Commission report to the budgetary authority on guarantees covered by the general budget - Situation at 31 December 1997
Date: 1998-04-27
Institutions: European Commission
Subjects: Central and Eastern European countries, Community loan, European Investment Bank, budgetary power, general budget (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 27.04.1998 
COM(1998) 252  final 

COMMISSION REPORT TO THE BUDGETARY AUTHORITY 

ON GUARANTEES COVERED BY THE GENERAL BUDGET -

SITUATION AT 31 DECEMBER 1997 

- 2-

This report describes the situation as regards budget guarantees at the date of the report. 

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. 

This  report  is  presented  in  accordance  with  Article  134  of  the  Financial  Regulation 
applicable to the general budget of the European Communities. 

The Commission has already presented thirteen reports to the budgetary authority. 

The report is in two parts with an annex: 

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

2) Evaluation  of potential risks. Economic  and financial situation  of  non-Community 

countries benefiting from the most important operations. 

3-

CONTENTS 

PART ONE: EVENTS SINCE THE REPORT AT 30 JUNE 1997, THE RISK SITUATION AND 
ACTIVATION  OF BUDGET GUARANTEES 

I. 

INTRODUCTION: TYPES OF OPERATION 

LA  OPERATIONS  WITH MACROECONOMIC OBJECTIVES 

LB  OPERATIONS  WITH MICROECONOMIC OBJECTIVES 

II.  EVENTS SINCE THE REPORT AT 30 JUNE  1997 

II.A  GEORGIA,  ARMENIA,  TAJIKISTAN 

II.B  UKRAINE 
ILC  LOANS  GRANTED BY THE EUROPEAN  INVESTMENT BANK  FOR INVESTMENT PROJECTS  IN THE 

FORMER YUGOSLAV  REPUBLIC OF MACEDONIA 

III.  RISK SITUATION 

III.A  AMOUNT OUTSTANDING  AT 31 DECEMBER  1997 (TABLE  1) 
III.B  MAXIMUM  ANNUAL  RISK BORNE BY THE COMMUNITY  BUDGET:  OPERATIONS  DISBURSED AT 31 

DECEMBER  1997 (SEE TABLE  2) 

III.C  MAXIMUM  THEORETICAL ANNUAL RISK BORNE BY THE COMMUNITY  BUDGET (SEE TABLE 3) 

IV.  ACTIVATION  OF BUDGET GUARANTEES 

IV.A  PAYMENTS  FROM CASH RESOURCES 

IV.B  ACTIVATION  OF THE GUARANTEE FUND 

IV.C  LATE  REPAYMENTS 

IV.D  SITUATION  AS REGARDS UNPAID DEBTS AT 31 DECEMBER  1997 

V.  ANALYSIS OF THE COMMUNITY'S  THEORETICAL LENDING AND  GUARANTEE 

CAPACITY IN RESPECT OF NON-MEMBER  COUNTRDZS 

VI.  RELATIVE  SOLIDITY  OF THE GUARANTEE FUND 

PART TWO: EVALUATION  OF POTENTIAL RISKS: ECONOMIC AND  FINANCIAL 
SITUATION  OF THE NON-MEMBER  COUNTRIES BENEFITING  FROM THE MOST 
IMPORTANT  LOAN OPERATIONS 

I. 

INTRODUCTION 

II.  CENTRAL AND EAST EUROPEAN  COUNTRIES 

III.  NEWLY INDEPENDENT  STATES 

IV.  MEDITERRANEAN COUNTRIES 

5 

5 

5 

5 

5 

5 

6 

6 
6 

7 

8 
8 

13 

13 

13 

13 

14 

14 

15 

17 

17 

17 

22 

25 

- 4-

ANNEX 

I.  EXPLANATORY NOTES ON THE SITUATION OF RISKS COVERED BY THE 

COMMUNITY BUDGET 

LA 

TABLES  1 TO 3 

I.A.J  Authorised  ceiling (Table 1) 
Î.A.2  Capital outstanding ( Table I) 
I.A.3  Annual  risk (Tables 2 and 3) 

LB  LOAN OPERATIONS COVERED BY A BUDGET GUARANTEE 
I.C  EXPECTED SIGNATURE AND DISBURSEMENT OF EIB  LOANS 
I.D  PAYMENT OF THE BUDGET GUARANTEE 

