Proposal for a Council Decision providing macro- financial assistance for the Former Yugoslav Republic of Macedonia
Date: 1997-05-22
Institutions: European Commission
Subjects: Community loan, North Macedonia, aid for restructuring, cooperation agreement (EU)

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

Brussels,  22.05.1997 
COM(97)  235  final 

97/0144  (CNS) 

Proposal for a 

COUNCIL  DECISION 

providing macro-financial  assistance 

for the Former Yugoslav Republic of Macedonia 

(presented  by  the  Commission) 

EXPLANATORY  MEMORANDUM 

1. 

INTRODUCTION 

Since  1995,  the  Former  Yugoslav  Republic  of  Macedonia,  which  became 
independent in  1991, is continuously improving its external relations. Important  steps 
in this process were the Dayton/Paris peace agreements in late  1995 and the lifting  of 
international economic sanctions against the Federal Republic of Yugoslavia in  1996. 
The  relations  between  the  Former  Yugoslav  Republic  of  Macedonia  and  the 
European  Union  in  particular  have  also  improved  substantially  during  the  last  two 
years  as  the  bilateral  relations  with  Greece  normalized  in  October  1995.  These 
improved relations find their reflection  in the Cooperation  and Transport  Agreements 
between the Former Yugoslav Republic of Macedonia and the European  Community 
which was signed on 29 April  1997 at the General Affairs  Council. 

In November  1996, the Government  of the Former Yugoslav Republic of Macedonia 
addressed  to the Commission  a request  for  Community  complementary  assistance  in 
support  of  the  medium-term  stabilization  and  reform  programme  for  1997-1999 
which  is  backed  by  the  IMF  Enhanced  Structural  Adjustment  Facility  (ESAF) 
adopted  on  11 April  1997.  In  February  1997,  a  G-24/Consultative  Group  Meeting 
was jointly  organized  by the World  Bank  and  the  European  Commission  to  review 
the  Former  Yugoslav  Republic  of  Macedonia's  past  and  future  stabilization  and 
reform  path and to help easing the country's  external financing  constraints  for  1997. 
The  Commission  announced  at  this  meeting  its  intention  to  propose  Community 
macro-financial  assistance  of  up  to  ECU  40  million  in  favour  of  the  Yugoslav 
Republic of Macedonia  and other bilateral donors have given preliminary  indications 
of support. 

2. 

ECONOMIC SITUATION AND PROGRESS WITH STABILIZATION AND REFORM 

From  the  beginning  of  its  statehood,  the  Former  Yugoslav  Republic  of  Macedonia 
has striven to establish a market-based  open economy. The country,  however,  had  to 
face  formidable  obstacles  as  the  inherent  difficulties  of  the  transition  process  were 
compounded  by  adverse  external  developments  such  as  the  dissolution  of  the 
Comecon, the break-up of Former*Yugoslavia and the imposition of trade and transit 
sanctions. 

Soon after  independence, the Former Yugoslav Republic of Macedonia was  plunged 
into  a  severe  economic  crisis:  near-hyperinflationary  conditions  developed,  fiscal 
control  was  lost  and  the  budget  deficit  reached  13.6%  in  1993.  In  the  meantime, 
precarious  balance  of  payments  and  reserves  position,  as  well  as  the  difficulties  in 
allocating  external  liabilities  of  former  Yugoslavia  among  the  individual  republics, 
forced  the  authorities  to  suspend  foreign  debt  servicing  temporarily.  Between  1990 
and  1995,  GDP  fell  by  almost  40%,  total  investment  by  more  than  50%,  real 
consumption declined by 25%, while registered unemployment  increased above 24%. 

