Proposal for a Council Decision providing supplementary macro-financial assistance for Ukraine
Date: 1997-11-12
Institutions: European Commission
Subjects: Community loan, International Monetary Fund, Ukraine, economic development, financial aid

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  12.11.1997 
COM(97) 588 final 

97/0312 (CNS) 

Proposal  for a 

COUNCIL  DECISION 

providing supplementary macro-financial  assistance 

for Ukraine 

(presented  by the Commission) 

6U 

EXPLANATORY  MEMORANDUM 

ECONOMIC SITUATION AND PROGRESS WITH STABILISATION AND  REFORM 

The  transition  process  in  Ukraine  accelerated  following  the  election  of 
President  Kuchma  in  end-1994  and  considerable  progress  has  been  achieved  since, 
especially in the area of economic stabilisation and liberalisation.  The framework  of the 
transition process,  together with important  financial  backing,  was provided  by a  series 
the  IMF  (Systemic  Transformation  Facility,  Stand-by 
of  arrangements  with 
Arrangements)  and the World Bank (Rehabilitation Loan,  Sectoral Adjustment  Loans). 
In addition, Ukraine received  complementary financial  assistance from bilateral  donors, 
including  the  European  Community,  Japan,  the  US,  as  well  as  Russia  and 
Turkmenistan. 

The  economic  situation  in  Ukraine  remains  difficult,  with  GDP  declining  by 
another  10% in  1996,  so that  it  is  now  at  approximately  one  third  of  the  1990  level. 
This  does  not  though  take  into  account  the  increasing  activities  in  the  unrecorded 
sector.  Agricultural  production  fell  by  10.3%  and  industrial  production  declined  by 
5.1%  in  1996, with  substantial  variations  across  industries.  Registered  unemployment 
was only  1.3%,  but  estimates  suggest that the true unemployment  rate could  be five  to 
ten times as high. 

External trade continued  to  grow rapidly in  1996. In dollar terms,  merchandise 
exports  grew  by  14%  and  imports  by  24%.  However,  the  import  growth  figure  is 
somewhat  misleading,  as a significant  part  of the increase  of imports  reflects  a  higher 
price for  imported  gaz, with correspondingly higher receipts by Ukraine for  gaz transit 
fees.  The  current  account  deficit  narrowed  to  2.7%  of  GDP  last  year,  compared  to 
4.4%ofGDPinl995. 

The  tight  monetary  policy  has  been  an  important  factor  in  lowering  inflation, 
stabilising the  exchange  rate  and paving the way to  the  smooth  introduction  of  a new 
currency,  the Hryvnia  (Hrv), in  September  1996. The  Governor  of the National  Bank 
of Ukraine (NBU),  responsible for  this policy, has been confirmed  in his position  for  a 
second term. 

The  Ukrainian  authorities  successfully  completed  the  stand-by  arrangement 
(SBA)  approved  by  the  IMF  in  May  1996.  They  broadly  observed  its  quantitative 
performance  criteria  and  succeeded  in  reducing  inflation  to  a  rate  of  40%  in  1996 
(compared  to  182% in  1995, 400% in  1994 and  even  10,000%  in  1993).  The  budget 
deficit  was  contained  to  3.2%  of  GDP.  But  since  revenues  were  considerably  lower 
than  expected  in  the  programme,  the  authorities  accumulated  significant  general 
government  arrears on wages,  social benefits  and pensions  of Hrv  3 billion  (equivalent 
to 3.7% of GDP). 

There was  some progress in structural reform  in  1996 and especially there was 
a significant  pick-up  in the pace of mass privatisation  and  small-scale  privatisation.  All 
the  remaining  controls  on  prices  and  profit  margins  were  removed  by  the  end  of  the 

year  and  important  reforms  were  undertaken  in  the  energy  sector.  However,  much 
more remains to be done in all these and  other areas to  stimulate domestic and  foreign 
investment and rekindle growth. 

