1995.  The 
Privatisation  Agency  is now  fully  operational  and  230  additional firms were  privatised 
in  1995. The  sale of shares of the Universal Bank,  one of the three  main  public banks, 
started in the third quarter of the year. 

insurance  scheme.  Other  structural 

reforms  continued 

The  Free  Trade  Agreement  signed  with  the  European  Union  came  into  force  on  1 
January  1995. 

2. 

THE  BALANCE  OF  PAYMENTS 

Imports and  exports increased  by about  200 mios dollars in  1995, while the  shift  in the 
country's trade to  the West  continued.  After  a  sharp  deterioration  in  1994, the  current 
account  stabilized  at  about  4%  of  GDP.  This  deficit  reflects  a trade  balance  deficit  of 
about  8%> of GDP partly offset  by a surplus in services, mainly in the transport  sector. 

The  authorities  have  successfully  pursued  a  policy  of  stable  exchange  rate  with  an 
informal  peg  to  the  SDR.  Despite  speculative  attacks,  which  led  to  a  loss  of  foreign 
exchange  in the  amount  of 90  mio US  dollars  in  Spring,  the  exchange  rate  of the  lats 
remained  in  1995  broadly  at  its  previous  level  with  a  two-digit  inflation  rate.  This 
translated  into  a real  appreciation  in the exchange rate.  The  overall  competitiveness  of 
the economy however  seems to remain at an acceptable level. 

36 

A 

In  order  to  cover  its  current  account  deficit,  Latvia  is  dependent  upon  private  capital 
inflows,  which  remained  substantial  in  1995  in  spite  of  the financial crisis.  Thus,  the 
damage  of the  crisis could  be limited  and Latvia's reserves position  remained  relatively 
strong, with approximately US$ 600 mio net reserves at year-end,  which covers almost 
5 months of imports. 

3. 

FOREIGN  DEBT 

Latvia has no legacy  of foreign  debts from the FSU,  and  the  country's  external  debt  is 
thus  recent.  In  1994,  the  external  debt  stock  increased  from  US$  360  mio  to  about 
US$ 540 mio, or  12% of GDP.  The debt  service ratio (debt  service on exports), with a 
2.6% level, remains very low. 

About  half  of  Latvia's  foreign  debt  is  owed  to  the  international  financial  institutions. 
Latvia  owes  the  IMF  163  mio  dollars  (95  mio  under  the  1992  and  1993  Stand-By 
arrangements,  and  68 mio under  the  1993-1994  Systemic  Transformation  Facility).  In 
August  1995, the  authorities  borrowed  the  equivalent  of US$  45  mio  on the  Japanese 
market, to finance the increasing needs of the budget. 

37 

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I.  LITHUANIA 

1.  GENERAL  ECONOMIC  SITUATION 

After  four  years  of recession, Lithuania's  economy began  to show signs of 
Growth  for  1995, despite  a drop in 
recovery in  1994, with  a 2%  GDP  increase. 
GDP  in  the  first  quarter  of  the  year,  is  estimated  at  roughly  3%.  Unemployment, 
however,  is  reported  to  have  significantly  risen  in  1995.  It  reached  about  7%  of  the 
labour force  at the end of the year,  against 4% at end-1994. 

Inflation,  which  had  peaked  in  1992 at  hyper-inflationary  levels,  slowed  down  in  1993 
and early  1994. On April  1,  1994, a currency board  arrangement  was introduced  under 
which the growth  of the  monetary  base is kept  in line  with  the  increase  in the  market 
value of gold  and hard  currencies  detained  by the Bank  of Lithuania.  The reduction  in 
inflation  after  the  introduction  of the  currency  board  has been  striking:  price  increases 
fell  substantially  in  1994,  finishing  the  year  at  a  rate  of  45%.  Inflationary  pressures 
however  remained  in  1995,  fuelled  by  the  low  foreign  exchange  rate  of  the  litas, 
increases  of  public  prices  and  capital  inflows.  As  a  result  inflation,  with  an  estimated 
35% (year-end), was in  1995 above the authorities' initial 25% target.  The fiscal  deficit 
target for  1995 (3.4% of GDP) was broadly met. 

Structural  reforms  have  been  further 
implemented.  The  only  items  with  prices 
remaining  under  government  control  relate  to  cases  of  monopolistic  situations. 
Housing and small-scale privatisation  are now virtually  completed but,  owing to  delays 
in  the  establishment  of  the  Privatisation  Agency,  large  scale  privatisation  will  only 
effectively  start  in  1996.  The financial sector  reform  is the  most  sensitive  area.  After 
the  enactment  of  the  Central  Bank  and  Commercial  Bank  laws  in  early  1995  and  the 
subsequent  tightening  of  prudential  regulations,  the  banking  sector  went  through 
drastic adjustments  in  1995 when  14 small banks out  of 28 (however  representing  only 
1.6%  of the  total  banking  sector  assets)  were  declared  insolvent  and  will  probably  in 
most  cases  be  liquidated.  In  December  two  private  banks,  Litimpeks  and  Innovative 
Bank,  were  also  declared  insolvent.  The  authorities  are  now  preparing,  with  IMF  and 
World Bank support,  a new set of measures to consolidate the  sector. 

On  1 January  1995, the Free  Trade  Agreement  with the European  Union  entered  into 
force. Lithuania maintains  liberal foreign  trade and investment laws. 

2. 

THE  BALANCE  OF  PAYMENTS 

The share of the west in the country's external  trade continues to  increase.  About  50% 
of  Lithuania's  exports  were  directed  to  western  markets  in  1994.  In  the  first  half  of 
1995  exports  are  reported  to  have  increased  by  19.7%,  against  a  stable  level  of 
imports.  This contributed  to  stabilise the current  account  deficit  near the  level  of  1994 
(US$ 278 mio, or about 4% of GDP, excluding official  transfers). 

Under the currency board  arrangement  the litas is pegged to the US  dollar  at  a rate  of 
4 to  1. Growing  confidence  in the currency board,  fuelled  by the low exchange rate  of 
the  litas,  translated 
inflows  until  end-November. 
Additionally,  significant  medium-  and  long-term  borrowings  allowed  in  1995  for  a 

into  growing  private  capital 

38 

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significant  capital  account  surplus,  in the amount  of about  US$ 300 mio. In  December 
however,  the declared  insolvency  of two  banks (Litimpeks  and  Innovative Banks) lead 
to  significant  foreign  exchange reserves  losses, in the amount  of US$ 45 mio. At  year-
end, official  reserves were estimated  at about US$ 800 mio, or 3.5 months of imports. 

In October  1994, the IMF approved  an  SDR  134.55 mio three-year  Extended  Facility, 
of  which  SDR  51.75  mio  (US$  75  mio)  have  already  been  purchased.  This  should 
contribute  to  consolidate  the  reserves  and  help  finance  key  energy  and  investment 
related imports. 

3. 

FOREIGN  DEBT 

Lithuania  has  no  legacy  from  sovereign  debts  from  the  FSU.  In  1995,  the  stock  of 
external  debts increased  by more than  300 mio US$, reaching  a level of US$  860 mio. 
Despite  this  sharp  increase,  this  level  of  debt  remains  moderate  relatively  to  GDP 
(14%).  The  country's  debt  service  over  exports  ratio  also remains  low  (about  2%).  In 
December  1995, Lithuania borrowed  on the private  capital  market  for  the first time, in 
the ajnount  of US$ 60 mio. 

A 

J.  MOLDOVA 

1.  GENERAL ECONOMIC SITUATION 

After  a 31% decline in  1994,  due  to  severe  weather  conditions  and  to  the  continuing 
disruptions  to  output  and  trade  associated  with  the  collapse  of  central  planning, 
Moldova's  GDP  is  estimated  to  have  grown  slightly  -  around  1%  -  in  1995.  This 
improvement  is  partly  due to  a  recovery  in the  important  agricultural  sector  with  the 
return  of  normal  climatic  conditions,  but  also  to  a reduction  in  the  rate  of  decline  of 
industrial  production,  estimated  to  have  dropped  by  "only"  10%.  The  official 
unemployment  rate remains rather  low (2%) by  end-1995,  but  a lot  of workers  are on 
unpaid leave and the actual unemployment figure  may exceed  10%. 

After  six  months  of  low  inflation  -  with  monthly  rates  below  0.75%,  compared  to 
annual inflation  of about  800% in  1993 and  120% in  1994  -,  inflationary  pressures re-
emerged in the autumn  1995, owing to strong capital inflows. With an average monthly 
rate of 3.5% between  September  and  December,  inflation  reached  24% for  the  whole 
year.  In the fourth  quarter,  the  central  bank  tightened  the  monetary  policy,  which  was 
reflected  in upward  pressure on interest rates. 

The fiscal deficit  is expected  to  have declined from 8% in  1994 to  an  estimated  4% in 
1995, not far from  the 3.5% official  target.  Only a severe control  of expenditures made 
this  reduction  possible.  Revenue  collection  remained 
insufficient  and 
privatisation  receipts  were  far  below  expectations,  because  of  a  lack  of  domestic 
capital. 

indeed 

Concerning  structural  reforms,  important  measures  were  initiated  in  1995.  The 
privatisation  process  slowed  in early  1995, but  gathered  momentum  after  the  adoption 
by  Parliament, 
in  March,  of  the  new  1995/96  Privatisation  Programme.  The 
government  estimates the private sector's share of the  economy  to  have risen to  about 
2/3  by  November  1995  (end  of  the  voucher  programme).  Important  progress  was 
recorded  in enterprise  restructuring  with the liquidation  of a series  of  state  enterprises 
in difficulty  and the revision of the bankruptcy legislation. 

2. 

THE  BALANCE OF PAYMENTS 

~~ 

The  balance  of  payments  remained  under  severe  pressure  in  the  first  half  of  1995, 
primarily  because  of the  continued  impact  of  the  terms-of-trade  shock  caused  by  the 
increase  in  imported  energy  prices  to  world  market  levels.  In  the  second  half  of  the 
year,  however,  a better-than-expected  export  performance  coupled  with  an  important 
reduction in imports, principally energy, led to a quasi-equilibrium in  the trade balance. 
Consequently,  the  current  account  deficit  is projected  to  have  sharply  declined  from  a 
revised  13% of GDP in  1994 to 3.5% in 1995. 

Medium- and long-term  loans still represented the main part  of capital inflows  in 1995. 
Direct investment  remained  low.  Gross reserves  of the  central bank  had  reached  some 
US$ 265 mio by end-1995, or the equivalent  of 4.8 months of imports,  compared  to 3 
months at end-1994 and  1.4  months at end-93. 

40 

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3. 

FOREIGN  DEBT 

Moldova  agreed  to  the  zero  option  with  the  Russian  Federation  and  so  has  no 
responsibility for the external debt of the FSU. Foreign debt of the country  is estimated 
to  have  reached  some  US$  650  mio  by  end  1995  (or  around  42  %  of  GDP),  and  is 
owed  mainly to  Russia,  the IMF and the World  Bank.  Debt  service  as a percentage  of 
exports is projected  to have increased  from  2% in  1994 to some  13 % in  1995. 

A 

K.  ROMANIA 

1.  GENERAL  ECONOMIC  SITUATION 

The  marked  improvement  in  Romania's  economic  growth  and  performance  that  had 
started  in  1994  continued  well  into  1995, driven  mainly  by  exports,  the  resumption  in 
domestic  consumption  and  investment.  Real  GDP growth  accelerated  to  some  5% (as 
compared  to  3.9%  in  1994),  owing  to  a better  performance  of  the  agricultural  sector 
and  an impressive  recovery  in industrial  output  (+  14% during  the first eleven  months 
of 1995). 

Also  investment  recovered  fast,  expanding  during  the  first  nine  months  of  1995  by 
6.3%  over the  same period  of the  previous  year.  Particularly  encouraging  appears  the 
increase  in the  private  investment  (+  9.3%  during  the  same  period).  Inflation  slowed 
down  from  an  annual  rate  of  62%  in  1994  to  24.3% by  October  1995.  In  1995  the 
budget  deficit  was  2.8% of GDP.  The unemployment  rate  progressively  slowed  down 
from  around  11%  at end of  1994 to around  9% in October  1995. 

The  tight  monetary,  fiscal  and  income  policies  implemented  in  1994  were  somewhat 
relaxed  during  the  second  and  third  quarter  of  1995,  reflecting  positive  achievements 
with  regard  to  inflation  and  probably  also  in  view  of  the  parliamentary  elections  in 
1996. 

In  1996,  real  GDP  is  expected  to  increase  by  4%  and  investment  by  8.8%; 
unemployment  is projected  to  soar to  11.2%; the budget  deficit/GDP  ratio  will  further 
decrease to 2.2-2.4%; and annual inflation  is forecasted  to decline to 20%. 

Structural  reforms  are  progressing  with  mixed  results.  The  parliamentary  approval  of 
the long-overdue bankruptcy  law in March  1995 should  now enable the government  to 
speed  up  closure  and  liquidation  of  inefficient  enterprises.  In  1995,  the  authorities 
started  the implementation  of a mass  privatization  programme  by issuing  privatization 
vouchers. On the basis of current  legislation,  some 3900  state-owned  enterprises are to 
be sold  off.  Share dealing will be eased by the establishment  of the  Stock  Exchange  on 
November  20,  1995.  Draft  legislation  dealing  with  the  privatization  of  banks  is 
currently before  parliament. 

2. 

THE  BALANCE  OF PAYMENTS 

The  upturn  in  economic  activity  witnessed  in  1995  led  to  a  sharp  rise  in  imports  and 
this,  combined  with a slightly  lower  export  growth,  resulted  in the  deterioration  of the 
current  account.  By September  1995, the current  account  deficit  reached  nearly US$ 1 
bn, against a deficit  of US$ 430 mio recorded  in 1994. 

The  authorities  are  expressing  a  growing  concern  as  regards  the  deterioration  of  the 
external  position  and  are  considering  new  and  more  effective  export  promotion  plans. 
In this respect,  some  improvement  in trade  balance  is expected  to  come  from  exports 
of agricultural  products, which were liberalized  in the second  half of  1994.  Instruments 
for  export  support  being  considered  would  include  interest  rate  subsidies  and  tax 
breaks.  The Romanian  Trade Centre for  export  promotion  is due to  start  its  operations 

42 

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at  the  beginning  of  1996.  The  Association  agreement  with  the  EU,  facilitating 
Romania's access to EU market,  came into force  on  1  February  1995. 

As for the capital account, FDI and portfolio  investment  slowed  down to US$ 306 mio 
in  the  first  ten  months  on  1995  (against  US$  341  mio  in  1994).  By  mid-1995,  the 
cumulative FDI  amounted  to a total  of US$  1.4  bn.  Official  loan disbursements  remain 
the  principal  source  of  external  finance.  In  this  respect,  in  December  1995,  the  IMF 
approved  the  extension  of the  current  Stand-By  arrangement  through  April  1997  and 
decided  to  augment  the  amount  available  under  it  by  SDR  188.5  mio  (to  SDR  320.5 
mio, or about US$ 475 mio). The World Bank's FESAL (US$ 280 mio) could be made 
available soon. 