In the past two years, however, the situation has improved  considerably.  The prudent 
macroeconomic policies and structural reforms,  initiated in  1994 in the framework  of 
the  IMF  Systemic  Transformation  Facility  and  since  May  1995  with  a  stand-by 
arrangement,  began  to  pay  off.  GDP  started  to  expand  in  1996  (at  an  estimated 
1.1%)  supported  by  consumption  and  investment  increases  of  some  5%.  Consumer 
prices fell by 0.7% in the year to December  1996, from an inflation  rate of 241.8% in 
1993.  This  was  achieved  by  a  sharp  reduction  in  the  budget  deficit  from  13.6%  in 
1993  to  0.4%  in  1996  and  a  cautious  monetary  policy  while  keeping  the  exchange 
rate  of the  denar  stable with the Deutsche  Mark.  But,  at the  same time,  the  current 
account  deficit  widened  considerably  as  imports  surged  and  exports  fell  sharply 
following  the lifting  of economic sanctions against  Serbia/Montenegro. 

In  1993, first  steps were taken to promote the economy's  structural adjustment  when 
basic  laws  were  enacted  to  allow  the  dismantling  of  the  inefficient  state-owned 
enterprise  and  financial  sectors  and  reforming  the  social  safety  net.  Starting  from 
1994, reforms  in these  areas were  implemented  with the  support  of the World  Bank 
and  other  multilateral  and  bilateral institutions  and  donors.  Substantial  progress  was 
made  in  the  privatization  or  liquidation  of  enterprises  and  more  recently  in  the 
restructuring  of  large  loss-making  enterprises.  First  steps  were  also  taken  to 
restructure  the banking  system.  Recently  the authorities took  swift  action  to  close a 
savings house (TAT) when the Central Bank discovered  deposits that  earned  above 
market  interest  and  were  not  fully  covered  by  assets.  Prudential  regulations  and 
capital adequacy requirements were also brought up to international  standards 

3. 

T HE  MEDIUM-TERM  ECONOMIC  PROGRAMME  OF  THE  FORMER  YUGOSLAV 

REPUBLIC  OF  MACEDONIA 

In  order  to  consolidate  the  stabilization  and  oromote  growth  of  the  economy,  the 
Government  of  the  Former  Yugoslav  Republic  of  Macedonia  has  agreed  with  the 
IMF  and  the  World  Bank  on  a  coherent  economic  strategy  for  1997-99  to  be 
supported  by  an ESAF  loan  and  a  Structural  Adjustment  Loan  and  Credit  (SALC), 
respectively. It is expected that real GDP growth in the coming years would be in the 
order  of  5%,  with  a  substantial  stimulus  coming  from  the  external  side  and 
consumption expected to pick up to some 3% in 1998. 

To obtain this result,  the authorities  of the Former Yugoslav Republic  of Macedonia 
intend  to  continue  the  mutually  reinforcing  cautious  monetary  and  fiscal  policies. 
Monetary  expansion  will  remain  under  tight  control.  The  authorities  also  intend  to 
move towards indirect instruments of monetary control from direct controls. 

The  Government  of the Former  Yugoslav  Republic  of Macedonia  aims at  stabilizing 
the  general  government  fiscal  balance  at  a  surplus  of  1.5%  . Tax  compliance  in  the 
private  sector will be  strengthened  in order  also to  lower  income  and  social  security 
tax  rates.  Furthermore,  it  is  planned  to  replace  the  sales  tax  by  a  VAT.  On  the 
expenditure side agricultural and export  subsidies (some 2% of public expenditures in 
1995  and  1996)  are  intended  to  be  phased  out.  The  Government  also  intends  to 
reintroduce  a public  sector  wage  freeze  and  review  social  spending  in  order  to  find 
possibilities  for  savings.  At  the  same time,  investment  expenditure  will  be  increased 
by 5%. 

The  Government  of the Former  Yugoslav  Republic  of Macedonia  plans to  continue 
and enhance the reforms  in the area of trade, enterprise, financial  and  social sector  as 
well as agriculture. 

Regarding the trade regime, the new tariff law following  the harmonized  system was 
adopted  in  1996  and  most  quantitative  trade  restrictions  were  eliminated.  The 
Government  will  now  increase  transparency  in  tariff  setting  and  exemptions  and 
further  eliminate discretionary exemptions. 