Data  for  the  first  half  of  1997  suggest  that  output  has  continued  to  decline, 
although at a slower pace, with real GDP falling by 7.5% compared to the same period 
in  1996. Inflation  slowed down significantly  in the same period  and averaged  less than 
1%  a  month.  The  average  monthly  wage  measured  in  USD  increased  to  USD  83  in 
May  1997, from USD 49 in  1995. Monetary policy continued to be tight in the first  six 
months of  1997 and an exchange band was introduced  for Hrv at least until end-1997. 
The authorities also announced the current convertibility of the Hrv in May  1997. 

Economic  developments  in  the  first  half  of  1997  were  overshadowed  by  the 
struggle  between  the  government  and  the  Parliament  on  key  elements  of  the 
adjustment  program  that  the  government  had  hoped  to  implement.  The  1997  budget 
was  caught  up  in  this  struggle  and  was  not  adopted  until  late  June.  However  the 
authorities continued implementing a prudent fiscal policy, but with revenue collections 
remaining  weak,  further  arrears  on  wages,  benefits  and  pensions  (of  about  Hrv  0.7 
billion) were accumulated in the first half of  1997. 

PREVIOUS  MACRO-FINANCIAL  ASSISTANCE TO  UKRAINE 

On 22 December  1994, the Council (Decision 94/940/EC) decided  to provide a 
first macro-financial  loan of up to ECU 85 million to  support Ukraine's  comprehensive 
adjustment  and  reform  process that  had  started  in the framework  of an IMF  Systemic 
Transformation  Facility.  The  ECU  85  million  loan  was  disbursed  in  one  tranche  in 
December  1995. 

On  23  October  1995,  the  Council  decided  (Decision  95/442/CE)  to  provide 
Ukraine  with  a  second  macro-financial  loan  of  up  to  ECU  200  million  to  back  the 
continuation of Ukraine's reform  and stabilisation  efforts. 

The first tranche (ECU  100 million) of this second loan facility was released  in 

two  successive payments of ECU 50 million each in the second half of 1996. 

The release  of the  second  tranche  (ECU  100 million) took  place  in  September 

1997. 

THE  GOVERNMENT'S  STABILISATION  AND REFORM PROGRAMME  FOR JULY  1997  -
JUNE  1998 

In  1996,  the  Ukrainian  authorities  negotiated  with  the  IMF  a  comprehensive 
three-year macroeconomic and structural adjustment  programme to be supported by an 
Extended  Fund  Facility  (EFF).  The  programme  which  would  build  on  the  progress 
achieved  in  1996 and  expand  the reforms  in a medium-term  context was  submitted  to 
Parliament  for  approval  in November  1996. However,  as already  noted,  no  consensus 
could  be reached  between  government  and Parliament  on  several  of the  key  elements 
of the programme and especially on a package of fiscal  reform  measures. Nevertheless, 
in the first half of  1997, the authorities broadly followed  the spirit of the proposed  EFF 
programme and continued  making some progress with structural  reforms. 

The  authorities  prepared  instead  a  one-year  programme  to  be  implemented 
during  the  period  July  1997-June  1998  with  the  goal  of  preserving  the  stabilisation 
gains  already  achieved.  Many  of the policies that were  originally  envisaged  under  the 
EFF  programme  are  also"partof  this  one.  The  program  is  supported  by  a  SBA  of 
USD  549  million approved  by the IMF Board  on 25 August. Its key objectives  are to 
lay  the  basis  for  the  resumption  of  economic  growth  through  structural  reforms, 
consolidate  the  gains  already  achieved,  further  reduce  inflation,  and  strengthen  the 
external reserve position of the National Bank of Ukraine. 