After  an  absence  of  some  15  years,  Romania  returned  to  the  international  capital 
markets in  1995 with two  syndicated  loans to  the Romanian  Central  Bank,  amounting 
to US$  150 mio  and  US$  110 mio  respectively.  The  central bank  has been  authorized 
to  borrow  up  to  US$  1  bn  in  1996  and,  as  creditworthiness  improves,  banks  and 
companies may also gain access to the international capital market. 

By October  1995, total  foreign  exchange  reserves  of the banking  system  amounted  to 
US$ 2.5 bn,  equivalent  to  2 months  of imports.  Slightly more than US$  695  mio  were 
held with the Central Bank. This was equivalent to 0.6 months of imports. 

Presently,  Romania  has  a  floating  exchange  rate  regime  and  an  interbank  foreign 
exchange market which has been developed  since  1994. In  1995, the leu was put  under 
pressure,  reflecting  the  deterioration  of the  country's  external  balance.  This  eventually 
led  to  a  further  10%  depreciation  in  the  reference  exchange  rate  reported  by  the 
National Bank.  The difference  between the reference  rate and exchange rate offered  by 
the  private  exchange  bureaus  increased  by  up  to  20%  by  November  1995,  from  its 
normal deviation  level of 3-5%,  which  shows a renewed  segmentation  in the  exchange 
market. 

3. 

EXTERNAL  DEBT 

By  October  1995,  total  foreign  (  medium-  and  long-term)  debt  was  stabilized  at  the 
level of US$ 4.8 bn, or  18.7% of GDP (18.9% in  1994). The external debt  service ratio 
increased  to  13% (8.9%  in  1994)  and  is  expected  to  further  rise  to  close  to  22%  in 
1996.  Despite  this  rapid  increase,  debt  and  debt  service  ratios  remain  relatively 
manageable. 

43 

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L.  RUSSIA 

1. 

GENERAL  ECONOMIC  SITUATION 

After  several years of sharp recession,  output  continued  to  decline in  1995, although at 
a less sharp pace (-4%  of GDP).  Industrial  production  decreased  by only  3% over  the 
previous  year,  against  a  drop  of  24%  in  1994.  The  unemployment  rate  increased  to 
8.2% at year-end,  compared with 7% by end-1994. 

Price  increases,  which  had  peaked  at  hyper-inflationary  levels  in  1992-1993,  had 
remained  high  in  1994  and  until  early  1995, with  a  18% monthly  increase  in  January. 
1995 was a turning point for macro-economic  stabilisation. In March, the Duma  passed 
the  1995 budget  with  a target  deficit  of  5.5% of GDP  (compared  with  11%  in  1994). 
In April, the IMF board  approved  a twelve-month  Stand-By  arrangement  with  Russia, 
initially  aiming  at  a  reduction  in  monthly  inflation  to  1%  by  year-end,  principally  by 
means  of tight  monetary  policies.  The  monetary  base grew  monthly  by  7%  in the first 
half of  1995  and  by 6%  over the  second  half of the  year.  The  budget  deficit,  at  about 
4%  of GDP,  remained  within the  5.5% target.  Revenue  performance,  despite  growing 
tax  arrears,  improved,  whereas  expenditure  was  cut  by  about  17% in  1994.  Inflation, 
however,  declined  only slowly down to a 3.2% monthly level in December,  down  from 
its  high  level  of  the  beginning  of  the  year  but  still  well  over  the  initial  target.  In 
December, the Parliament  approved  the  1996 budget which envisages a 3.85%  deficit. 

Foreign  trade,  which  had  been  subject  to  administrative  distortions  until  early  1995, 
was liberalised.  Import  exemptions were restricted  to a few cases. After  the  completion 
of  the  voucher  mass  privatisation  scheme  which,  by  end-1994,  had  transferred  the 
ownership of  112,000 enterprises  to  private  hands, privatisation  advanced  in  1995 at a 
slower pace than in the previous years. 

2. 

THE  BALANCE  OF  PAYMENTS 

After  a  significant  depreciation  against  the  dollar  over  the  first  quarter,  the  rouble 
stabilised  in June well below the level of 5000 roubles per dollar and appreciated  in real 
terms over the remaining of the year.  This strong  performance  of the rouble,  a result  of 
the  tight  monetary  policies  implemented  in the  context  of  the  Stand-By  arrangement, 
was encouraged  by the high level  of interest  rates  on the treasury  bills market  and was 
accompanied  by  significant  hard  currency  inflows  (including the  sale  of dollars  held  in 
cash  by  residents).  In  July,  in  order  to  cut  inflationary  expectations,  the  authorities 
established  an  exchange  rate  corridor  between  4,300  r/US$  and  4,900  r/US$  which 
performed  successfully  until year-end.  In November,  a new  exchange rate band  for  the 
first half of  1996 was announced  with a range of 4550 r/US$ to  5150 r/US$. 

Owing to  increasing  export  earnings,  which  showed  a 23% growth  in dollars  over  the 
first three quarters of the year, the trade balance recorded  a significant  surplus in  1995, 
estimated  US$17.4  bn,  compared  with  US$  14  bn  in  1994.  This  suggests  an  initially 
undervalued  level  of  the  rouble  which  was  only  partially  compensated  by  this  year's 
appreciation  (+  72% on  a year-end  basis)  in real  terms.  The  current  account,  at  about 
US$  6  bn  (or  1.5%  of  GDP),  remained  in  surplus  despite  a  negative  balance  of 
services. 

44 

A 

The  capital  account,  burdened  with  significant  amortization  payments  (about  US$  12 
bn)  was  in  deficit  in  spite  of  important  purchases  from  the  IMF  (US$  5.4  mio).  The 
deferral  of  private  debt  payments  and  a  rescheduling  in  the  Paris  Club  provided 
exceptional  relief in the  amount  of US$  24 bn.  The  foreign  exchange  reserve  position 
substantially  improved.  By the  end  of the year,  net  international  reserves  amounted  to 
about US$ 8 bn, or  1.2 months of imports, against only US$ 2.3 bn a year before. 

3. 

FOREIGN  DEBT 

According  to  the  agreements  reached  with  the New  Independent  States,  Russia  is the 
successor  state  for  the  external  assets  and  liabilities  of the  former  Soviet  Union.  The 
level  of  the  Russian  debt,  which  includes  the  capitalisation  of  accumulated  arrears, 
represents,  in  a  context  of  recession,  an  increasing  burden  for  the  country.  By  end-
1995,  foreign  debt,  at  an  estimated  US  $  130  bn,  represented  about  33%  of  GDP. 
Most  of this debt  is owed  to  official  bilaterals  (about  US$  80 bn), a substantial  part  to 
commercial  banks  (about  US$  33  bn),  and  a  smaller  but  rapidly  growing  part  to  the 
international  financial  institutions.  The  bulk  of  Russian  debt  represents  the  debt 
inherited from the FSU (about US dollars  115 bn). 

Russia's  inability  to  service  its  debts  has  triggered  several  Paris  Club  rounds  since 
1992. On 3 June  1995, Russia  reached  an agreement  with its Paris Club  creditors on a 
new  rescheduling  for  debt  maturities  falling  due  in  1995.  Subsequently,  the total  debt 
service  in  1995  amounted  to  about  US$  17.6  bn  (including  US$  5  bn  interest 
payments),  or  22%  of  estimated  exports.  Paris  Club  creditors  also  agreed  to  start 
discussions  on  a wider  rescheduling  of the  Russian  debt  as  soon  as  an  agreement  can 
be  reached,  in  early  1996,  on  a  three-year  extended  fund  facility  (EFF).  This  should 
allow  to  bring  debt  service  down  to  sustainable  levels  in  the  coming  years.  An 
agreement  in principle was also reached  in November with London  Club creditors on a 
wide  scale  restructuring  of  the  private  debt.  The  reconciliation  of  the  exact  terms  of 
this  agreement  with  some  600  banks  is now  taking  place with  the  objective  of  a final 
agreement by the end of June  1996. 

45 

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M.  THE  SLOVAK  REPUBLIC 

1. 

GENERAL  ECONOMIC  SITUATION 

After  growing by 4.8% in  1994, the  Slovak  economy  continued  to  strengthen  in  1995. 
GDP  growth  accelerated  to  7.4%  in January-September  (year-on-year)  and  industrial 
production rose by  10.1% in November  (year-on-year). Domestic demand  has replaced 
net  exports  as the  force  driving  economic  expansion.  The  unemployment  rate  is  on  a 
downward  trend,  having  declined  from  15.2%  in  January  1995  to  12.8%  last 
November. 

Despite this strong growth performance,  inflation  has continued  to  decelerate,  reaching 
7.2%) at end-1995, compared  to  11.7% at  end-1994.  Slovakia  has thus become  one of 
the  few  transition  countries  that  can  boast  a  single-digit  inflation  rate.  Real  wage 
growth  accelerated  to  about  5%  in  1995  but  this,  it  seems,  is  being  offset  to  an 
important  extent by productivity gains. 

The reduction  in inflation  has continued  to be supported  by restrictive  macroeconomic 
policies. Reflecting  larger than anticipated  revenues from the VAT and income tax,  the 
state budget  deficit  finished  1995 with  a deficit  of  Sk  8.3  bn, well below  the  Sk 21 bn 
deficit  that  had been programmed.  Monetary policy was kept  tight  in  1995, with broad 
money  expanding  by  7.9%  in  the  first  9  months  of  the  year,  only  slightly  above 
inflation.  For  1996, the monetary  programme  of the National Bank  of  Slovakia  (NBS) 
targets  broad  money  growth  of  13.2%,  consistent  with  a  reduction  of  inflation  to  6-
7.5% and real GDP growth of 5.8%. 

The  new  government  formed  in  December  1994  decided  in  June  1995  to  cancel  the 
voucher privatization  scheme. Instead  of shares in state enterprises, the 3.5 mio Slovak 
citizens  that  bought  vouchers  in  1994  have  been  given  5-year  interest-bearing  bonds 
issued by the National Property Fund. Privatization through  standard  methods (often  in 
the  form  of  direct  sales  to  managers  and  employees)  has  gathered  momentum  since 
mid-1995 but is being criticized for  lack of transparency. 

2. 

THE  BALANCE  OF  PAYMENTS 

The balance of payments has experienced  a clear improvement  since the second  quarter 
of  1994.  The  current  account  swung from a deficit  of  US$  0.6  bn  (5.4%  of  GDP)  in 
1993 to surpluses of US$ 0.7 bn (6% of GDP) in  1994 and  of US$ 0.4 bn in the first 7 
months  of  1995.  The  evolution  of  the  trade  balance  at  the  end  of  the  year,  however, 
suggests  that  the  current  account  surplus  may  have  began  to  shrink  reflecting  strong 
domestic demand. 

The  capital  account  has  also  improved,  although  net  FDI  inflows  remain  low.  About 
US$  300  mio  of  official  macro-financial  assistance  (IMF,  World  Bank's  Economic 
Recovery  Loan  and  Japan  Exim  Bank)  have  been  disbursed  since  mid-1994.  In 
addition, the NBS issued  in July  1994 a US$ 250 mio bond  in the Samurai  market, and 
certain  companies  and  banks  have  been  able  to  borrow  abroad  at  relatively  long 
maturities.  Finally,  the  tight  management  of  inter-bank  liquidity  by  the  NBS,  in 
combination  with  the  perceived  stability  of the  Slovak  crown  (and,  in the  first  half  of 

46 

A 

1995,  the  expectation  of  a  revaluation  against  the  Czech  crown),  has  led  to  some 
short-term  capital  inflows.  Slovakia's  access  to  the  international  capital  markets  has 
been reinforced  by the upgrading  by  Standard  & Poor's of its rating  from  BB~ to  BB+ 
in April  1995, and by the assignment  by Moody's  of an investment  grade rating  (Baa3) 
in May 1995. 

These  favourable  trends  in  both  the  current  and  the  capital  account  have  been 
translated  into  a  substantial  increase  in  reserves.  Official  foreign  exchange  reserves 
(excluding those obtained from  gold  swaps) have risen from  US$ 416 mio at  end-1993 
to  US$  2.8  bn  in  October  1995,  or  about  3.5  months  of  imports.  Following  a  10% 
devaluation  in  July  1993,  the  exchange  rate  of  the  crown  has  been  stable  against  a 
basket  of Western currencies.  In July  1994, the number of currencies in the basket  was 
reduced  from five to two  (the Deutsche mark  and the US  dollar). In January  1996, the 
fluctuation  band around the central rate was increased from +-  1.5% to +- 3%. 

Despite the  strengthening  of the  balance  of payments, the  Slovak  authorities  intend  to 
maintain  until  end-1996  the  import  surcharge  introduced  in  March  1994.  As  of 
October  1995,  the  Slovak  crown  was  made  fully  convertible  for  current  account 
purposes  and  the  bilateral  clearing  system  with  the  Czech  Republic  was  terminated. 
The authorities also plan to liberalize some capital flows. 

The mid-term review of the IMF stand-by arrangement,  initially scheduled  for  February 
1995,  has  not  been  completed.  In  any  case,  the  authorities  announced  in  April  1995 
that, in view of the improvement  in the balance of payments and reserve  position,  they 
did not intend to make any further  purchases under this IMF facility. 

3. 

FOREIGN  DEBT 

Slovakia  inherited  from  the  Czechoslovak  federation  a  relatively  low  external  debt. 
Although  debt  and  debt  service  ratios  have  deteriorated  since  the  country's 
independence,  they  remain  at  reasonable  levels.  The  foreign  debt/GDP  ratio  has 
increased from 25.7% at end-1992 to 33.7% in July  1995. Debt  service as a percentage 
of exports has risen from  3.3% in  1992 to an estimated  9.5% in  1995. 

47 

A 

N.  TRANSCAUCASIAN REPUBLICS 

1.  GENERAL  ECONOMIC  SITUATION 

After  a  sharp  decline  in  1990-93  (75%),  Armenia's  GDP  recovered  in  1994  (+5.4%). 
This positive growth trend  is expected  to have continued  in  1995 with a 5% estimated 
increase,  due  partly  to  better  results  in  industrial  output  which  grew  by  10% in  1994 
and by  13% in the first half of  1995. 

A tightening  of monetary  policy  succeeded  in halting  hyperinflation  in the  second  half 
of  1994.  In  1995,  inflation  is  projected  to  reach  about  30%,  down  from  1900%  in 
1994, owing to  a further  tightening of monetary policy and an increase in the supply of 
agricultural  goods.  Over  the  last  two  years,  Armenia  has  moved  from  a  highly 
expansionary fiscal policy  characterized  by extremely  large  deficits financed by  central 
bank  credit  to  a  policy  featuring  much  smaller  deficits  financed  primarily  by  external 
sources.  The fiscal deficit  after  grants  is  estimated  to  have  declined  to  some  10%  of 
GDP  in  1995,  from  16%  in  1994  and  about  50%  in  1993.  Substantial  progress  has 
been  made  in  the  area  of  structural  reform,  namely  in  price  liberalisation,  enterprise 
restructuring  and small-scale privatisation. 