The  authorities  intend  to  continue  and  intensify  the  restructuring  of  the  enterprise 
sector.  To  encourage  effective  enterprise  ownership,  they  plan  to  sell  government-
owned  shares to outside investors and eliminate restrictions on trading  of shares.  The 
privatization  or liquidation of the largest politically  sensitive enterprises  placed  under 
the  Special Restructuring  Programme  shall be continued  and the  privatization  of the 
other enterprises shall be completed by the end of 1997. 

In  the  financial  sector,  the  authorities  will  further  strengthen  the  supervision  over 
banks and savings houses and pursue the restructuring  or liquidation of institutions in 
financial  difficulties.  The government will encourage joint ventures with and a greater 
representation  of foreign banks. 

The Government plans to improve the social protection programme  and the  long-run 
solvency of the pension system, as well as the quality of health and education  systems 
and to make further  progress in providing  for  a more flexible and  competitive  labour 
market. 

Finally, in the area of agriculture, the authorities of the Former Yugoslav Republic of 
Macedonia  undertake  to  reduce  further  the  interventions  in  output  prices  and  end 
input  subsidies.  The  Agricultural  Privatization  Law  of  April  1996,  requiring 
enterprises  to  present  privatization  and,  if  appropriate,  restructuring  plans  has 
prepared  the  ground  for  privatization  in  this  sector.  The  Government  is  now  also 
preparing  a  new  Law  on  Land  use,  and  intends  to  strengthen  the  Land  Cadastre 
Office. 

4. 

BALANCE  OF PAYMENTS DEVELOPMENTS AND FINANCING  NEEDS 

Despite the  persistently  critical balance  of  payments  situation,  the  financial  relations 
of the Former Yugoslav Republic of Macedonia with its external  creditors  have been 
progressively  normalized  since  1993.  Arrears  with  the  Bretton  Woods  Institutions 
were  eliminated  in  1993  (IMF),  1994  (World  Bank)  and  1995  (IFC).  Rescheduling 
agreements  were  reached  with  the  Paris  Club  of  official  creditors  in  July  1995 
(covering  US$  340  million)  as well  as with  the  London  Club  in  mid-October  1996 
(covering  about  US$  200  million).  In  October  1995,  the  country  resumed  the 
payment  of interest  and some principal to the European Investment  Bank  (EEB). The 
Former  Yugoslav  Republic  of Macedonia  also  committed  in  early  1997 to  settle  in 
the  context  of  the  new  medium-term  IMF  programme  all  its  outstanding  financial 
liabilities to the Community and the EEB stemming from earlier EEB loans. 

Last  year,  the  external  situation  of  the  Former  Yugoslav  Republic  of  Macedonia 
deteriorated  sharply  as  imports  surged  and  the  high  exports  stimulated  by  the 
regional  conflict  disappeared.  Excluding  official  transfers,  the current  account  deficit 

is  estimated  to  have  increased  from  US$  259  million  (6.9%  of  GDP)  in  1995  to 
US$ 483  million (13.2% of GDP) in  1996, with the trade deficit  more than  doubling 
from US$ 235 million to US$ 523 million. 

For  1997, the IMF programme foresees  that  exports will expand  by  10%, stimulated 
by  the  12%  decline  of  the  real  effective  exchange  rate  in  1996  which  is  likely  to 
continue  in  1997.  Given  the  foreseen  restrictive  fiscal  policy  stance,  imports  are 
projected  to  increase by only 4%, reducing the trade deficit  to  an expected  US$ 467 
million.  Assuming  a modest  improvement  in the  services balance  and  an increase  in 
private transfers,  it is projected  that  the  current  account  deficit  will  fall  to  US$  367 
million in  1997 (9.5% of  GDP).  It  should, however,  be underlined  that  this  forecast 
does not take into account any possible spillover effects  (in particular border  control) 
of the  Albanian  crisis that  could  lead  to  the  need  for  higher  fiscal  expenditures  and, 
as a result,  some effect  on the current  account. 