The programme aims to reduce inflation from 40% during  1996 to  15%  during 
1997 and to  12% during  1998. The fall in output is projected  to level off in the  second 
half  of  1997,  partly  because  of  an  expected  recovery  of  agriculture,  and  to  record 
modest  growth  in  1998.  The  programme  also  aims  to  increase  gross  international 
reserves  from  an  equivalent  of  5.2 weeks  of imports  of goods  in  1996 to  6 weeks  of 
imports in  1997, and to 7.4 weeks of imports in 1998. 

To  achieve  these  objectives,  the  consolidated  budget  deficit  will  be  limited  to 
4.6%  of  GDP  in  1997  and  4.5%  of  GDP  in  1998.  After  adjusting  for  the  arrears 
accumulation  in  1996  and  net  payments  of  arrears  in  1997  and  1998,  the  underlying 
budget deficit1  will be reduced from  over 6% in 1996 to 4.3% in  1997 and 2% in  1998. 
A major  objective  of fiscal policy will be to reduce existing arrears on wages, pensions, 
and  social  benefits,  while  avoiding  new  arrears.  For  this,  the  programme  foresees 
measures 
to  better  monitor  expenditure 
commitments. On the monetary front,  a key element will be the maintenance  of a stable 
exchange rate with a narrow band. 

treasury  operations  and 

to  expand 

FINANCING  NEEDS FOR THE  PROGRAMME 

The  balance  of  payments  is  expected  to  remain  under  considerable  pressure 
during  the  programme  (July  1997-June  1998)  as  a  result  of  trade  liberalisation  and 
greater  private  sector  investment  and  consumption.  Import  volumes  are  projected  to 
continue  to  grow  rapidly,  while growth  of exports  to  non-traditional  partners  (China, 
Germany) is expected  to accelerate. The merchandise trade deficit  is projected  at  USD 
4.7  billion  and  the  nonfactor  services  balance  surplus  at  USD  3 billion,  leading  to  an 
expected  current  account deficit  of USD  1.9 billion. 

Taking also into account the aim to build up official  reserves by some USD  524 
million to  obtain  a level  equivalent  to  6.7 weeks  of imports,  the gross financing  needs 
are  estimated  at  some  USD  3.9  billion  for  the  period  of  the  programme.  Once  the 
expected  capital  inflows  in the  form  of  official  transfers  (USD  350  million),  medium 
and  long  term  credits  (of  about  USD  919  million)  and  foreign  direct  investment  (of 
USD  507  million)  have  been  accounted  for,  the  gross financing gap  is  estimated  at 
USD  2,12  billion.  The  IMF  is  expected  to  provide  USD  549  million  under  the  SBA 
and  the  World  Bank  USD  700  million.  Taking  also  into  consideration  undisbursed 
commitments  of  bilateral  donors  under  previous  programmes,  the  residual financing 
gap for the programme period is estimated at some USD 765 million. 

Adjusted for the accumulation and payments of arrears on wages, pensions and benefits. 

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

The  Coinmissiôn^is  proposiflg  that  the  Community  would  make  available  to 
Ukraine a third  balance  of payments loan  of up  to  ECU  150 million with  a  maximum 
duration often  years. After  consultation of  the Monetary Committee, the Commission 
announced  this  amount  at  the  Consultative  Group  Meeting  on Ukraine  organised  by 
the World  Bank in December  1996. The Council approved  in principle the granting  of 
a third  loan to  Ukraine at the ECOFIN meeting of 27 January  1997 and requested  the 
Commission to make the necessary proposals. 

Although  this commitment was made at the time of the EFF being  negotiated 
between  the  Ukrainian  authorities  and  the  IMF, Ukraine's financing needs  during  the 
present  SBA programme remain substantial. Therefore,  the Commission  still considers 
the  proposed  ECU  150  million  as  an  appropriate  reference  amount  for 
the 
Community's  support  to  the  balance  of  payments  of  Ukraine.  This  support  would 
further  consolidate  the  country's  official  reserves  position  and  sustain  the  reform 
efforts  of the authorities.  It would  contribute to the financing of the country's  residual 
external  financing  needs,  together  with  commitments  from  other  bilateral  donors 
(USA, Japan etc) and eventual recourse to the capital markets. 