In  Azerbaijan,  the  GDP  decline  -  some  20%  per  year  between  1992  and  1994  -
continued at a lower rate -  15% - in the first half of  1995 but  statistics do not take into 
consideration  the  activity  of  an  emerging  informal  sector,  particularly  in  trade  and 
services.  Monetary  stability  was  set  as the  primary  goal  of financial policies  in  1995 
and average monthly inflation  fell to  1.5%  in the period  April-October  1995, compared 
to  a  yearly  rate  of  about  1700%  in  1994.  This  was  made  possible  by  the  fiscal 
consolidation  started in  1995: the compression in expenditures brought  the fiscal deficit 
to  an  estimated  8%  of  GDP,  down  from  11%  in  1994,  the  main  part  of  this  deficit 
being financed by external funds  linked to the signature of the oil contract  with western 
companies. Regarding structural  reforms,  progress has been made with respect to price 
and  trade  liberalisation,  but  much  remains  to  be  done  in  enterprise  restructuring  and 
privatisation. 

After  the  sharp  decline  of  Georgia's  output  between  1990  and  1994  -  70%  -,  the 
economy  continued  in  1995 to  face  severe bottlenecks,  especially  arising  from-energy 
shortages.  There were however  signs of recovery in  1995, mainly due to  an increase in 
agriculture  output  despite  a  lack  of  basic  inputs  and  weak  property  rights.  Official 
unemployment  remained  rather  low  (some  4%)  in  1995,  but  a  recent  informal  poll 
indicated  a  rate  above  11%.  Tight  financial  policies  have  succeeded  in  halting 
hyperinflation  (average  rate  of  2.5%)  in  the  first  eight  months  of  1995,  compared  to 
66%  in  the  first  nine  months  of  1994)  and  in  stabilizing  the  exchange  rate  of  the 
coupon,  replaced  by the lari in October  95. The fiscal deficit  after  grants was  reduced 
to  an  estimated  7%  in  1995,  mainly  through  sharp  cuts  in  expenditures  and  the 
monétisation of external food  assistance. Revenue performance,  however,  remains very 
weak.  Several  structural  reforms  have been introduced  (price liberalisation,  elimination 
of  state  order  system,  privatisation  process).  Substantial  further  efforts  are  however 
still  needed,  namely  in  privatisation,  land  reform  and  in  the  development  of  an 
appropriate legal framework for  a market-based  economy. 

48 

A 

2. 

THE  BALANCE  OF  PAYMENTS 

Reflecting  an  increase  in  imports  associated  with  official  transfers,  Armenia's  current 
account before transfers  further  deteriorated  in dollar terms in the first half of  1995. As 
a percentage  of GDP, however,  the  deficit  decreased  from  35% in  1994 to  about 25% 
in  the  same  period.  Owing  to  purchases  under  IMF  programmes  and  World  Bank 
credits, official  reserves increased  in  1995 to reach about US$  100 mio (or 2 months of 
imports)  in  November.  During  the  first  half  of  1995,  the  exchange  rate  of  the  dram 
remained  stable  against  the  dollar,  while the  real  effective  exchange  rate  increased  by 
about  4%>,  reflecting  a  depreciation  against  FSU  currencies  more  than  offset  by  an 
appreciation  against  non-FSU currencies. 

Much  of  the  recent  deterioration  in  Azerbaijan's  current  account  is  due  to  a  sharp 
decline  in  the  terms  of  trade  (increased  import  prices  from  CIS  countries  to  world 
levels  and  increased  transportation  costs,  owing  to  the  war  situation  in  neighbouring 
Chechnya).  As  a  percentage  of  GDP,  the  trade  and  the  current  balances  deteriorated 
from  7%  and  8.5%  in  1994  to,  respectively,  12.5%  and  16.9%  in  1995.  Important 
inflows  in the capital account were registered  in  1995, reflecting  the use of the EU loan 
for  import  of  food  and  medicine,  but  also  the  effects  of  the  signature  between  the 
government  and  a  consortium  of  international  oil  companies  of  an  oil  production 
led  to  a 
sharing  contract.  These 
strengthening of international  reserves which reached  some US$  140 mio - 2 months of 
imports - by end-June  1995 and were projected  to further  increase before  end-1995. As 
a result  of the tightening  of credit  policies in early  1995  and  the  associated  increase in 
interest  rates  to  positive  real  levels,  the  exchange  rate  of  the  manat  against  the  US 
dollar  remained  broadly  stable  in  1995,  following  a  devaluation  of  more  than  90% in 
1994. 

together  with  IMF  disbursements, 

inflows, 

Partly reflecting  a steep decline in gas consumption,  Georgia's trade deficit  is estimated 
to  have declined  by 28% in the first half of  1995. The  current  account  balance,  before 
transfers,  has  recorded  a  pattern  similar  to  the  trade  balance,  with  a  projected  1995 
deficit  of US$ 410 mio (some  16% of GDP), down from  US$ 450 mio (35% of GDP) 
in  1994.  Official  transfers  have  been  a  significant  source  of financing for  the  current 
account  deficits  registered  in  recent  years.  The  capital  account,  dominated  by  official 
transactions,  has  moved  into  deficit  since  1994,  due  to  important  amounts  of 
amortisation  falling  due.  The  resulting  deficit  in  the  overall  balance  of  payments  was 
largely  financed  through  the  accumulation  of  arrears,  which  reflected  the  near 
exhaustion  of  official  reserves.  These  reserves,  however,  increased  sharply  in  1995  to 
reach US$  165 mio or about  3 months of imports by end-November.  This increase was 
partly  due  to  programmed  drawings  on  IMF  credits,  but  also  to  the  successful 
introduction  of the  new  currency,  the  lari.  Exchange  rate  developments  in  1995  have 
been  strongly influenced  by the interventions of the central bank, which  have  served  to 
sterilise  the  impact  of  credit  expansion  to  central  government.  This  led  to  a  rather 
stable official  exchange rate of the currency  and to  a substantial  appreciation in the real 
effective  exchange rate. 

49 

A 

3. 

FOREIGN DEBT 

The  three  countries  agreed  to  the  zero  option  with  the  Russian  Federation  and  so 
entered  the  independence  with  modest  external  obligations.  Since  then,  the  situation 
sharply  deteriorated,  as  Armenia  and  Georgia  are  in  arrears  on  their  debt  servicing, 
while Azerbaijan  has already negotiated  a debt rescheduling. 

Armenia's  external  debt  increased  rapidly  at US$  310 mio by end-June  95 (some 25% 
of GDP)  and  is  estimated  to  have  reached  about  US$  350  mio by  end-95, while  total 
scheduled  debt  service could reach  more than 20% of exports  of goods  and  non-factor 
services. 

Azerbaijan  had  accumulated  by end-1994  a US$ 230 mio external  deb and  could  reach 
US$ 277 mio (about  15% of GDP) in  1995. In  1995, the country  was unable to  repay 
debts arriving to  maturity  but  creditors  - Russia,  Turkmenistan  and  Turkey  -  accepted 
to  reschedule  them.  The  whole  debt  of  the  country  is  now  of  short  or  medium-term 
maturity and is to be repaid between  1996 and  1999. 

By the end of  1994, Georgia had accumulated  a foreign  debt  of almost  US$  1  bn (80% 
of  GDP).  The  bulk  of  this  debt,  mainly  contracted  to  finance  imports,  has  now 
accumulated  in arrears.  In the first half of  1995, debt  service falling  due was  estimated 
at  about  US$  119 mio (over  50% of exports  of goods and  non-factor  services).  Faced 
with  this very  heavy  debt  burden,  the  Georgian  authorities  have  approached  creditors 
to request  financial  support  designed  to help bringing the country's external  obligations 
in line with its very limited debt-servicing capacity. 

50 

A 

O.  UKRAINE 

1. 

G E N E R AL  E C O N O M IC S I T U A T I ON 

Following  sharp  output  contractions  between  1990 and  1994, GDP  decline  slowed 
down  markedly  in  1995  (average  change  of  -13%,  compared  to  -23% in  1994). 
Industrial  production  is estimated  to  have  fallen  by  some  20% last  year,  following  a 
36% reduction in  1994. The official  unemployment  figure of 0.4%  still does not  reflect 
the  protracted  fall  in  output;  the  International  Labour  Organization  estimates  that 
hidden unemployment has reached as much as 20%. 

In  the  first  half  of  1995,  the  Ukrainian  authorities  continued  to  implement  their 
stabilization  policies, first in the context  of the  IMF Systemic  Transformation  Facility 
of October  1994 and then under the IMF stand-by  arrangement  (SB A)  of April 1995. 
Relatively  strict  monetary and credit  policy led to a rapid  deceleration  of inflation  to a 
monthly rate of 5% in mid-1995. However,  loosening of policies in the summer months 
prevented  a further  reduction  of inflation  in the second  half of  1995 to the target  rate 
of  1-2%. On average, inflation  fell from 401% by 1994 to  180% in  1995. 

The  budget  deficit  on a cash  basis  was more  than  cut by half,  from  8.6% of GDP in 
1994  to  4.1% in  1995. The target  deficit  rate  of  3.3%  of  GDP was,  however,  not 
achieved,  mainly because of the Government's decision to extend budget guarantees for 
Ukrainian gas imports from  Russia beyond the agreed deadline of September  1995; this 
was  an  important  reason  for  the  IMF's  decision  in  December  to  postpone  the 
completion  of the third  quarter  review under  the SB A until the programme  is back on 
track.  But the  overrun  of public  expenditures  was also  due to  large  wage  increases 
granted to government workers and subsidies to the coal mine sector. 

Between  fall  1994 and spring  1995, there  were  considerable  reform  achievements, in 
particular  the  liberalization  of  prices  and the  foreign  exchange  market,  as  well  as a 
sharp  reduction  of  government  procurement  in  the  agricultural  sector.  However, 
subsequently  the reform  dynamics  slowed  down  markedly;  in  some  areas  there  were 
even  reversals  of  earlier  achievements.  Progress  was particularly  unsatisfactory  with 
regard  to privatization,  but foreign  trade  policy was also not sufficiently  liberalized  so 
that it continued to impede exports, especially of agricultural products. 

— 

2. 

T HE  BALANCE  OF  PAYMENTS 

In  1995, Ukraine's balance  of payments  situation  remained  tight.  The current  account 
deficit  stabilized  at US$  1.4  bn (some  4.5% of GDP).  The merchandise  trade  deficit 
also  remained  roughly  unchanged  at US$ 2.1 bn. However,  the earlier  contraction  of 
trade  volumes  (in the order  of  15%  in  1994) was halted.  Overall  exports  expanded 
moderately  (3%),  although  with  respect  to  the  West  the  expansion  was  dynamic 
(15%>).  Imports  from  Western  countries  also  increased  strongly  (some  10%), but 
overall  imports  nevertheless  contracted  somewhat  given  a  strong  decline  in  energy 
imports. 

In the context  of the IMF-supported  programme, the Ukrainian  authorities  agreed not 
to  accumulate  any  more  external  arrears  towards  Russia  and  Turkmenistan.  This 

51 

A 

assurance  was  also  the  basis  for  Russia's  agreement  in  March  1995  to  reschedule 
Ukrainian  arrears  on  gas  supplies.  However,  in  the  course  of  1995,  and  in  particular 
with  the  beginning  of the  heating  season,  external  arrears  were  accumulated  (mostly 
with  Russia).  This  has  played  an  important  role  for  the  suspension  of  the  stand-by 
arrangement.  At the end of  1995, the external arrears stood at US$ 236 mio. 

In  1995,  external financing was  somewhat  lower  than  expected  mainly  owing  to  the 
difficulties  in the  implementation  of  the IMF  programme.  Nevertheless,  gross  foreign 
reserves were accumulated to a level corresponding to  1  month of imports. 

3. 

FOREIGN  DEBT 

In  1995, Ukraine's external debt  stock increased  from  US$ 7.1  bn in  1993 to  US$ 
8.1  bn.  In percent  of GDP, this represents  a decline from  29% to  24%. The ratio 
of external  debt  service to  exports  of goods  and  services  fell  from  12% to  10%. 
The  Ukrainian  authorities  are  presently  discussing  the  possibility  of  Russia 
rescheduling some of the recently accumulated Ukrainian debt on gas deliveries. 

52 

A 

Statistical  annex 

TABLES OF STATISTICS 

EXPLANATORY NOTES 

ANNEX: DEFINITION OF FIGURES USED IN THE REPORT 

1 

18 

24 

o 

CAPITAL OUTSTANDING IN RESPECT OF OPERATIONS  DISBURSED 

TABLE 1 

Operation 

MEMBER STATES 
A.  Balance of payments 
1.  Greece 
2.  Italy 
B.  Others 
3.  Euratom 
4.  NCI and NCI  earthquakes 
5. EIB Mediterranean, 
Spain, Greece,  Port. 

MEMBER  STATES - TOTAL 

THIRD COUNTRIES 
A.  Financial  assistance 
1.  Hungary 
2. Czech  Republic 
3. Slovak  Republic 
4.  Bulgaria 
5.  Romania 
6. Algeria 
7.  Israel 
8.  Baltic  States 
9.  Moldova 
10.  Ukraine 
11.Belarus 
12.  Former  Soviet  Union 
B.  Other 
13. EIB Mediterranean 
14.  EIB Central & E. Europe I 
15. EIB Central & E. Europe II 
16.  EIB Asia, Latin  America 
17.  EIB South Africa 

(ECU million) 

Authorized 
ceiling 

Capital 
outstanding 
30.06.95 

Capital 
outstanding 
31.12.95 

Remainder to 
be disbursed 
31.12.95 

2200 
8000 

14000 

4000 
6830 

1500 

26330 

1050 
250 
255 
400 
580 
600 
160 
220 
45 
285 
75 
1250 

6362 
1700 
3000 
750 
300 

1000 
4071 

741 
1289 

439 

7540 

440 
250 
125 
360 
455 
400 
160 
110 
25 

702 

1756 
658 
24 
107 

1000 
4045 

720 
1113 

385 

7263 

440 
250 
125 
360 
510 
500 
160 
135 
45 
85 
30 
347 

1782 
837 
96 
149 

1200 
4000 

0 
0 

0 

5200 

260 
0 
130 
.- 40 
70 
100 
0 
85 
0 
200 
45 
18 

3647 
844 
2905 
601 
300 

THIRD  COUNTRIES  - TOTAL 

17282 

5572 

5851 

9245 

GRAND  TOTAL 

43612 

13111 

13114 

14445 

1) No disbursement is planned. 
2) The third and fourth tranches had still not been paid at 31.12.95. So far, the Italian 
Government has not requested payment. 