Under  the  programme,  the  Former  Yugoslav  Republic  of  Macedonia  will  require 
external  financing  of US$  587 million to  also  ensure  capital  repayments  on  external 
debt  of  US$  48  million  and  to  clear  all  remaining  external  arrears  (including  some 
ECU 27 million owed to the Community and the EEB on previous EEB loans). At the 
same time, this allows for a build up in reserves by US$ 35 million to  a level  covering 
2.3  months  of imports.  Once public  and  private  capital  inflows  and  rescheduling  by 
the Paris Club  of official  donors have been accounted  for,  the  external  financing  gap 
of  the  Former  Yugoslav  Republic  of  Macedonia  in  1997  is  estimated  at  US$  120 
million. 

In  order  to  support  the  Government's  reform  programme,  the  Fund  has  decided  to 
grant to the Former Yugoslav Republic of Macedonia a three-year ES AF loan (1997-
99)  set  at  roughly  US$  80  million.  In  addition,  the  World  Bank  has  committed  a 
Structural  Adjustment  Loan  and  Credit  of  some  US$  45  million  focusing  on  trade 
and  agriculture  reforms.  Taking  into  account  the  contributions  of  these  institutions 
for  the  first  year  of  the  programme  (some  US$  50  million),  the  remaining  residual 
financing gap for  1997 is now estimated at US$ 70 million. 

Unless  this  remaining  gap  can  be  closed,  the  Former  Yugoslav  Republic  of 
Macedonia's  ability to  secure stable import  supplies and to meet its external financial 
commitments  would  be  put  into  question.  Hence,  the  success  of  the  whole 
stabilization  and reform  programme  to which the  Government  and the  Central Bank 
are  committed  could  be  undermined  before  its  expected  positive  effects  on  the 
balance of payments, including the revival of exports and the pick up in foreign  direct 
investment,  could be realized. 

5. 

PROPOSED  FURTHER  MACRO-FINANCIAL  ASSISTANCE  AND  MAIN  FEATURES  OF 
THE  LOAN 

The  Commission  is  proposing  that  the  Community  would  make  available  to  the 
Former  Yugoslav  Republic  of Macedonia  a balance  of payments  loan  of up  to  ECU 
40  million with  a maximum  duration  of fifteen  years.  The  proposed  duration  of  the 
loan  is  consistent  with  the  medium  and  long-term  balance  of  payments  outlook  for 
the  Former  Yugoslav  Republic  of Macedonia,  which  is  expected  to  face  substantial 
financing  needs for the years to come. 

The  assistance  would  be  granted  in  the  context  of  the  present  ESAF  and  would 
complement  resources made available by the International  Financial  Institutions and 
bilateral donors. 

The  assistance  would  be  released  in  two  tranches  subject  to  a  satisfactory  track 
record  of  the  country's  macro-economic  programme  agreed  with  the  IMF  and 
progress  with  respect  to  structural  reforms  (including  observance  of  a  number  of 
performance  criteria).  Its  effective  implementation  would  take  place  only  after  the 
Former  Yugoslav  Republic  of  Macedonia  has  fully  discharged  its  outstanding 
financial  obligations towards the  Community  and the EIB,  stemming from previous 
EEB loans. 

As  in  the  case  of  similar  operations  in  favour  of  other  partner  countries,  the 
Community would provide the funds through market borrowing with a guarantee by 
the  general  budget.  The  Former  Yugoslav  Republic  of  Macedonia  would 
subsequently  borrow from the  Community.  The  borrowing  and  lending  operations 
would be perfectly matched and without any commercial risk for the Community. 

In accordance with the Guarantee Fund mechanism,  the budgetary implications  of a 
decision  to  make  available  assistance  of  up  to  ECU  40  million  to  the  Former 
Yugoslav Republic of Macedonia would imply an ECU 6 million provisioning  of the 
Fund. 