The proposed  duration of the loan is identical to that of the previous two  loans 
to  Ukraine  and  consistent  with  the  medium-term  balance  of payments  outlook  of  the 
country, which is expected to face substantial financing needs for the years to come. 

The  assistance  would  be  granted  in  the  context  of  the  SBA  and  would 
complement  resources  made  available  by  the  International  Financial  Institutions  and 
bilateral donors.  The Commission welcomes the intention  of the Ukrainian  authorities 
to  consider  the  current  programme  (July  1997-June  1998)  as  an  interim  programme 
and  to  seek  a  domestic  consensus  on  a  comprehensive,  medium-term,  economic  and 
structural  reform  programme  that  could  firmly  put  the  country  onto  the  path  of 
sustainable growth.  The authorities intend to work in close collaboration with the  IMF 
staff  to  finalise  as  soon  as  possible  such  a  programme  that  can  be  supported  by  an 
Extended Fund Facility. 

The proposed balance of payments loan of up to  150 MECU would be released 

in at least two tranches. The disbursement of the tranches would depend on: 

-  a  satisfactory  track  record  of Ukraine's  macro-economic  programme  agreed 
with the IMF  in the context  of the  SBA and/or  any other  successor  arrangement  with 
the IMF; 

-  progress  with  respect  to  structural  reforms  (including  the  observance  of  a 

number of performance  criteria to be attached to this loan). 

The effective  amount  of the  assistance  (with  a maximum  of ECU  150  million) 
would  depend  on the evolving financing  needs of Ukraine  during the  critical  period  of 
the  programme  and  thereafter,  as  evaluated  by  the  Commission  services  in  close 
collaboration  with  the  Monetary  Committee,  the  Ukrainian  authorities  and  the  IMF. 
Account  will  also  be  taken  of  the  effective  disbursements  of  other  bilateral  donors, 

possible  new  commitments  and  the  capacity  of  the  country  to  raise  capital  in  the 
international capital markets. 

It  is worth rioting that  progressWith  stabilisation and  reform  in  Ukraine has 
slowed  down  in  recent  months,  as  the  Parliamentary  elections  (March  1998)  draw 
closer. The end-August-performance  criteria under the SBA were not observed owing 
to large expenditures on repaying wage arrears. The IMF has consequently held up the 
disbursement of the relevant tranche which will only be released when conditions are 
met.  The  Commission  is  closely  monitoring  the  situation  and  takes  the  view  that, 
despite  the  recent  slippages,  the  authorities  remain  committed  to  stabilisation  and 
reform  over the medium-term.  In line with the Council's earlier decision in principle, 
the Community should  in this context  stand ready to provide further  macro-financial 
assistance to Ukraine to support the completion of the transition process and alleviate 
its  social  costs.  Since  the  disbursement  of  this  assistance  would,  as  already 
underscored, be subject to the satisfactory track record  of Ukraine's macro-economic 
programme  it  could  indeed  serve  as  an  additional  incentive  for  the  effective 
implementation of the necessary reforms. 

As in the case of similar operations in favour of third countries as well as of the 
previous  two  loans  in  favour  of  Ukraine,  the  Community  would  provide  the  funds 
through  market  borrowing  with  a guarantee  by the  general  budget.  Ukraine  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  an assistance  of up to  ECU  150 million  to  Ukraine 
would imply an ECU 22.5 million provisioning of the Fund. 