ANNEX TO TABLE 1 

SITUATION IN RESPECT OF EIB OPERATIONS (31.12.95) 

Operations 

EIB  Mediterranean, 

Spain, Greece,  Port. 
Third countries  EIB  Med. 
Central & Eastern  Europe I 
Central & Eastern  Europe II 
Asia,  Latin America 
South Africa 

Credit line 
authorized 

Loans  made 
available,  minus 
cancellations 

Initial 
disbursement 

Amount 
outstanding 
at 31.12.1995 

1500 
6362 
1700 
3000 
750 
300 

1465 
4972 
•  1647 
1894 
607 
45 

1576 
2715 
856 
96 
149 

385 
1782 
837 
96 
149 

NB:  The fact that the initial disbursement sometimes exceeds the authorized ceiling is due to differences 
in the ecu rate between the date on which the contracts were signed and 31.12.95. 

a 

T A B LE  2 
MAXIMUM  ANNUAL  RISK  B O R NE  BY T HE  COMMUNITY  BUDGET 
(Estimate  in ECU million  based on all operations  disbursed  at  31.12.1995 

1996 

1997 

1998 

1 9 99 

2 0 00 

2001 

2002 

2003 

TOTAL 

MEMBER  STATES 

CAPITAL 
A.  Balance of  payments 

1.  Greece 
2.  Italy 

B.  Structural  loans 

3.  Euratom 
4.  NCI  and  NCI  EQ 
5.  EIB  Med. Old.  Prot. 

Sp.  Gr,  Port 

500 
500 

153 
306 

73 

500 
1006 

94 
91 

57 

444 
547 

72 

2539 

13 
42 

45 

16 
42 

50 

Capital -  subtotal 

1533 

1063 

1747 

109 

2639 

INTEREST 
A.  Balance of  payments 

1.  Greece 
2.  Italy 

B.  Structural  loans 

3.  Euratom 
4.  NCI  and  NCI  EQ 
5.  EIB  Med. Old.  Prot. 

Sp.  Gr.  Port 

95 
255 

57 
95 

33 

48 
215 

42 
69 

27 

46 
215 

10 
20 

20 

160 

160 

3 
12 

15 

1 
10 

11 

Interest  -  subtotal 

535 

400 

313 

190 

182 

71 

21 

92 

7 

7 

14 

23 

23 

21 

21 

2 

5 

7 

2 

3 

5 

1000 
4045 

720 
1100 

362 

7226 

190 
1005 

113 
216 

123 

1647 

MEMBER  STATES  -  TOTAL 

2068 

1463 

2060 

299 

2821 

106 

30 

26 

8873 

NON-MEMBER  COUNTRIES 

CAPITAL 
A.  Financial  assistance 

6.  Hungary 
7.  Czech  Republic 
8.  Slovak  Republic 
9.  Bulgaria 
10.  Romania 
11.  Israel 
12.  Algeria 
13.  Ex  USSR 
14.  Baltic  States 
15.  Moldova 
16.  Ukraine 
17.  Belarus 
, 
B.  Guarantees 
18.  EIB  Mediterranean 
19.  E l B C + E E u r.  I +  II 
20.  EIB  Asia  Latin  America 

260 

204 

134 
30 

80 
127 
63 
140 

160 
250 
143 

141 
44 
12 

Capital  -  subtotal 

628 

1161 

INTEREST 
A.  Financial  assistance 

6.  Hungary 
7.  Czech  Republic 
8.  Slovak  Republic 
9.  Bulgaria 
10.  Romania 
11.  Israel 
12.  Alqena 
13.  Ex  USSR 
14.  Baltic  States 
15.  Moldova 
16.  Ukraine 
17.  Belarus 
B.  Guarantees 
18.  EIB  Mediterranean 
19.  E l B C + E E u r.  I +  II 
20  EIB  Asia  Latin  America 

Interest  -  subtotal 

NON-MEMBER  COUNTRIES  -
TOTAL 

26 
25 
13 
36 
51 
16 
50 
14 
14 
5 
9 
3 

123 
63 
6 

453 

18 
25 
13 
36 
51 
16 
50 
7 
14 
5 
9 
3 

114 
61 
6 

426 

100 
123 
62 
150 
185 

157 
63 
16 

856 

10 
12 
6 
22 
51 

25 

14 
5 
9 
3 

103 
57 
6 

322 

190 

80 

110 
5 

153 
87 
18 

452 

7 
14 

25 

14 
5 
9 
3 

81 
47 
5 

162 
83 
16 

451 

7 
33 

25 

14 
5 
9 
3 

92 
53 
6 

70 

150 

9 

17 
6 

142 
87 
18 

499 

V 

7 
6 

25 

3 
4 
9 
3 

70 
41 
5 

55 

100 

25 
9 
17 
6 

134 
87 
19 

451 

6 

10 

3 

7 
2 

50 
35 
4 

244 

208 

171 

119 

440 
250 
125 
360 
510 
160 
500 
347 
135 
32 
51 
18 

1155 
560 
105 

4749 

54 
62 
32 
115 
210 
32 
210 
21 
73 
32 
63 
1 

672 
385 
41 

2004 

9 
17 
6 

133 
80 
6 

252 

2 
5 
2 

40 
29 
4 

82 

1081 

1586 

1178 

695 

660 

670 

570 

334 

6753 

GRAND  TOTAL 

3149 

3049 

3238 

994 

3481 

776 

600 

360 

15626 

(Eastern  Europe  ) 
(Other  non-member  countries) 

751 
330 

837 
749 

871 
307 

394 
300 

378 
281 

261 
409 

254 
316 

151 
184 

3876 
2876 

2-

s 

TABLE 3 
MAXIMUM THEORETICAL ANNUAL RISK BORNE BY THE COMMUNITY  BUDGET 
(Estimate in ECU million based on all operations disbursed, adopted and proposed by the Commission) 

1996 

1997 

1998 

1999 

2000 

2 0 01 

2002 

2003 

T O T AL 

MEMBER  S T A T ES 

CAPITAL 
A.  Balance  of  payments 

I . G r e e ce 
2.  Italy 

B.  Structural  loans 
3. Euratom  +  NCI 
4.  EIB  Sp.Gr.Port 

500 
500 

459 
73 

500 
1006 

185 
57 

991 
72 

2539 

55 
45 

58 
50 

Capital  -  subtotal 

1532 

1063 

1748 

108 

2639 

2000 

2000 

23 

21 

1000 
8045 

1820 
362 

2023 

2021 

11227 

71 
21 

92 

INTEREST 
A.  Balance  of  payments 

1.  Greece 
2.  Italy 

B.  Structural  loans 
3.  Euratom  +  NCI 
4.  EIB  Sp.Gr.Port 

Interest  -  subtotal 

95 
425 

152 
33 

705 

48 
553 

111 
27 

738 

48 
638 

30 
20 

735 

553 

553 

340 

340 

15 
15 

11 
11 

7 
7 

2 
5 

170 

2 
3 

190 
3571 

329 
123 

583 

575 

354 

347 

175 

4212 

MEMBER  S T A T ES  -  T O T AL 

2237 

1801 

2483 

691 

3215 

447 

2370 

2196 

15439 

NON-MEMBER  COUNTRIES 

CAPITAL 
A.  Financial  assistance 

5.  Hungary 
6. Czech  Republic 
7. Slovak  Republic 
8.  Bulgaria 
9.  Romania 
10.  Israel 
11.  Algeria 
12.  Ex  USSR 
13.  Baltic  States 
14.  Moldova 
15.  Ukraine 
16.Belarus 
17.  Euratom, C+E  Eur. 
B.  Guarantees 
18. EIB  Mediterranean 
19.  E l B C + E E u r.  I +  II 
20.  EIB Asia  Latin  America 
2 1.  EIB  South  Africa 

260 

204 

134 
30 

100 
123 
62 
150 
185 

80 
127 
63 
140 

160 
250 
161 

141 
44 
12 

157 
63 
16 

Capital  -  subtotal 

628 

1178 

856 

INTEREST 
A.  Financial  assistance 

5.  Hungary 
6. Czech  Republic 
7.  Slovak  Republic 
8.  Bulgaria 
9.  Romania 
10.  Israel 
1 1.  Algeria 
12.  Ex  USSR 
13.  Baltic  States 
14.  Moldova 
15.  Ukraine 
16.Belarus 
17.  Euratom,  C+E  Eur. 
B.  Guarantees 
18.  EIB  Mediterranean 
19.  EIB C+E  Eur.  I  +  II 
20.  EIB Asia  Latin  America 
2 1.  EIB  South  Africa 

Interest  -  subtotal 

57 
25 
20 
40 
55 
16 
55 
14 
18 

5 
19 
5 
10 

168 
112 
15 
2 

635 

44 
25 
26 
44 
58 
16 
60 
7 
22 
6 
29 
8 
30 

262 
219 
33 
9 

897 

36 
12 
20 
30 
58 

35 

22 
6 
29 
8 
50 

374 
337 
52 
18 

190 

80 

110 
5 

327 
269 
48 
11 

850 

26 

13 
15 
21 

35 

22 
6 
29 
8 
88 

456 
395 
61 
29 

236 
164 
30 
3 

623 

26 

14 
15 
40 

35 

22 
6 
29 
8 
70 

447 
402 
62 
20 

70 

150 

9 
17 
6 
13 

420 
371 
65 
19 

55 

100 

25 
12 
37 
11 
27 

459 
399 
69 
25 

260 

80 
70 

100 

85 
12 
57 
11 
40 

473 
393 
69 
25 

700 
250 
125 
440 
580 
160 
600 
365 
220 
38 
111 
28 
80 

2347 
1733 
309 
83 

1140 

1219 

1675 

8169 

26 

13 
15 
13 

35 

11 
6 
29 
8 
94 

436 
361 
56 
28 

26 

13 
8 
13 

20 

11 
5 
27 
7 
91 

408 
324 
50 
26 

26 

~8 

7 

10 

11 
3 
23 
6 
87 

376 
287 
45 
23 

912 

267 
62 
118 
175 
263 
32 
285 
21 
139 
43 
211 
55 
520 

2927 
2437 
374 
155 

8083 

1086 

1194 

1203 

1129 

1028 

NON-MEMBER  COUNTRIES 

-  T O T AL 

1263 

2075 

1942 

1817 

2053 

2269 

2247 

2587 

16252 

G R A ND  T O T AL 

3500 

3876 

4425 

2508 

5267 

2716 

4617 

4783 

31691 

(Eastern  Europe  ) 
(Other  non-member  countries) 

873 
390 

1132 
943 

1290 
652 

984 
833 

1086 
967 

1060 
1209 

1090 
1157 

1466 
1121 

8980 
7272 

3 

•  _ 

Country  risk  indicators 

Country:  Algeria 

Real GDP  growth  rate (in  %) 
Hydrocarbon  production  ( %  change) 

Inflation ra  (Dec/Dec) 
Exchange  (end  of  period) 
Nominal el (change  Q4/Q4)  (-  -  depreciation) 
Real effect  (change  Q4/Q4) (-  =  depreciation) 

1993 

1994 

1995 
Latest data 
or estimates  (E) 

-2,0 
-0.6 

16.1 
24,0 
-7.9 
12,8 

1.1 
-2,5 

34,9 
42,9 
-78.6 
-40,4 

5,3 
1.5 

22.2  (E) 
52.2 
-21,7 
-34,5 

General  government  balance  (as  % of  GDP) 

-6.7 

-4,4 

-2,8 

Balance  of  payments 

Exports of G&S  (in  bn  USD) 
Current  account  balance  (in %  of GDP) 
Net  inflow of foreign  direct  investment  (in  mio  USD) 
Official  FX  reserves  (end of period) 

in  bn  USD 
in months  of imports  of  G&S 

External  debt 

External  debt 
(in  convertible  currencies,  in  bn  USD,  end  of  period) 

medium  and  long-term  (>  1 year) 
short-term  (=<  1 year) 

Convertible  debt service  (in bn  USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports  of G&S  (%) 
Debt service/exports  of G&S (%) 
Arrears  (on both  interest  and principal,  in mio  USD) 
Debt  relief agreements  and rescheduling  (bin  US$) 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off  track 

11,0 
1.6 
0,0 

1.5 
1,9 

25,7 

25,0 
0,7 
9,1 
7,2 
1,9 
51,8 
206,8 
82,2 
No 
No 

No 

9,5 
-6,9 
0,0 

2,6 
2,9 

10,5 
-5,7 
100,0 

1.9  (Nov.) 
2.0  (Nov.) 

29,6 

33.8  (E) 

28,9 
0,7 
4.6  (3) 
3,2 
1,4 
67.7 
252,0 
48.7  (3) 
No 
4,5 

n.a. 
n.a. 
3.8  (3) 
2.2  (3) 
1.6  (3) 
78.5  (E) 
264.4  (E) 
49,1 
No 
4,8 

SBA 
(5. 94 - 5.  95) 
On-track 

SBA 
(5. 94 - 5.  95) 
EFF 
(5. 95 - 5.  98) 
On-track 

Indicators  of  market's  perceived  creditworthiness 

Moody's  long-term  foreign currency  rating  (end of  per.) 
S&P  long-term foreign  currency  rating  (end of  period) 
Euromoney 

Position  in the  ranking  (1) 
(number  of  countries) 
The  Institutional  Investor 

Position  in the  ranking  (1) 
(number  of  countries) 
Credit  rating  (2) 

Not  rated 
Not  rated 
Mar  Sep 
68  79 
(169)  (170) 
Mar  Sep 
62  69 
(127)  (133) 
28.2  27.1 

Not  rated 
Not  rated 
Mar  Sep 
92  96 
(167)  (167) 
Mar  Sep 
75  78 
(135)  (135) 
26.3  24.6 

Not  rated 
Not  rated 
Mar  Sep 
102  107 
(187)  (181) 
Mar  Sep 
89  91 
(135)  (135) 
23.5  22.8 

(1) 
(2) 

(3) 

The  higher  the  ranking  number,  the lower the creditworthiness  of the  country. 
Countries  are rated on  a scale of zero to  100, with  100 representing the least chance of default. A  given  country 
may  improve its  rating  and still fall in the  ranking  if also the average global rating for all rated countries  improves. 
After  rescheduling. 

A 

5 

"  "  " 

Country  risk  indicators 

Country:  Belarus 

Real GDP growth rate Cm %) 
Industrial production ( % change) 
Unemployment rate (end of period) 

rate 

inflation 
Exchange rate ( Rbs per USD) 
Nominal effective exchange 
Real effective exchange  rate 

rate 

(Dec/Dec) 
(average) 
(change,  Q4/Q4)  (- -  depreciation) 
(change,  Q4/Q4)  (- =  depreciation) 

1993 

1994 

1995 
Latest data 
or estimates (E) 

-11,6 
-10,0 
1,5 

1990 
932 
n.a. 
n.a. 

-20.0 
-35,0 
2,0 

2220 
2202 
n.a. 
n.a. 

-7.0(E) 
-10.0(E) 
n.a. 

290(E) 
11500 
n.a. 
n.a. 

General government  balance  (as  % of GDP) 

-6,3 

-1,7 

-3,2 

Balance of  payments. 