Proposal for a 

COUNCIL DECISION 

providing macro-financial  assistance 

for the Former Yugoslav Republic of Macedonia 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to the proposal of the Commission, 

Having regard to the opinion of the European Parliament1, 

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

Whereas  the  Former  Yugoslav  Republic  of  Macedonia  is  undertaking  fundamental 
political and  economic reforms  and is making substantial  efforts  to  establish  an  open 
market  economy; 

Whereas the Former Yugoslav Republic of Macedonia and the European  Community 
have  signed  on  a  Cooperation  Agreement  and  a  Transport  Agreement  which  will 
help the development  of a full cooperation relationship; 

Whereas  the  Former  Yugoslav  Republic  of  Macedonia  has  agreed  with  the 
International  Monetary  Fund  (IMF)  on  a  comprehensive  set  of  stabilization  and 
policy  reform  measures  to  be  supported  by  a  loan  under  the  Enhanced  Structural 
Adjustment  Facility (ESAF); 

Whereas  the  Former  Yugoslav  Republic  of  Macedonia  has  agreed  with  the  World 
Bank  on  a  comprehensive  set  of  structural  adjustment  measures  to  be  backed  by  a 
Structural Adjustment  Loan and Credit; 

Whereas  the  authorities  of  the  Former  Yugoslav  Republic  of  Macedonia  have 
requested  financial  assistance  from  the  international  financial  institutions,  the 
Community  and  other  bilateral  donors;  whereas,  over  and  above  the  estimated 
financing which  could  be  provided  by the  IMF  and  the  World  Bank,  an  important 
residual financing gap  remains  to  be  covered  in  the  remainder  of  1997  in  order  to 
strengthen  the country's  reserve  position  and  support  the policy  objectives  attached 
to the government's reform  effort; 

Whereas  the  authorities  of  the  Former  Yugoslav  Republic  of  Macedonia  have 
committed  to  fully  discharge  their  outstanding  financial  obligations  towards  the 
European Community and the European Investment Bank; 

Whereas  a  Community  long-term  loan  to  the  Former  Yugoslav  Republic  of 
Macedonia  is  an  appropriate  measure  to  help  ease  the  country'  external financial 
constraints,  supporting  the  balance  of  payments  and  strengthening  the  reserve 
position; 

Whereas the Community loan should be managed by the Commission; 

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

HAS DECIDED AS FOLLOWS : 

Article 1 

1.  The Community shall make available to the Former Yugoslav Republic of Macedonia 
a  long-term  loan facility  of  a maximum  principal  amount  of ECU  40  million with  a 
maximum maturity  of fifteen years, with a view to  ensuring a sustainable balance-of-
payments situation and strengthening the country's reserve position. 

2.  To  this  end,  the  Commission  is  empowered  to  borrow,  on  behalf  of  the  European 
Community, the necessary resources that will be placed at the disposal of the Former 
Yugoslav Republic of Macedonia in the form of a loan. 

3.  This  loan  will  be  managed  by  the  Commission  in  close  consultation  with  the 
Monetary  Committee  and  in  a  manner  consistent  with  any  agreement  reached 
between the IMF and the Former Yugoslav Republic of Macedonia. 

Article 2 

1.  The Commission is empowered to agree with the authorities of the Former  Yugoslav 
Republic  of  Macedonia,  after  consultation  with  the  Monetary  Committee,  the 
economic policy conditions attached to the loan. These conditions shall be consistent 
with the agreements referred  to in Article 1(3). 

2.  The Commission  shall verify  at regular intervals, in collaboration with the  Monetary 
Committee  and  in  co-ordination  with  the  IMF,  that  the  economic  policy  in  the 
Former Yugoslav Republic of Macedonia is in accordance with the objectives  of this 
loan and that its conditions are being  fulfilled. 