Proposal for a 

COUNCIL DECISION 

providing supplementary macro-financial  assistance 

for Ukraine 

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 Commission2, 

Having regard to the opinion of the European Parliament3, 

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

Whereas  Ukraine  is  undertaking  fundamental  political  and  economic  reforms  and  is 
making substantial efforts to implement a market economy model; 

Whereas  Ukraine  and  the  European  Communities  and  their  Member  States  have 
signed a Partnership and Co-operation Agreement which will help the development  of 
a full co-operation relationship; 

Whereas  the  authorities  of  Ukraine  have  requested  financial  assistance  from  the 
International Financial Institutions, the Community and other bilateral donors; 

Whereas Ukraine has agreed with the International Monetary Fund (IMF) on a macro-
economic  programme  for  the  period  July  1997-June  1998  supported  by  a "stand-by 
arrangement"  of  approximately  USD  542  million;  whereas  policy  based  loans  to 
Ukraine in the  order of USD  500  and 700 million are also  expected  from the World 
Bank in 1997 and  1998, respectively; 

Whereas, over and above the estimated financing which could be provided by the IMF 
and  the  World  Bank,  and  after  undisbursed  commitments  of  bilateral  donors  under 
previous programmes have been deducted, a residual financing  gap of some USD  765 
million remains to  be  covered  during the  programme  period  in  order  to  support  the 
policy  objectives  attached to  the government's reform effort;  whereas  complementary 
contributions  are  also  expected  from  the  United  States,  Japan  and  other  bilateral 
donors; 

2  OJN° 

3 

Whereas  by  Decisions  94/940/EC4  and  95/442/EC5,  the  Council  approved  macro-
financial  assistance for Ukraine of up to a total amount of ECU 285 million for support 
to previous macro-economic programmes; whereas, however, further  official  support 
is  required  in  the rcontext" of  trie  present  programme  to  support  the  balance  of 
payments,  consolidate  the  reserve  position  and  facilitate  the  necessary  structural 
adjustment of that country; 

Whereas the Ukrainian authorities are committed to pursuing with the implementation 
of the plan for the closure of the Chernobyl nuclear power plant, in accordance with 
the modalities supported by the Group of Seven and the European Union; 

Whereas  an  additional  Community  long-term  loan  to  Ukraine  is  an  appropriate 
measure to help easing the country's external financial constraints; 

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  Ukraine  a  long-term  loan  facility  of a 
maximum principal amount of ECU  150 million with a maximum maturity of ten 
years,  with  a  view  to  ensuring  a  sustainable  balance-of-payments  situation, 
strengthening the country's reserve position and comforting the implementation of 
the necessary structural reforms. 

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 Ukraine 
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 Ukraine. 

Article 2 

1.  The  Commission  is  empowered  to  agree  with  the  Ukrainian  authorities,  after 
consulting 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). 

4  OJN°L366, 31.12.94, p. 32 

5  OJ N° L258, 28.10.1995, p. 63. 

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

Article 3 

1.  The loan shall be made available to Ukraine in at least two instalments.  Subject  to 
Article 2, the first instalment is to be released  on the basis of a satisfactory  track 
record  of  Ukraine's  macro-economic  programme  agreed  with  the  IMF  in  the 
context  of  the  present  "stand-by  arrangement"  or  of  a  successor  upper  credit 
tranche arrangement. 

2. 

* 

Subject  to  Article  2,  the  later  instalment(s)  shall  be  released  on  the  basis  of  a 
satisfactory  continuation  of the  arrangements  referred  to  in paragraph  1 and  not 
before  a  period  of  three  months  has  elapsed  after  the  release  of  the  previous 
instalment. 

3.  The funds  shall be paid to the National Bank of Ukraine. 

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 Ukraine  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 Ukraine, 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 Ukraine. 

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 of the implementation  of this 
Decision. 

Done at 

, 

For the Council 

The President 

10 

FINANCIAL RECORD 

1.  Title of operation 

Supplementary macro-financial assistance to Ukraine 

2.  Budget heading involved 

Heading BO-213 reflecting  the budget guarantee for the Community loan facility 
to Ukraine (entered in the 1998 Draft- Budget). 