Merchandise exports  (in mio USD) 
Current account balance (in % of GDP) 
Net inflow of foreign direct investment  (in mio USD) 
Official  FX reserves  (end of period) 

in  mio USD 
in months of imports 

2941 
-6,7 
18 

75,0 
0,3 

3138 
-11,4 
10 

108,0 
0,3 

3135(E) 
-4.1 (E) 
20(E) 

426.0 (E) 
1,5 

External  debt 

External debt 
(in convertible  currencies,  in mio  USD, end  of  period) 

medium and long-term  (>  1 year) 
short-term (=<  1 year) 

Convertible debt service (in mio USD) 

principal 
interest 

External debt/GDP (%) 
External debt/merchandise  exports (%) 
Debt service/merchandise  exports (%) 
Arrears (on both interest and principal, in bn USD) 
Debt rescheduling  agreement 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off track 
( - / Date) 

Indicators  of  market's  perceived  creditworthiness 

Moody's long-term foreign currency rating  (end of period) 
S&P long-term foreign currency rating (end of period) 
Euromoney 

Position in the ranking  (1) 
(number of countries) 
The Institutional  Investor 

Position in the ranking (1) 
(number of countries) 
Credit rating (2) 

964,0 

1500,0 

2085.0 (E) 

n.a. 
n.a. 
14,7 
n.a. 
n.a. 
25,0 
33,0 
0,5 
n.a. 

n.a. 
n.a. 
197,0 
n.a. 
n.a. 
20,0 
48,0 
5,7 
493 
with  Russia 
on gas  arrears 

n.a. 
n.a. 
239.0 (E) 
178.0(E) 
61.0(E) 
22.0 (E) 
66.0(E) 
7.6  (E) 
460 
with Russia 
on gas arrears 

STF 
(08.93 -  8.94) 
Off track 
See footnote 
(3) 

Not rated 
Not rated 
Mar  Sep 
148  139 
(169)  (170) 
Mar  Sep 
100 
(127)  (133) 

STF 
(01.95) 
See footnote 
(3) 

SBA 
(07.95 - 06.95) 
Off track 
(4) 

— 

Not rated 
Not rated 
Mar  Sep 
145  138 
(167)(167) 
Mar  Sep 
109  109 
(135)  (135) 
15.5  15.7 

Not rated ~ 
Not rated 
Mar  Sep 
135  134 
(187)(181) 
Mar  Sep 
112  112 
(135)  (135) 
15.2  15.5 

(1) 
(2) 

(3) 

(4) 

The higher the ranking number, the lower the creditworthiness  of the country. 
Countries are rated on a scale of zero to 100, with  100 representing the least chance of default. A given  country 
may improve its rating and still fall in the ranking if also the average global rating for all rated countries  improves. 
IMF 1993 STF programme went off track in early  1994. However, IMF staff considered favourably the  government 
programme adopted in Autumn  1994, which was supported with the second STF tranche by end-January  1995. 
The first quarterly review of the programme, scheduled for December  1995, could not be completed. 

t> 

B 

Country-risk indicators 

Country:  Bulgaria 

Real GDP growth rate (in %) 
Industrial production ( % change) 
Unemployment rate (end of period) 

Inflation rate 
Exchange rate (Leva per USD) 
Nominal effective exchange rate 
Real effective exchange rate 

(end of period) 
(end of period) 
(change, Q4/Q4)  (- = depreciation) 
(change, Q4/Q4)  (- = depreciation) 

1993 

1994 

1995 
Latest data or 
estimates (E) 

-2,4 
-8,5 
16,3 

63,8 
32,7 
-33,5 
59,2 

(E) 
(E) 

1,4 
4,0 
12,9 

121,9 
66,0 
-101,8 
n.a. 

2.5 
2,8 
11.1 

33,0 
69,8 
-5.7 
n.a. 

General government balance (as % of GDP) 

-15,7 

-6,6 

-6,7 

(E) 

Balance of payments 

Exports of G&S (in bn USD) 
Current account balance (in % of GDP) 
Net inflow of foreign direct investment (in mio USD) 
Official reserves, including gold (end of period) 

in  bn USD 
in months of imports of G&S 

External debt 

External debt 
(in convertible currencies,  in bn USD, end of period) 

medium and long-term (> 1  year) 
short-term (=< 1 year) 

Convertible debt service (in bn USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports of G&S  (%) 
Debt service/exports of G&S  (%) 
Arrears (on both interest and principal, in bn USD) 
Debt relief agreements and rescheduling 

IMF arrangements 

Type/no 
(Date / - ) 
On track/off track 
( - / Date) 

Indicators of market's perceived  creditworthiness 

Moody's long-term foreign currency rating (end of period) 
S&P long-term foreign currency rating (end of period) 
Euromoney 

Position in the ranking (1 ) 
(number of countries) 
The Institutional investor 

Position in the ranking (1 ) 
(number of countries) 
Credit rating (2) 

3,7 
-12,8 
40 

1,0 
2,0 

4,2 
-0,2 
105 

1.3 
3,0 

4,8 
2,2 
165 

1,8 
3,6 

(E) 
(E) 
(E) 

(Oct) 
(Oct) 

12,5 

10,4 

10,7 

7,3 
5,2 
1,6 
1,1 
0,5 
120,5 
266,5 
33,7 
n.a. 
London Club 
(roll-overs, and 
DDSR agreed 
in principle) 

8,9 
1,5 
1,0 
0,5 
0,5 
109,3 
202,2 
18,4 
n.a. 
London Club 
DDSR  (July) 
Paris Club 
resched. (Apr) 

9,2 
1,5 
1,1 
0,5 
0,6 
83,0 
159,6 
17,5 
0,0 
No 

(E) 

(E) 
(E) 
(E) 
(E) 
(E) 
(E) 
(E) 
(E) 

SBA+STF 
(3/94-3/95) 
SBA suspend. 
in Sep 94 

Not rated 
Not rated 
Mar  Sep 
122  125 
(169) (170) 
Mar  Sep 
91  89 
(127) (133) 
18.9  19.5 

Not rated 
Not rated 
Mar Sep 
88  98 
(167) (167) 
Mar  Sep 
91  95 
(135)  (135) 
19.8  20.8 

Not rated 
Not rated 
Mar Sep 
90  90 
(187)  (181) 
Mar  Sep 
93  94 
(135)  (135) 
21.9  22.2 

(1 )  The higher the ranking number, the lower the creditworthiness of the country. 
(2)  Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country 
may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. 

Country-risk  indicators 

Country: 

Czech  Republic 

Real GDP growth rate (in %) 
Industrial production ( % change) 
Unemployment  (% of labour force)  (end of period) 

Inflation rate 
Exchange rate (CK's per USD) 
Nominal effective exchange rate 
Real effective exchange rate 

(Dec/Dec) 
(end of period) 
(change,  Q4/Q4)  (- =  depreciation) 
(change,  Q4/Q4)  (- =  depreciation) 

1993 

1994 

1995 
Latest data 
or estimates (E) 

-0,9 
-5,4 
3,5 

18,2 
29,9 
4.2 
19,3 

2.6 
2,3 
2.8 

10,2 
28,2 
0,0 
6,8 

5,2 
12,9 
2,9 

7,9 
26,3 
n.a. 
n.a. 

(Nov) 

(Oct) 

General government  balance  (as % of  GDP) 

0,5 

0,1 

0,5 

(E) 

Balance of  payments 

Exports of G&S (in mio USD) 
Current account balance (in % of GDP) 
Net inflow of foreign direct investment  (in mio USD) 
Official FX reserves (end of period) 

in  bn USD 
in months of imports of G&S 

External  debt  (end of  period) 

External debt 
(in convertible  currencies,  in bn  USD, end of period) 

medium and long-term (> 1 year) 
short-term  (=< 1 year) 

Convertible debt service (in bn USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports of G&S  (%) 
Debt service/exports of G&S  (%) 
Arrears  (on both interest and principal, in mio USD) 
Debt relief agreements and rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off track 
( - / Date) 

Indicators  of  market's  perceived  creditworthiness 

Moody's long-term foreign currency  rating (end of period) 
S&P long-term foreign currency  rating (end of period) 
Euromoney 

Position in the ranking (1 ) 
(number of countries) 
The Institutional  Investor 

Position in the ranking (1) 
(number of countries) 
Credit rating (2) 

16728 
0,5 
542 

3.9 
2,8 

18837 
0,0 
749 

6,2 
4,2 

22195 
-3,5 
1965 

(E) 
(E) 
(Jan-Sep) 

12,9 
8,0 

(Nov) 
(Nov) 

8,5 

6,5 
2,0 
1,4 
0,9 
0,5 
27,0 
50,8 
8,4 
No 
No 

10,7 

7,8 
2,9 
2,5 
n.a. 
n.a. 
29,6 
54,7 
13,0 
No 
No 

15,0 

(Jun) 

(Jun) 
(Jun) 
(Jun) 

(Jun) 
(Jun) 
(E) 

9,6 
5,4 
3,1 
n.a. 
n.a. 
31,0 
67,6 
14,0 
No 
No 

SBA 
(3/93-3/94) 
On-track 

— 

SBA 
(3/93-3/94) 
On-track 
All debts to IMF 
paid ahead of 
schedule. 

Baa3 
BBB 
Mar  Sep 
43 
48 

(169) (170) 
Mar  Sep 
40 
42 

(127)  (133) 
44.6 46.6 

Baa2 (Jun) 
BBB+ (Jul) 
Mar  Sep 
40  39 
(167)  (167) 
Mar  Sep 
40  39 
(135)  (135) 
49.7  52.8 

Baal  (Sep) 
A  (Nov) 
Mar  Sep 
35  41 
(187)  (181) 
Mar  Sep 
33  30 
(135)  (135) 
55.8  58.4 

(1 )  The  higher  the  ranking  number,  the  lower  the  creditworthiness  of  the  country. 
(2)  Countries  are  rated  on  a  scale  of  zero  to  100,  with  100  representing  the  least  chance  of  default.  A  given  country 
may  improve  its  rating  and  still fall  in the  ranking  if  also  the  average  global  rating for  all  rated  countries  improves. 

"7 

B 

• -  - 

Country-risk  indicators 

Country: 

Estonia 

Real GDP growth rate (in %) 
Industrial production ( % change) 
Unemployment rate (end of period) 

Inflation rate 
Exchange rate (Krons per USD) 
Nominal effective exchange rate 
Real effective exchange rate 

(end of period) 
(end of period) 
(change, Q4/Q4)  (- = depreciation) 
(change, Q4/Q4)  (- = depreciation) 

General government  balance (as % of GDP) 

Financial balance (1) 
Fiscal balance (1) 

Balance of  payments 

Merchandise exports (in mio USD) 
Current account balance (in % of GDP)  (excl. official transfers) 
Net inflow of foreign direct investment  (in mio USD) 
Official FX reserves (end of period) 

in  mio USD 
in months of goods imports 

External  debt 

External debt 
(in convertible currencies, in mio USD, end of period) 

medium and long-term (> 1 year) 
short-term (=< 1  year) 

Convertible debt service (in mio USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/merchandise exports  (%) 
Debt service/merchandise exports  (%) 
Arrears (on both interest and principal, in mio USD) 
Debt relief agreements and rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off track 
( - / Date) 

Indicators  of market's  perceived  creditworthiness 

Moody's long-term foreign currency rating (end of period) 
S&P long-term foreign currency rating (end of period) 
Euromoney 

Position in the ranking (2) 
(number of countries) 
The Institutional Investor 

Position in the ranking (2) 
(number of countries) 
Credit rating (3) 

1993 

1994 

1995 
Latest data 
or estimates (E) 

(E) 

-3,5 
-27,0 
1.7 

35,7 
13,2 
n.a. 
n.a. 

4,0 
10,0 
4,0 

41,6 
13,0 
n.a. 
n.a. 

4.0 
n.a. 
5,4 

28,0 
11,5 

25,0 

1,4 
-0,7 

0,9 
0,0 

0,8 
0,3 

(E) 
(E) 

801 
-5,7 
160,0 

388 
4,0 

135,5 

n.a. 
n.a. 
13,5 
n.a. 
n.a. 
8,6 
17,0 
1,7 
No 
No 

1323 
-9,0 
212,0 

447 
3,2 

271 

n.a. 
n.a. 
2,1 
0 
2,1 
7,7 
17,1 
1,5 
No 
No 

1913 
-10,6 
190,0 

584 
2,8 

(E) 
(E) 
(E) 

(E) 
(E) 

353 

(E) 

n.a. 
n.a. 
23 
0 
23 
9,9 
13,5 
1,2 
No 
No 

(E) 
(E) 
(E) 
(E) 
(E) 
(E) 

SBA/STF 
(10/93-3/95 
On track 

SBA/STF 
(10/93-3/95) 
On track 

SBA— 
(4/95-4/96) 
On-track 

Not rated 
Not rated 
Mar  Sep 
126  122 
(169) (170) 
Mar  Sep 
81  84 
(127) (133) 
21.4  20.9 

Not rated 
Not rated 
Mar  Sep 
105  102 
(167) (167) 
Mar  Sep 
88  86 
(135) (135) 
20.7  23.6 

Not rated 
Not rated 
Mar  Sep 
66  76 
(187) (181) 
Mar  Sep 
79  79 
(135) (135) 
25.4  26.3 

(1)  Financial balance does not take into account government net lending, whereas fiscal balance does. 
(2)  The higher the ranking number, the lower the creditworthiness of the country. 
(3)  Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country 
may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. 

ft 

Country-risk  indicators 

Country:  Hungary 

Real GDP growth rate (in %) 
Industrial production ( % change) 
Unemployment  (% of labour force) (end of period) 

Inflation rate 
Exchange rate (forints per USD) 
Nominal effective exchange rate 
Real effective exchange rate 

(Dec/Dec) 
(end of period) 
(change, Q4/Q4)  (- = depreciation) 
(change, Q4/Q4)  (- = depreciation) 

1993 

1994 

-0,8 
4,0 
12,1 

21,1 
100,7 
-3,1 
10,2 

2,9 
9,0 
10,9 

21,2 
111,0 
-14,3 
0,0 

1995 
Latest data -
or estimates (E) 

2,0 
6,0 
10,4 

28,5 
134,6 
-25,4 
-6,4 

(E) 

(Oct) 
(Q3) 
(Q3) 

Consolidated  state budget  balance  (as % of GDP)  (GFS  definition) 

-7,5 

-6,1 

-3,0 

(E) 

Balance of  payments 

Exports of G+S (in mio USD) 
Current account balance (in % of GDP) 
Net inflow of foreign direct investment  (in mio USD) 
Official reserves (end of period) 

in  bn USD 
in months of imports of  merchandises 

External  debt 

External debt 
(in convertible  currencies,  in bn  USD,  end of period) 

medium and long-term (> 1 year) 
short-term (=< 1 year) 

Convertible debt service (in bn USD) 

principal (1 ) 
interest 

External debt/GDP  (%) 
External debt/Exports of G+S  (%) 
Debt service/Exports of G+S  (%) 
Arrears (on both interest and principal, in mio USD) 
Debt relief agreements and rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off track 
( - / Date) 

indicators  of  market's  perceived  creditworthiness 

Moody's long-term foreign currency  rating (end of period) 
S&P long-term foreign currency  rating (end of period) 
Euromoney 

Position in the ranking (2) 
(number of countries) 
The Institutional Investor 

Position in the ranking (2) 
(number of countries) 
Credit rating (3) 

10371 
-9,6 
2328 

6,7 
7,1 

10219 
-9,5 
1100 

7,0 
7,4 

16759 
-6,0 
3300 

11,9 
12,0 

(E) 
(E) 
(E) 

24,6 

28,5 

31,7 

(Nov) 

22,6 
2,0 
4,9 
3,3 
1,6 
68,0 
237,2 
47,4 
No 
No 

26,1 
2,4 
6,2 
4,3 
1,9 
69,5 
278,9 
60,8 
No 
No 

(Nov) 
(Nov) 
(E) 

(E) 
(E) 
(E) 

28,5 
3,2 
8,4 
n.a. 
n.a. 
74,1 
189,2 
50,0 
No 
No 

SBA 
(9/93-12/94) 
On track 

SBA 
First review 
uncomple 
ted 

-1 

Ba1 
BB+ 
Mar  Sep 
47  46 
(169) (170) 
Mar  Sep 
43  43 
(127) (133) 
44.3  44.8 

Ba1 
BB+ 
Mar  Sep 
44  46 
(167)  (167) 
Mar  Sep 
43  44 
(135)  (135) 
46.1  46.2 

Ba1 
BB+ 
Mar  Sep 
50  44 
(187)  (181) 
Mar  Sep 
45  48 
(135)  (135) 
46.4  45.0 

Including early repayments. 