Article 3 

1.  The loan  shall be made available to the Former Yugoslav  Republic  of Macedonia  in 
two tranches. The first tranche is to be released  subject to the provisions of Article 2 
and  after  the  full  settlement  of  the  oustanding  financial  obligations  of  the  Former 
Yugoslav  Republic  of  Macedonia  towards  the  Community  and  the  European 
Investment Bank. 

2.  Subject  to  the  provisions  of  Article  2,  the  second  tranche  shall  be  released  on  the 
basis  of  a  satisfactory  track  record  in the  implementation  of  the  ESAF  programme 
and not before  one quarter after  the disbursement of the first tranche. 

3.  The  funds  shall be  paid  to  the  National  Bank  of  the  Former  Yugoslav  Republic  of 

Macedonia. 

Article 4 

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

2.  The  Commission  shall take the necessary  steps, if the Former  Yugoslav  Republic  of 
Macedonia  so  requests,  to  ensure that  an  early  repayment  clause  is  included  in  the 
loan terms and conditions and that it may be exercised. 

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

4.  All  related  costs  incurred  by  the  Community  in  concluding  and  carrying  out  the 
operation  under  this  Decision  shall  be  borne  by  the  Former  Yugoslav  Republic  of 
Macedonia. 

5.  The Monetary  Committee  shall be kept  informed  of  developments  in the  operations 

referred  to in paragraphs 2 and 3 at least once a year. 

Article 5 

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

Done at 

., 

-, 

For the Council 
The President 

FINANCIAL RECORD 

1.  Title of Operation 

Macro-financial  assistance to the Former Yugoslav Republic of Macedonia. 

2.  Budget heading involved 

Heading BO 2173 reflecting  the budget guarantee for the Community loan facility  (to 
be created through an amending and/or supplementary Budget). 

3.  Legal basis 

Article 235 of the Treaty 

4.  Description and Justification  for the action 

a)  Description of the action 

Provision  of  Community  loans  (to  be  financed  by  Community  borrowings  in 
the international  capital markets),  in the  amount  of up  to  ECU  40  million,  to 
the  beneficiary  country  with  a  view  to  supporting  its  government's  reform 
efforts  and alleviating the social hardship of the austerity measures. 

b) 

Justification for  the action 
The  sustainability  of  the  beneficiary  country's  economic  reforms  depends  on 
external financial  assistance from official  sources. 

5.  Classification  of the Expenditure 

Obligatory 

6.  Nature of the expenditure 

Potential activation of budget guarantee for the Community borrowing  aimed to  fund 
the loans. 

7.  Financial impact 

a)  Method  of calculation 

The evaluation  of the amounts of the assistance deemed necessary  is based  on 
the  present  estimates  of  the  beneficiary  country's  residual  external  financing 
needs. 

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

b) 

Effect  of the action on intervention credits 

Activated  only in the case of an effective  call on the guarantee. 

c) 

Financing of intervention expenditure 

In case of call on the budget guarantee: 

-  Recourse  to  the  Guarantee  Fund  established  by  Council  Regulation  (EC, 

EURATOM) n° 2728 of 31 October  1994. 

- 

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

•  of any margin remaining in the Reserve for guarantees; 

•  of any late payments to the budget  for which the budget  guarantee 
the  Financial 

(under  article  27(3)  of 

has  been  activated 
Regulation); 

•  of  any  margin  available  under  the  ceiling  of  category  4  of  the 

financial  perspectives or redeployment therein. 