3.  Legal basis 

Article 235 of the Treaty 

4.  Description and Justification for the action 

a)  Description of the action 

Provision of a Community loan (to be financed  by Community borrowing on 
the international  capital  markets)  in the  amount  of up  to  ECU  150 million 
with a view to supporting Ukraine's adjustment and reform  efforts. 

b)  Justification for the action 

The  viability  of  Ukraine's  external  accounts  heavily  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 loan to Ukraine. 

7.  Financial Impact 

a) Method of calculation 

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

b) Effect  of the action on intervention credits 

Only in the case of an effective call on the guarantee. 

11 

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  has  been  activated  (under  article  27(3)  of  the 
Financial 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 
appiy.% 

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  with  the  Monetary 
Committee  and  in  liaison  with  the  IMF  and  World  Bank  services,  that  the 
macroeconomic  policies  implemented  in this  country  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  macroeconomic  reform  efforts  and 
complementing  financing  provided  to  this  country  by  the  International 
Community in the context  of an IMF agreed programme,  this assistance  would 
underpin  the  country's  transition towards  a market  economy,  improve  growth 
prospects and alleviate social unrest. 

b)  Monitoring and evaluation 

This assistance is of a macroeconomic nature and its monitoring  and  evaluation 
is undertaken  in the  framework  of the  IMF-supported  adjustment  and  reform 
programme that the beneficiary  country is implementing. 

The  Commission  services  will  monitor  the  action  on  the  basis  of  a  genuine 
system of macroeconomic and structural policy indicators to be agreed  with  the 
authorities  of  the  beneficiary  country.  They  will  also  remain  in  close  contact 

12 

with the IMF and World Bank services and will benefit from their  assessment 
of the recipient country's stabilisation and reform achievements. 

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. 

13 

ANNEX 

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

AND LOAN GUARANTEES IN FAVOUR OF THIRD COUNTRIES 

(IN ECU MILLION) 

Operations 

Basis of the 
Calculation 

Provisioning  of 
the  Fund1 

Reserve 
Margin 

Decided operations  -

Project-related  assistance 

EIB/MED (correction mechanism 1996/1997) 
EIB/PVDALA (correction mechanism  1996/1997) 
EIB/SOUTH AFR. 
EIB/Renewal of mandates4 

Macro-financial  assistance 

Slovakia (Cancellation) 
Belarus (Suspension) 
FYROM 
Bulgaria 

Proposed  operations 

Macro-financial  assistance 

Georgia, Armenia and, if appropriate, Tajikistan5 
Ukraine-Ill6 

Project-related  assistance 

EIB/FYROM 7 
EIB/Turkey8  10 
EIB/ Croatia9  10 

-14 
-38 
55 
1585.5 

-130 
-25 
40 
250 

170 
150 

35 
105 
49 

329.0 

330.7 
336.0 
327.8 
90.0 

108.2 
111.9 
105.9 
68.4 

42.9 
20.4 

15.2 
15.2 
15.2 

-1.71 
-5.32 
8.25 
237.83 

-18.20 
-3.75 
6.00 
37.50 

25.50 
22.50 

5.25 
p.m. 
p.m. 

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 are currently being 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. 
Exceptional financial assistance. Commission proposal (COM(97) 24 final) of 3 February 1997. 
Commission proposal. 
Proposal for a Council decision concerning the conclusion of a cooperation agreement with FYROM 
(COM(96) 533 final) of 25 November  1996. 
Proposal  for  a  Council  regulation  relative  to  a  special  action  of  financial  cooperation  in  favour  of  Turkey 
(COM(95) 389 final). European Parliament opinion is still expected. 
Cooperation agreement EC/Croatia (SEC(95)  180/final). Negotiations suspended since Summer  1995. 
No provisioning of the Fund is indicated for these two operations, as they are currently blocked. 

ISSN 0254-1475 

COM(97) 588 final 

DOCUMENTS 

EN 

01  09  11 

Catalogue  number  :  CB-CO-97-602-EN-C 

ISBN  92-78-27418-6 

Office  for  Official  Publications of the European  Communities 

L-2985 Luxembourg;