(1) 
(2)  The higher the ranking number, the lower the creditworthiness of the country. 
(3)  Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country 
may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. 

O. 

Country  risk  indicators 

Country: 

Israël 

Real GDP growth rate (in %) 
Industrial production  ( % change)  (at constant  1990  prices) 
Unemployment  rate  (average) 

Consumer  Price  Index 
Exchange rate (shekel per  USD) 
Nominal effective  exchange  rate (vs the  US$) 
Real effective  exchange  rate (vs the  US$) 

(Dec/Dec) 
(end  of  period) 
(change,  Q4/Q4)  (-  -  deprec.) 
(change,  Q4/Q4)  (-  =  deprec.) 

1993 

1994 

1995 
Latest data 
or estimates (E) 

3.5 
6,5 
10,0 

11.3 
2,986 
-6,1 
1.8 

6,5 
7,2 
7.8 

14.5 
3,018 
-«,1 
2,4 

6.9  (E) 
n.a. 
6.3  (E) 

8.0  (E) 
3,140 
-4.0  (E) 
0.9  (E) 

Central  government  overall  deficit  (as  % of  GDP) 

-2,5 

-2,0 

-3.5  (E) 

Balance  of  payments 

Merchandise trade  (in  bn  USD) 
Current  account  balance  (in % of GDP) 
Net  inflow of foreign  direct  investment  (in mio  USD) 
Gross official  FX  reserves  (end of period)  (in  months  of total  imports) 

in billions  USS 
in months  of imports  of G&S 

External  debt 

External debt  (gross  external  liabilities) 
(in bn  USD,  end  of  period) 

medium  and  long-term  (>  1 year) 
short-term  (=<  1 year) 
Debt service  (in  bn  USD) 

principal  * 
interest  (gross) 

External debt/GDP  (%) 
External debt/exports  (%) 
Debt  service/exports  of goods and services  (%) 
Arrears  (on both  interest  and  principal, in mio  USD) 
Debt  relief agreements  and  rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off  track 
( - /  Date) 

Indicators  of  market's  perceived  creditworthiness 

Moody's  long-term  foreign  currency  rating  (end of  period) 
S&P  long-term  foreign  currency  rating  (end of  period) 
Euromoney 

Position  in the  ranking  (1) 
(number  of countries) 
The  Institutional  Investor 

Position  in the  ranking  (1) 
(number  of countries) 
Credit  rating  (2) 

14,9 
-1,8 
0 

6,382 
2,4 

36,1 

n.a. 
n.a. 
4,1 
1,9 
2,2 
55,8 
242,3 
14,0 
No 
No 

16,5 
-3,0 
406 

6,689 
2,5 

17.8(E) 
-6.2  (E) 
1.350(E) 

8.158(E) 
2.6  (E) 

40,0 

46.8  (E) 

n.a. 
n.a. 
4,6 
2,2 
2,4 
54,2 
226,7 
14,9 
No 
No 

n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
58.9  (E) 
262.9  (E) 
13.0(E) 
No 
No 

No 

No 

No 

Not  rated 
BBB+ 
Mar  Sep 
29  29 
(169)  (170) 
Mar  Sep 
46  46 
(127)  (133) 
39.6  40.5 

Not  rated 
BBB+ 
Mar  Sep 
30  33 
(167)  (167) 
Mar  Sep 
43 
46 
(135)  (135) 
43.4  46.5 

A3 
A-
Mar  Sep 
31  31 
(187)  (181) 
Mar  Sep 
42 
43 

(135)  (135) 
47.9  49.2 

(1) 
(2) 

The  higher  the  ranking  number,  the lower the creditworthiness  of the  country. 
Countries  are rated on a scale of zero to  100, with  100 representing the  least chance of default. A  given  country 
may  improve  its rating  and still fall  in the  ranking  if also the  average  global  rating  for  all rated countries  improves. 
Excludes short-term  debt. 

IO 

B 

Country-risk  indicators 

Country: 

Latvia 

Real GDP growth rate (in %) 
Industrial production ( % change) 
Unemployment (end of period) 

Inflation rate 
Exchange rate (Lats per USD) 
Nominal effective exchange rate 
Real effective exchange rate 

(end of period) 
(change, Q4/Q4)  (- = depreciation) 
(change, Q4/Q4)  (- = depreciation) 

General government  balance (as % of GDP) 

Financial balance (1) 
Fiscal balance (1) 

Balance of  payments 

Exports  (in mio USD) 
Current account balance, excl. official transfers (in % of GDP) 
Net inflow of foreign direct investment  (in mio USD) 
Official  FX reserves (end of period) 

in  mio USD 
in months of imports of G&S 

External  debt 

External debt 
(in convertible currencies,  in mio USD, end of period) 

medium and long-term (> 1 year) 
short-term (=< 1  year) 

Convertible debt service (in mio USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/merchandise exports  (%) 
Debt service/merchandise exports  (%) 
Arrears (on both interest and principal, in mio USD) 
Debt relief agreements and rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off track 
( - / Date) 

Indicators  of market's  perceived  creditworthiness 

Moody's long-term foreign currency rating (end of period) 
S&P long-term foreign currency rating (end of period) 
Euromoney 

Position in the ranking (2) 
(number of countries) 
The Institutional Investor 

Position in the ranking (2) 
(number of countries) 
Credit rating (3) 

1993 

1994 

1995 
Latest data 
or estimates (E) 

(E) 

-12,0 
-32,6 
5,8 

34,8 
0,595 
n.a. 
n.a. 

2,0 
-2,2 
7,0 

26,0 
0,548 
n.a. 
n.a. 

0,0 
n.a. 
6,3 

23,0 
0,512 
0,0 
20,0 

1,0 
0,6 

-1,7 
-4,1 

-3,8 
-4,4 

(E) 
(E) 

998 
4,6 
51 

510 
5,6 

225 
225 
0 
20 
n.a. 
n.a. 
10,0 
24,0 
2,0 
No 
No 

951 
-4,6 
155 

620 
5,5 

359 
359 
0 
27 
20 
7 
10,0 
38,0 
3,0 
No 
No 

(E) 
(E) 
(E) 

(E) 
(E) 

(E) 
(E) 
(E) 
(E) 
(E) 
(E) 
(E) 
(E) 
(E) 

1204 
-4,0 
153 

600 
4,8 

540 
540 
0 
31 
16 
15 
12,0 
45,0 
2,6 
No 
No 

SBA/STF 
(12/93-3/95 
On track 

SBA/STF 
(12/93-3/95) 
On track 

SBA— 
(4/95-4/96) 
Off-track 

Not rated 
Not rated 
Mar  Sep 
133  132 
(169) (170) 
Mar  Sep 
89  87 
(127) (133) 
19.5  20.0 

Not rated 
Not rated 
Mar  Sep 
104  125 
(167) (167) 
Mar  Sep 
94  92 
(135) (135) 
19.6  21.3 

Not rated 
Not rated 
Mar  Sep 
106  116 
(187) (181) 
Mar  Sep 
91  89 
(135) (135) 
22.6  23.4 

(1 )  Financial  balance  does  not  take  into  account  government  net  lending, whereas  fiscal  balance  does. 
(2)  The  higher the  ranking  number,  the  lower the  creditworthiness  of the  country. 
(3)  Countries  are rated  on  a scale  of  zero  to  100,  with  100 representing  the  least  chance  of  default.  A  given  country 
may  improve  its  rating  and  still  fall  in the  ranking  if  also the  average  global  rating  for  all  rated  countries  improves. 

I  V 

C o u n t r y - r i sk  indicators 

C o u n t r y: 

Lithuania 

1993 

1994 

-16,2 
-47,0 
1,6 

188,6 
3,9 
n.a. 
n.a. 

0,9 
-4,6 

1877 
-8,3 
23 

410 
2,4 

345,3 

n.a. 
n.a. 
15,0 
n.a. 
n.a. 
11,2 
16,3 
0,7 
No 
No 

Real  GDP  growth  rate (in  %) 
Industrial  production  ( %  change) 
Unemployment  rate  (end  of  period) 

Inflation  rate 
Exchange  rate  (Litas  per  USD) 
Nominal  effective  exchange  rate 
Real effective  exchange  rate 

(end  of  period) 
(end  of period;  for  1994,  fixed  as  of  1.4.94 
(change,  Q4/Q4) 
(change,  Q4/Q4) 

(-  =  depreciation) 
(-  =  depreciation) 

General  g o v e r n m e nt  balance  (as  % of  GDP) 

Financial  balance  (1) 
Fiscal  balance  (1) 

Balance  of  p a y m e n ts 

Exports  (in  mio  USD) 
Current  account  balance  (in  %  of  GDP),  without  official  transfers 
Net  inflow  of  foreign  direct  investment  (in  mio  USD) 
Official  FX  reserves  (end  of  period, gross  foreign  assets) 

in  mio  USD 
in  months  of  imports  of  G&S 

External  debt 

External  debt 
(in  convertible  currencies, 

in  mio  USD,  end  of  period) 

medium  and  long-term  (>  1 year) 
short-term  (=<  1 year) 

Convertible  debt  service  (in  mio  USD) 

principal 
interest 

External  debt/GDP  (%) 
External  debt/exports  of  G&S  (%) 
Debt  service/exports  of  G&S  (%) 
Arrears  (on  both  interest  and  principal,  in  mio  USD) 
Debt  relief  agreements  and  rescheduling 

IMF  a r r a n g e m e n ts 

Type/no 
(Date  /  - ) 

On  track/off  track 
( - / D a t e) 

Indicators  of  market's  perceived  c r e d i t w o r t h i n e ss 

Moody's  long-term  foreign  currency  rating  (end  of  period) 
S&P  long-term  foreign  currency  rating  (end  of  period) 
Euromoney 

Position  in the  ranking  (2) 
(number  of  countries) 
The  Institutional  Investor 

Position  in the  ranking  (2) 
(number  of  countries) 
Credit  rating  (3) 

1995 
Latest  data. 
or estimates  (E) 

(E) 
(E) 

3,0 
15,0 
6,1 

35 
4,0 
0,0 
30,0 

1,5 
1.0 
4,0 

45 
4,0 
n.a. 
n.a. 

-1,5 
-4,2 

-1.5 
-3,4 

(E) 
(E) 

1930 
-4,3 
60 

588 
2,7 

530 

n.a. 
n.a. 
25,4 
n.a. 
n.a. 
9,7 
25,0 
1,0 
No 
No 

(E) 
(E) 
(E) 

2250 
-3,4 
55 

800 
3,5 

860 

(E) 

n.a. 
n.a. 
43,0 
38 
5 
11,0 
35,0 
2,0 
No 
No 

(E) 
(E) 
(E) 
(E) 
(E) 
(E) 

SBA/STF 
(10/93-3/94) 

On  track 

STF  (10/93-3/94) 
EFF  (10/94-11/97 
On  track 

- E FF 

(10/94-10/97) 
On  track 

Not  rated 
Not  rated 
Mar  Sep 
134  130 
(169)  (170) 
Mar  Sep 
91  93 
(127)  (133) 
18.9  19.0 

Not  rated 
Not  rated 
Mar  Sep 
110  121 

(167)  (167) 
Mar  Sep 
97  96 
(135)  (135) 
18.4  20.0 

Not  rated 
Not  rated 
Mar  Sep 
108  118 

(187)  (181) 
Mar  Sep 
95  90 
(135)  (135) 
21.7  22.9 

(1 )  Financial  balance  does  not  take  into  account  government  net  lending, whereas  fiscal  balance  does. 
(2)  The  higher  the  ranking  number,  the  lower  the  creditworthiness  of the  country. 
(3)  Countries  are  rated  on  a scale  of  zero  to  100,  with  100  representing  the  least  chance  of  default.  A  given  country 
may  improve  its  rating  and  still  fall  in the  ranking  if  also  the  average  global  rating  for  all  rated  countries  improves. 

iz. 

6 

«• "  - 

C o u n t r y - r i sk  i n d i c a t o rs 

C o u n t r y: 

M o l d o va 

Real  G DP  growth  rate  (in  %) 
Industrial  production  (  %  change) 
Unemployment  (%  of  labour  force)  (end  of  period) 

Inflation  rate 

Exchange  rate  (leu  per  U S D) 

(end  of  period) 

(end  of  period) 

Nominal  effective  exchange  rate 

(change,  Q4/Q4) 

(-  - 

depreciation) 

Real  effective  exchange  rate 

(change,  Q4/Q4) 

(-  = 

depreciation) 

1993 

1994 

-8,7 
-7,2 
n.a. 

837 

3,64 

n.a. 

n.a. 

-31,2 

-30,0 

1,0 

116 

4,27 

n.a. 

n.a. 

1995 
Latest  data 
or  estimates  (E) 

1,0 
-10,0 

2,0 

(E) 
(E) 

(E) 

24 

4,50 

n.a. 

n.a. 