- 

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

8.  Fraud prevention measures 

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

9.  Elements of cost-effectiveness  analysis 

a) 

Grounds for  the operation and specific objectives 

By  supporting  the  beneficiary  country's  macro-economic  reform  efforts  and 
complementing  financing  by  the  International  Community  provided  to  this 
country  in the  context  of the  IMF  agreed  programme,  this  assistance  would 
not  only underpin  this  transition  towards  a  market  economy  but  also  help  it 
the 
with  fully  servicing 
Community  and 
Investment  Bank.  These  outstanding 
obligations  amount  at present  to  some ECU  27 million (arrears  including  late 
interest). 

its  outstanding  financial  obligations 

the  European 

towards 

The  present  assistance  will  only be  mobilized  on  the  proviso  that  the  Former 
Yugoslav  Republic  of  Macedonia  fully  discharges  its  outstanding  financial 
obligations towards the Community and the European Investment Bank. 

b)  Monitoring  and evaluation 

This assistance is of macro-economic nature and its monitoring  and  evaluation 
is undertaken  in the  framework  of the  IMF  supported  adjustment  and  reform 
programme that the Former Yugoslav Republic of Macedonia is implementing. 

10 

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

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

10.  Administrative  expenditure 

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

11 

ANNEX 

BUDGETARY  RESOURCES  NECESSARY  FOR THE PROVISIONING  OF THE 
GUARANTEE  FUND IN 1997 AND MARGIN  UNDER THE RESERVE  FOR  LOANS 

AND  LOANS GUARANTEE  IN FAVOUR OF THIRD  COUNTRIES 

(IN ECU  MILLION) 

Operations 

Decided  operations  -

Project-related  assistance 

EIB/MED 
EIB/PVDALA 
EIB/SOUTH AFR. 
EIB/Renewal of mandates  4 

Macro-financial  assistance 

Slovakia  (Cancellation) 
Belarus  (Suspension) 

Proposed  operations 

Project-related  assistance 

EIB/Turkey 5 
EIB/FYROM 6 
EIB/ Croatia  7 

Macro-financial  assistance 

Georgia, Armenia  and, if appropriate, Tajikistan8 
FYROM  9 
Bulgaria  9 

Basis of the 
Calculation 

Provisioning  of 
the  Fund  1 

Reserve 
Margin 

-14 
-38 
55 
1536.5 

-130 
-25 

105 
35 
49 

170 
40 
250 

-1.71 
-5.32 
8.25 
230.48 

-18.20 
-3.75 

15.75 
5.25 
7.35 

25.50 
6.00 
37.50 

329.0 

330.7 
336.0 
327.8 
97.3 

115.5 
119.3 

103.5 
98.3 
90.9 

65.4 
59.4 
21.9 

According  to  the  provisioning  rules  provided  in  the  Council  regulation  (EC,  Euratom)  n°  2728/94  of  31 
October  1994.  After  a  first  drawing  of  the  Guarantee  Fund,  and  in  compliance  with  Article  5  of  the 
Regulation,  the  rate  of  provisioning  for  new  operations  has  been  increased  from  14  %  to  15%  in  1995. 
New macro-financial  assistance operations  have been provisioned with a  15% rate. 

Reserve amount  in 1997 under the financial perspective. 
Corrections  of the amounts to  be transfered to the  Fund  in compliance with  annex to  Council  regulation  n° 
2728/94. 
Council  Decision of  14 April  1997. 
Proposal  for  a  Council  regulation  relative to  a special  action  of  financial  cooperation  in  favour  of  Turkey 
(COM(95)  389 final). 
Proposal  for  a  Council  decision  concerning  the  conclusion  of  a  cooperation  agreement  with  FYROM 
(COM(96)  533 final) of 25 November  1996. 
Cooperation  agreement  EC/Croatia  (SEC(95)  180/final).  Negotiations  suspended  since  Summer  1995.  It 
is therefore  unlikely that this operation would be implemented  in 1997. 
Commission  proposal for a Council decision (COM(97) 24 final) of 3 February  1997. 
Commission  proposal. 

ISSN 0254-1475 

COM(97) 235  final 

DOCUMENTS 

EN 

01  11 

Catalogue number  :  CB-CO-97-226-EN-C 

ISBN  92-78-19811-0 

Office  for  Official  Publications of the European  Communities 

L-2985  Luxembourg 

n 
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