G e n e r al  g o v e r n m e nt  b a l a n ce  (as  %  of  GDP) 

-6,8 

-8,1 

-4,0 

(E) 

B a l a n ce  of  p a y m e n ts 

Merchandise  exports  (in  mio  USD) 
Current  account  balance  (in  %  of  GDP) 
Net  inflow  of  foreign  direct  investment  (in  mio  USD) 

Official  FX  reserves  (end  of  period) 

in  mio  USD 
in  months  of  imports  of  merchandises 

E x t e r n al  d e bt 

External  debt 
(in  convertible 

currencies, 

in  mio  USD,  end  of  period) 

medium  and  long-term  (>  1  year) 
short-term  (=<  1  year) 

Convertible  debt  service  (in  mio  USD) 

principal 

interest 

External  debt/GDP  (%) 
External  debt/  merchandise  exports  (%) 
Debt  s e r v i c e / m e r c h a n d i se  exports  (%) 
Arrears  (on  both  interest  and  principal,  in  mio  USD) 
Debt  relief  agreements  and  rescheduling 

IMF  a r r a n g e m e n ts 

Type/no 
(Date  /  -  ) 
On  track/off  track 
(  -  /  Date) 

I n d i c a t o rs  of  m a r k e t 's  p e r c e i v ed  c r e d i t w o r t h i n e ss 

Moody's  long-term  foreign  currency  rating  (end  of  period) 
S&P  long-term  foreign  currency  rating  (end  of  period) 
Euromoney 

Position  in  the  ranking  (1 ) 
(number  of  countries) 
The  Institutional  Investor 

Position  in  the  ranking  (1 ) 
(number  of  countries) 
Credit  rating  (2) 

451 
-9,3 
14,0 

76,6 

1,4 

(E) 

(E) 

(E) 

617 
-12,9 
23,0 

178,8 
3,0 

• 

653 

-3,5 

19,7 

265 
4,8 

168,0 

343,0 

652,0 

(E) 

n.a. 
n.a. 
5,0 
n.a. 
n.a. 
23,0 
37,3 
1,1 
No 
No 

n.a. 
n.a. 
12,3 
n.a. 
n.a. 
26,0 
55,6 

2,0 
No 
No 

n.a. 
n.a. 
84,9 

n.a. 
n.a. 
42,0 
99,8 
13,0 
No 
No 

(E) 

(E) 
(E) 
(E) 

SBA 
(3/93-3/94) 
On-track 

SBA 
(12/93-3/95) 
On-track 

__  SBA 
(3/95-3/96) 
On-track 

Not  rated 
Not  rated 
Mar  Sep 
159  160 
(169)  (170) 

Not  rated 
Not  rated 
Mar  Sep 
148  155 
(167)  (167) 

Not  rated 
Not  rated 
Mar  Sep 
157  141 
(187)  (181) 

Not  rated 

Not  rated 

Not  rated 

(1 )  The  higher  the  ranking  number,  the  lower  the  creditworthiness  of  the  country. 
(2)  Countries  are  rated  on  a  scale  of  zero  to  100,  with  100  representing  the  least  chance  of  default.  A  given  country 
may  improve  its  rating  and  still  fall  in  the  ranking  if  also  the  average  global  rating  for  all  rated  countries  improves. 

•V5 

6 

Country-risk  Indicators 

Country:  Romania 

Real GDP growth rate (in %) 
Industrial production ( % change) 
Unemployment rate (end of period) 

Inflation rate 
Exchange rate ( lei per  USD) 
Nominal effective  exchange  rate 
Real effective  exchange rate 

(Dec/Dec) 
(end  of  period) 
(change,  Q4/Q4)  (- =  depreciation) 
(change,  Q4/Q4)  (- =  depreciation) 

1993 

1994 

1,3 
7,7 
10,2 

295,5 
1276 
-56,9 
39,7 

3,9 
9,9 
11,0 

61,7 
1767 
-29,4 
n.a. 

1995 
Latest data 
or estimates  (E) 

(E) 
(E) 
(E) 

(E) 
(Oct) 

5,0 
14,0 
9,0 

24,3 
2547 
n.a. 
n.a. 

General government  balance  (as  %  of  GDP) 

-0,1 

-1,0 

-2,8 

(E) 

Balance of  payments 

Exports of G&S (in bn  USD) 
Current account  balance  (in  % of  GDP) 
Net inflow of foreign direct investment  (in mio  USD) 
Official  FX reserves  (end of  period) 

in  mio  USD 
in months  of imports  of  G&S 

External  debt 

External debt 
(in convertible  currencies,  in  bn  USD,  end of  period) 

medium and long-term  (>  1 year) 
short-term  (=<  1 year) 

Convertible  debt service  (in mio  USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports  of G&S  (%) 
Debt service/exports  of G&S  (%) 
Arrears (on both interest and principal, in mio  USD) 
Debt relief agreements  and  rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off  track 
(  - /  Date) 

Indicators  of  market's  perceived  creditworthiness 

Moody's long-term foreign currency  rating  (end of  period) 
S&P long-term foreign currency  rating  (end of  period) 
Euromoney 

Position in the ranking (1 ) 
(number of countries) 
The Institutional  Investor 

Position in the  ranking (1 ) 
(number of countries) 
Credit rating (2) 

4,9 
-4,8 
48 

52 
0,1 

4,4 

3,4 
1,0 
330 
147 
183 
21,4 
81,0 
6,4 
No 
No 

6,1 
-1,8 
416 

591 
1,1 

5,5 

4,5 
1,0 
586 
393 
193 
18,9 
81,0 
8,9 
No 
No 

(E) 
(E) 
(E) 

(E) 

(E) 
(E) 

(E) 
(E) 
(E) 

7,4 
-4,7 
306 

695 
0,6 

6,0 

4,8 
1,2 

653 
428 
225 

18,7 
80,0 
13,0 
No 
No 

No 

SBA/STF 
(5/94-12/95) 
On track 

SBA  extended 
through  1997 
and  augmented 
On  Track 

Not rated 
Not rated 
Mar  Sep 
66  75 
(169)  (170) 
Mar  Sep 
73  75 
(127)  (133) 
24.2  24.4 

Not  rated 
Not  rated 
Mar  Sep 
74  77 
(167)  (167) 
Mar  Sep 
76  74 
(135)  (135) 
25.4  26,2 

Not  rated 
Not  rated 
Mar  Sep 
68  64 
(187)  (181) 
Mar  Sep 
73  71 
(135)  (135) 
28.1  29.7 

(1 )  The higher the ranking number,  the  lower the creditworthiness  of the country. 
(2)  Countries are rated on a scale of zero to  100, with  100 representing the least chance  of default. A given  country 
may improve its rating and still fall in the  ranking if also the average global rating for  all rated countries  improves. 

14 

S 

Country  risk  indicators 

, 

Country: 

Russia 

Real GDP growth rate  On %) 
Industrial production ( % change) 
Unemployment  rat© (end of period) 

(Dec/Dec) 

Inflation rate 
Exchange  rate ( Rbs per L (end of  period) 
Nominal exchange  rate 
Real exchange rate (1) 

(change,  Q4/Q4)  (•  =  depreciation) 
(change,  Dec/Dec.) 

(- =  depreciation) 

1993 

1994 

1995 
Latest data 
or estimates (E) 

-12.0 
-16,4 
5.1 

840 
1247 
-62,5 
-66,9 

-15.3 
-21.0 
7.1 

315 
3571 
n.a. 
-2.2 

-4.2 (E) 
-3.0 (E) 
8.2 

231 
4640 
-30 
72,0 

General  government  balance  (as % of GDP) 

-7,7 

-11,5 

-3.9 (E) 

Balance  of  payments 

Exports of G&S (in bn USD) 
Current  account  balance  (in % of GDP) 
Net  inflow of foreign  direct  investment  (in bn USD) 
Official  FX reserves  (end of period)  (excluding  gold)  (net figures) 

in  mio USD 
in months of imports of G&S 

58 
1,6 
0,7 

6,4 
1.3 

66 
-0,4 
-0,2 

2,3 
0,4 

81(E) 
1.6(E) 
n.a. 

8.1 (E) 
1.2(E) 

External  debt 

External  debt 
(in  convertible  currencies,  in bn USD, end  of  period) 

medium  and long-term  (> 1 year) 
short-term  (=<  1 year) 

Convertible  debt  service  (in bn USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports  of G&S (%) 
Debt service/exports  of G&S (%) (before  rescheduling) 
Arrears  (on both  interest  and principal, in bn USD) 
Debt  relief agreements  and rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off  track 
( - /  Date) 

104,0 

119,0 

130.0(E) 

n.a. 
n.a. 
19.4(4) 
14.7 
4,7 
31,0 
'  178,0 
34,0 
(6) 
Paris  Club 
(resched.) 

n.a. 
n.a. 
19.6 (5) 
15,3 
4,3 
40,0 
180,0 
31,0 
(6) 
Paris  Club 
(resched.) 

n.a, 
n.a. 
17.6(5) 
12,3 
5,3 
33.0 (E) 
160.0(E) 
22.0 (E) 
(6) 
Paris Club 
(resched.) 

STF 
(07.93  - 07.94) 
Off track 

STF 
(07.93 - 07.94) 
Off  track 

SBA 
(04.95 - 04.96) 
On  track 

Indicators  of market's  perceived  creditworthiness 

Moody's  long-term foreign currency  rating  (end of period) 
S&P  long-term  foreign currency rating  (end of period) 
Euromoney 

Position in the ranking (2) 
(number  of countries) 
The  Institutional  Investor 

Position in the ranking (2) 
(number  of countries) 
Credit  rating (3) 

Not  rated 
Not  rated 
Mar  Sep 
141  137 
(169) (170) 
Mar  Sep 
87  92 
(127) (133) 
20.2  19.0 

Not  rated 
Not  rated 
Mar  Sep 
138  136 
(167)(167) 
Mar  Sep 
98 
100 
(135)  (135) 
18.1  18.4 

Not  rated 
Not  rated 
Mar  Sep 
141  142 
(187) (181) 
Mar  Sep 
98 
97 

(135)  (135) 
19.4 
19.5 

(1)  Real exchange  rale: (USD/rouble rate x US price  level) /  (Russian  price  level). 
(2) 
The higher the  ranking  number,  the lower the creditworthiness  of the country. 
(3)  Countries  are rated on a scale of zero to  100, with  100 representing  the least chance of default. A given  country 
may  improve  its  rating  and still fall in the  ranking  if also the average global  rating for all rated countries  improves. 
Before  rescheduling. 

(4) 
(5)  After  rescheduling. 
(6) 

Since  1992, Russia  has not been servicing  private  debts contracted  by the FSU. 

AS 

S 

Country-risk  indicators 

Country: 

Slovak  Republic 

Real GDP growth rate (in %) 
Industrial production ( % change) 
Unemployment  (% of labour force)  (end of period) 

Inflation rate 
Exchange rate (SK's per USD) 
Nominal effective exchange rate 
Real effective exchange  rate 

(Dec/Dec) 
(end of period) 
(change,  Q4/Q4)  (- = depreciation) 
(change,  Q4/Q4)  (- =  depreciation) 

1993 

1994 

-4,1 
-8,6 
14,4 

25,1 
33,2 
n.a. 
-1,8 

4,8 
7,0 
14,6 

11,7 
31,3 
n.a. 
2,4 

1995 
Latest data 
or estimates (E) 

7,4 
10,1 
12,8 

(Jan-Sep) 
(Nov) 
(Nov) 

7,2 
29,5 
n.a. 
n.a. 

(Sep) 

General government  balance  (as  % of  GDP) 

-7,6 

-2,7 

-2,5 

(E) 

Balance of  payments 

Exports of G&S (in mio  USD) 
Current account  balance (in % of GDP) 
Net inflow of foreign direct  investment  (in mio USD) 
Official  FX reserves  (end of period) 

in  mio USD 
in months of imports of  G&S 

External  debt 

External debt 
(in convertible  currencies,  in bn  USD, end of period) 

medium and long-term (>  1 year) 
short-term  (=<  1 year) 

Convertible debt service (in mio USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports of G&S  (%) 
Debt service/exports  of G&S  (%) 
Arrears (on both interest and principal, in mio USD) 
Debt relief agreements and  rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off  track 
( - / Date) 

Indicators  of  market's  perceived  creditworthiness 

Moody's long-term foreign currency  rating (end of period) 
S&P long-term foreign currency  rating (end of period) 
Euromoney 

Position in the ranking (1 ) 
(number of countries) 
The Institutional  Investor 

Position in the ranking (1 ) 
(number of countries) 
Credit rating (2) 

7568 
-5,4 
134 

416 
0,6 

3,4 

2,7 
0,7 
674 
490 
184 
30,8 
44,5 
8,9 
No 
No 

8983 
6,0 
184 

1691 
2,3 

3,9 

3,2 
0,7 
791 
n.a. 
n.a. 
31,1 
43,4 
8,8 
No 
No 

11000 
6,0 
150 

(E) 
(E) 
(E) 

2799 
3,4 

(Oct) 
(Oct) 

4,9 

(Jul) 

n.a. 
n.a. 
1045 
n.a. 
n.a. 
33,7 
44,5 
9,5 
No 
No 

(E) 

(Jul) 
(Jul) 

STF 
(7/93 - 7/94) 
On-track 

STF 
(7/93  -7/94) 
SBA 
(7/94-3/96) 

SBA 

(7/94-3/96)  (3) 

(May) 
(Apr) 

Not rated 
Not rated 
Mar  Sep 
56  63 
(169) (170) 
Mar - Sep 
57  57 
(127) (133) 
31  30.6 

Baa3 (May) 
BB- (Feb) 
Mar  Sep 
64  66 
(167)  (167) 
Mar  Sep 
59  59 
(135)  (135) 
31.6  33.1 

Baa3 
BB+ 
Mar  Sep 
53  51 
(187)  (181) 
Mar  Sep 
61  59 
(135)  (135) 
33.2  35.7 

(1 )  The higher the ranking number, the lower the creditworthiness of the country. 
(2)  Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country 
may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. 

(3)  The mid-term review of the programme, which had been scheduled for  February  1995, was not completed. 

1  ^ 

6 

Country  risk  indicators 

Country:  Ukraine 

Real GDP growth (% change) 
Industrial production ( % change) 
Unemployment  rate (end of period) 

1993 

1994 

1995 
Latest data 
or estimates (E) 

-17.1 
-8,5 
0,3 

23,0 
-35,6 
0.3 

-13.0(E) 
-20.0 (E) 
0.4(E) 

Inflation rate 
Exchange rate (Krb per USD) 

(Dec/Dec) 
(end  of  period) 

- auction /  interbank 
-cash 

Nominal effective exchange rate 
Real effective exchange 

rate 

(change,  Q4/Q4)  (• =  depreciation) 
(change,  Q4/Q4)  (- -  depreciation) 

10155 

401 

180 

12610 
25000 
n.a. 
n.a. 

108196 
128000 
n.a. 
2% 

179400 
186000 
n.a. 
60% 

General government  balance (as % of  GDP) 

-10,1 

-8,6 

-4,1 

Balance of  payments 

Exports of G&S (in bn USD) 
Current account balance (excl. transfers)  (in % of GDP) 
Net inflow of foreign direct investment (in bn USD) 
Gross official FX reserves (end of period) 

in  mio  USD 
in months of imports of G&S 

External  debt 

External debt 
(in convertible  currencies,  in bn  USD, end of  period) 

medium and long-term (>  1 year) 
short-term (=<  1 year) 

Convertible debt service paid (in mio USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports of G&S (%) 
Debt service/exports of G&S (%) 
Arrears (on both interest and principal, in mio  USD) 
Debt relief agreements and  rescheduling 

IMF  arrangements 

Type/no 
(Date / - ) 
On track/off track 
( - / Date) 

Indicators  of market's  perceived  creditworthiness 

Moody's long-term foreign currency rating  (end of period) 
S&P long-term foreign currency rating (end of period) 
Euromoney 

Position in the ranking (1) 
(number of countries) 
The Institutional Investor 

Position in th« ranking (1) 
(number of countries) 
Credit rating (2) 

14,4 
-5,9 
0,2 
193 
0.2 

4,1 
n.a. 
n.a. 
202 
n.a. 
n.a. 
12,1 
28,5 
1.3 
548 

14,8 
-6,0 
0,09 
646 
0,5 

15.1 (E) 
-4.5 (E) 
0.12(E) 
1100 
1 

7,1 
n.a. 
n.a. 
1794 
n.a. 
n.a. 
29,2 
48,0 
12,4 
2722 
rescheduling of 
debt owed to 
Russia/Turkm. 

8,1 
n.a. 
n.a. 
1531 
986 
545 
24.1 (E) 
53.6 (E) 
10.2(E) 
236 
rescheduling of 
debt owed to 
Russia/Turkm. 

-

STF 
26 Oct 94 
On track 

SBA 
Dec.  1995 
Off track 

Not rated 
Not rated 
Mar  Sep 
142  146 
(169)  (170) 
Mar  Sep 
96 
95 
(127)  (133) 
18.2 
18.2 

Not rated 
Not rated 
Mar  Sep 
149  147 
(167) (167) 
Mar  Sep 
111  113 
(135)  (135) 
15.1  14.5 

Not rated 
Not rated 
Mar  Sep 
145  138 
(187)  (181) 
Mar  Sep 
109  111 
(135)  (135) 
15.5  15.7 

(1)  The higher the ranking number, the lower the creditworthiness of the country. 
(2)  Countries are rated on a scale of zero to  100, with  100 representing the least chance of default. A given country 

may improve Its rating and still fall in the ranking if also the average global rating for all rated countries  improves. 

j-uiiflfrf' 

17 

5 

EXPLANATORY  NOTES 

The purpose of the tables  1 to 3 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 

LA.  Types  of  operation 

The  risk  covered  by  the Community  budget  results  from  two  types  of  operation: 

borrowing/lending  operations; 
guarantees  given  to  third  parties. 

I.A.I  Borrowing/lending  operations 

In  this 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  is  late  in  making  a  repayment,  the 
Commission  must  draw  on  its  resources  to  repay  the borrowing  on  the due  date. 

I.A.2  Guarantees given  to  third  parties 

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 EIB asks  the  Commission 
to pay  the amounts  owed  by  the defaulter  in  accordance  with  the contract  of  guarantee. 
The guarantee must be paid  within  three months of receiving  the EIB's request.  The EIB 
administers  the  loan  with  all  the  care  required  by  banking  practice  and  is  obliged  to 
demand  the payments  due after  the  guarantee  has been  activated. 

LB.  Mobilization  of  funds  for  guarantee  payments 

The  funds  needed  to  pay  the  budget  guarantee  in  the  event  of  late  payment  by  the 
recipient  of  a  loan  granted  or  guaranteed  by  the  Community  are  raised  as  follows: 

I.B.I.  Borrowing/lending  operations 

(a) 

(b) 

The  amount  required  may  be  taken  provisionally  from  cash  resources  in 
accordance  with  Article  12 of  the  Financial  Regulation.  This  method  is  used  so 
that the  Community  can  immediately  repay  the borrowing  on  the date  scheduled 
in  the event  of  late  payment  by  the  recipient  of  the  loan. 

If  the  delay  extends  to  three  months  after  the  due  date,  the  Commission  draws 
on  the  Guarantee  Fund  to  cover  the  default.  The  funds  obtained  are  used  to 
replenish  the  Commission's  cash  resources. 

18 

B 

(c) 

(d) 

The  transfer  procedure  can  be  used  to  provide  the  budget  heading  with  the 
appropriations  needed  to cover  the  default.  This  method  is  used  when  there  are 
insufficient  appropriations  in  the  Guarantee  Fund  and  must  be  authorized  in 
advance by  the budgetary  authority. 

The  re-use  of  amounts  repaid  by  debtors  who  have  defaulted,  leading  to 
activation  of  the  Community  guarantee,  allows  payments  to  be  made  within  a 
short period  of time always providing,  of course,  that there are recovered  funds 
available. 

I.B. 2.  Community  guarantees for  loans from the EIB's  own  resources 

Since  the  entry  in  force  of  the  Regulation  establishing  a  Guarantee  Fund  for  external 
action,  the  provisions  of  the  Agreement  between  the  Community  and  the  EIB  on 
management  of  the  Fund  state  that,  after  the  EIB calls  in  the guarantee  in  the  event  of 
a  default,  the  Commission  must  authorize  the  Bank  to  withdraw  the  corresponding 
amounts  from  the  Guarantee  Fund  within  three  months. 

If  there  are  insufficient  resources  in  the  Fund,  the  procedure  used  for  activating  the 
guarantee  is  the  same as for  borrowing/lending  operations. 

H. 

CALCULATION 

Some  of  the  amounts  indicated  are  the  result  of  estimates  made  on  the  basis  of  the 
following  assumptions. 

Generally  speaking,  the  exchange  rates  for  loans  in  currencies  other  than  the  ecu  are 
assumed  to have been  stable since 31 December  1995. However,  borrowing and  lending 
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. 

n . A.  MEMBER  STATES 

1. 

2. 

Greece:  A balance-of-payments  loan of ECU  2 200  million  has been  authorized. 
ECU  1 000  million  of  this  amount  has  been  disbursed  in  two  tranches  of 
ECU  5Q0 million  to be repaid  in  1996 and  1998 respectively.  It is assumed  that 
the  remaining  ECU  1 200  million  will  not be  disbursed. 

Italy:  The  Council  decision  of  18 January  1993  granted  a  ECU  8 000  million 
balance-of-payments  loan  to  Italy.  The  loan  is  to  be  made  available-in  four 
tranches  amounting  to  ECU  2  000  million  each  and  -  with  the  exception  of  the 
first  tranche - is conditional  on the attainment  of agreed  targets on Italy's  public 
debt  and  deficit. 

The  first  two  tranches  were  released  in  1993. The  Council  Decision  states  that 
the  third  and  fourth  tranches  could  be  released  as  of  1 February  1994  and 
1  February  1995  respectively.  The  Italian  Government  has  not  applied  for  the 
payment  of  these  two  tranches  which  it  is no longer  planned  to  implement. 

3. 

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. 

II.B.  Non-member  countries 

1I.B.1  Financial  assistance 

19 

B 

n.B.l(a) 

Hungary I 

The  amounts  of  the  first  two  tranches  are final and  certain.  The  third  tranche  of  the 
macrofinancial  assistance decided in  1990 will  no longer be disbursed  since  Hungary's 
balance of payments  is  more favourable than expected.  The first tranche was repaid by 
Hungary in  full  on 20  April  1995. 

II.B. 1(b) 

Hungary  II 

ECU  180 million  has been  granted  and  paid  out  in  full. 

II.B. 1(c) 

Czech  and  Slovak  Republics 

ECU  375  million  has been  granted  in  two tranches  for  a maximum  term of  seven  years 
(bullet),  with  a  first 
tranche  of 
ECU  190 million  for  a  term  of  six  years. 

tranche  of  ECU  185 million  and  a  second 

ECU  130  million  has  been  granted  to  the  Slovak  Republic  in  two  tranches  for  a 
maximum  term  of  seven  years  (bullet).  The  Commission  has  presented  to  the  Council 
a  proposal  for  a  decision  cancelling  this  loan  to the Slovak  Republic. 

II.BJ(d) 

Bulearia  I 

. 

ECU  290  million  has been  granted  in  two tranchés for  a. maximum  term  of  seven  years 
(bullet),  with  a  first  tranche of ECU  150 million  for  a term  of  seven years and  a  second 
tranche of  ECU  140  million  for  a  term  of  five  years. 

II.B. 1(e) 

Bulgaria  II 

The  financial  assistance  of  ECU  110 million  over  a  maximum  period  of  seven  years 
decided  in  1992  is being  granted  in  two  tranches.  The  first  tranche  of  ECU  70  million 
was  paid  on  7  December  1994.  For 
that 
ECU  40  million  could  be paid  in  the  second  half  of  1996. 

is  assumed 

the  -second 

tranche, 

it 

II.B. 1(f) 

' 

Romania  I 

An  estimated  ECU  375'million  in  two  tranches  for  a  maximum  term  of  seven  years 
(bullet).  The  first  tranché  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. 

II.B. 1(g) 

Romania  II 

-

The  new  operation  involving  ECU  80  million  for  a  maximum  term  of  seven  years  was 
disbursed  in  1993. 

II.B. 1(h) 

Romania  III 

This is a seven-year  loan  of  ECU  125  million  to be disbursed  in  two  tranches.  The  first 
tranche  of  ECU  55  million  was  disbursed  in  November  1995.  For  the  second  tranche, 
it  is assumed  that  ECU  75  million  will  be paid  out  in  the  second  half  of  1996. 

II.B.l(i) 

Moldova 

This  is  a  ten-year  loan  of  ECU  45  million  to  be  disbursed  in  two  tranches.  The  first 
tranche  of  ECU  25  million  was disbursed  on  7  December  1994.  The  second  tranche of 
ECU  20  million  was paid  to  Moldova  in  August  1995. 

20 

S 

H.B.l(j) 

Ukraine I 

ECU  85 million  is to be lent in one tranche for a maximum  term  of ten years.  The loan 
was paid out to Ukraine on 28  December  1995. 

II.B.l(k) 

Ukraine  n 

ECU  200  million  is  to be  lent  in  two  tranches  for  a  maximum  term  of  ten  years.  It  is 
assumed  that the first tranche of  ECU  100 million  will be paid  out in  the second  half  of 
1996 and  the second  tranche of  ECU  100  million  in  the  second  half  of  1997. 

II.B. 1(1) 

Belarus 

ECU  75  million  is to be lent in two tranches for a maximum  term of ten  years. The  first 
tranche  of  ECU  30  million  was  paid  to  Belarus  in  December  1995.  For  the  second 
tranche,  it  is assumed  that  ECU  25  million  could  be paid  in  the  first  half  of  1996. 

ILB.l(m) 

Baltic  States 

The first tranche  (ECU  110 million)  of  a seven-year  loan  of  ECU  220  million  was paid 
in  1993. The  second  tranches  for  Estonia  and  Latvia  could  be paid  in  1996. 

Half  of  the  second  tranche  for  Lithuania  -  i.e.  ECU  25  million  of  the  ECU  50  million 
planned  -  was  paid  in  August  1995. 

that 

is  assumed 

It 
for  Estonia  and 
ECU  40  million  for  Latvia  will  be  paid  out  in  the  second  half  of  1996.  The  second 
payment  of  ECU  25  million  for  the  second  tranche  to  Lithuania  is  expected  to  be 
disbursed  in  the  first  half  of  1996. 

tranches  of  ECU  20  million 

the  second 

II.B.l(n) 

Algeria  I 

ECU  400  million  has  been  granted  . in 
ECU  150  million.  The  first  was  paid  in  December. 1991 for  a  term  of  six-years. 

tranches  of  ECU  250  million  and 

two 

The second  tranche  of  ECU  400  million  was paid  on  17 August  1994. . 

'ILB.l(o) 

Algeria  II:-  ' 

ECU  200  million  has been  granted  in  two  tranches  for  a  maximum  term  of  seven  years 
(bullet).  The  first  tranche  of  ECU  100  million  was  paid  out  to  Algeria  in  November 
1995.  It is assumed  that  the second  tranche of ECU  100  million  will be disbursed  in the 
second  half  of  1996. 

II.B.l(p) 

Israel: 

A loan  of  ECU  160  million  has  been  paid  in  full  and  is  repayable  in  1997. 

ILB.2  Guarantees 

//.5.2(a) 

EIB 

The  EIB  has  supplied  the  figures  used  for  calculation  of  the  assumptions  made  for 
drawing  up Table  3  (EIB  loans  to  non-member  countries  from  its  own  resources). 

In  the case of  loans  not disbursed,  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. 

21 

6 

It  is estimated  that  the average  term  will  be  fifteen  years  with  a  three-year  period  of 
grace. 

II.B.2(b) 

Food aid for  the former  Soviet Union 

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 
tranche  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 tranches  two  years and 
three years after  the start of the period  in which the funds  may be drawn. 

Depending  on  the  type  of  contract,  loans  are  repaid  on  15 January,  20 August  or 
28 September. 

The  balance  of  ECU  13.93 million  still  to  be  used  at  31  December  1995  was  for 
Azerbaijan. 

//.B.2(c) 

Euratom,  countries of Central and Eastern  Europe 

Of  the  ECU  1 100 million  involved,  it  is  assumed  that  ECU 200 million  will  be 
disbursed  in  1996,  ECU 200 million  in  each  of  the  three  following  years  and 
ECU  150 million  in 2000 and 2001. 

It is assumed that the loans will be for an average term of twenty years with a five-year 
period of grace. 

22 

•B 

ANNEX 

DEFINITION OF FIGURES USED IN THE REPORT 

I. 

AUTHORIZED  CEILING 

This is the aggregate of the maximum amounts of capital authorized  (ceilings) for each 
operation  decided by the Council (see Table 1). 

In order to relate it to the risk which the budget might have to cover, account should be 
taken of the following  factors  which could affect  it: 

factor  increasing  the  risk:  the  interest  on  the  loans  must  be  added  to  the 
authorized ceiling; 

factors  reducing  the risk; 

limitation  of  the guarantee given  to the EIB to 75 % 
of  the loans signed  in the Mediterranean  countries; 

the  amounts 
operations  already 
concerned, except in the case of balance of payments 
support,  are  the  maximum  amount  of  loans granted 
and not outstanding  amounts authorized; 

repaid,  since 

the amounts authorized  are not necessarily  taken  up 
in  full. 

The breakdown  of authorizations is as  follows: 

LA  Member  States 

Balance of payments  • 
NCI 
Euratom 
EIB; Spain,  Greece,  Portugal 

Member States - total 

14 0002 
6 830 
4 0003 
1  500 

26 330 

2 

3 

Authorized  amount  outstanding:  once  this  figure  is  reached,  further  loans  may  be  granted  as 
previous  operations  are  repaid. 

Including  ECU  1 100 million  which  may  be granted  to  the countries  of  Eastern  Europe and  the 
CIS. 

23 

E> 

I.B.  Non-member  countries 

Hungary  I 
Hungary II 
Czech Republic 
Slovak Republic  I 
Slovak Republic  II 
Bulgaria  I 
Bulgarian 
Romania  I 
Romania  II 
Romania  III 
Israel 
Algeria  I 
Algeria  II 
former  Soviet  Union 
Baltic  States 
Moldova 
Ukraine 
Belarus 
EIB,  old  protocols 
EIB,  Eastern  and  Central  Europe  I 
EIB,  Eastern  and  Central  Europe  II 
EIB,  new  protocols 
EIB,  horizontal  financial  cooperation 
Other  non-member  countries 
South  Africa 

Non-member  countries  - total 

Grand  total 

H. 

CAPITAL  OUTSTANDING 

870 
180 
250 
125 
130 
290 
110 
375 
80 
125 
160 
400 
200 
1 250 
220 
45 
85 
75 
3 032 
1 700 
3 000 
1 530 
1 800 
750 
300 

16 674 

43  004 

This  is  the  amount  of  capital  still  to  be  repaid  on  a given  date  in  respect  of  operations 
disbursed  (see Table  1). 

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. 

_ 

HI.  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. 

2^ 

13 

ISSN 0254-1475 

COM(96) 243 final 

DOCUMENTS 

EN 

01 

Catalogue number  :  CB-CO-96-252-EN-C 

ISBN 92-78-04574-8 

Office  for  Official  Publications  of the European  Communities 

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