I.D.I  Borrowing/lending operations 
I.D. 2  Guarantees given to third parties 

28 

28 
28 
28 
29 
30 
35 
35 
35 
36 

II.  METHODOLOGICAL  NOTE ON THE ANALYSIS OF THE COMMUNITY'S  ESTIMATED 

LENDING  CAPACITY IN RESPECT OF NON-MEMBER  COUNTRIES OVER THE 
PERIOD  1997-99 UNDER THE GUARANTEE FUND MECHANISM  (TABLE 4) 

II.A  RESERVE FOR LOAN GUARANTEES TO NON-MEMBER COUNTRIES 
II.B  BASES  FOR THE CALCULATION OF THE PROVISIONING  OF THE GUARANTEE  FUND 

II.C  BASIS  FOR THE PROVISIONING  OF THE FUND IN THE EVENT OF A PART GUARANTEE 

II.D  PROVISIONING  OF THE GUARANTEE FUND 
ILE  MARGIN REMAINING IN THE GUARANTEE RESERVE 
II.F  RESIDUAL  LENDING CAPACITY 

n i.  TABLES: COUNTRY-RISK INDICATORS 

37 

37 

37 

38 

38 
39 
39 

40 

5-

PART ONE: EVENTS SINCE THE REPORT AT 30 JUNE 1997, THE RISK 
SITUATION AND ACTIVATION  OF BUDGET  GUARANTEES 

I. 

INTRODUCTION: TYPES OF OPERATION 

The  risks  covered  by  the  Community  budget  derive  from  a  variety  of  lending  and 
guarantee operations which can be divided into two categories: loans with macroeconomic 
objectives  and loans with microeconomic objectives. 

LA  Operations with macroeconomic  objectives 

The  first  of these  are the  balance  of payments  loans  for  Member  States  or  non-member 
countries, normally carrying strict economic conditions and undertakings. 

This  category  includes  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  this 
operation  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 projects which are usually repaid over the long term from fonds 
which  these  projects  are  expected  to  generate;  as  a rule,  they  are  granted  to  companies, 
financial  institutions  or  non-member  countries  and,  in  addition  to  the  Community 
guarantee, are covered by the usual guarantees demanded by banks. 

This  covers  Euratom  and NCI  loans  in  Member  States  and  the  Euratom  and  EEB Joans 
outside the Community (Mediterranean,  Central and Eastern Europe, certain non-member 
countries - developing countries of Asia and Latin America and South Africa). 

II.  EVENTS SINCE THE REPORT AT 30 JUNE  1997 

The main events in the second half of 1997 were as follows: 

II.A  Georgia, Armenia, Tajikistan 

Georgia,  Armenia  and  Tajikistan  were  severely  hit  by  the  economic  collapse  resulting 
from  the  breaking  up  of  the  command  economy  and  the  disintegration  of  the  Soviet 
Union. 

Owing  to  the  exceptionally  harsh  conditions  presently  faced  by  Armenia,  Georgia  and 
Tajikistan,  the Commission considered that exceptional assistance was required to support 
the implementation  of the stabilisation  and structural  reform  programmes  agreed with the 
IMF. 

On  3  February  1997  the  Commission  therefore  presented  a  proposal  for  a  Council 
Decision  providing  exceptional  financial  assistance  of ECU  170 million  in the  form  of a 

loan  with  a  maximum  maturity  of fifteen years  and  of  ECU  50  million  in  the  form  of 
grants to Armenia, Georgia and, if appropriate, Tajikistan. 

On  17 November  1997  the  Council  decided  to  grant  exceptional  financial  assistance  of 
ECU 170 million  in the  form  of  long-term  loans  and  of  ECU  95  million  in the  form  of 
grants to Armenia and Georgia. 

II.B  Ukraine 

As part of an overall  aid programme for Ukraine, on  12 November  1997 the  Commission 
presented  a  proposal  for  a  Council  Decision  providing  additional  macro-financial 
assistance of ECU  150 million to Ukraine in the form of a loan with a maximum maturity 
often  years. The Council had not adopted any formal  decision at the time this report was 
drawn up. 

II.C  Loans  granted  by the European  Investment  Bank  for  investment  projects  in 

the former Yugoslav Republic of Macedonia 

On 13 January  1998 the Commission presented a proposal for a Council Decision granting 
a  Community  guarantee  in  respect  of  loans  for  investment  projects  in  the  former 
Yugoslav  Republic  of Macedonia.  This guarantee is limited  to a maximum  of ECU  150 
million  in  the period  up to  31 December  2000. The  Council  had not  adopted  any  formal 
decision at the time this report was drawn up. 

III.  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  1997, giving the minimum 
level  of  risk  to  the  Community  assuming  that  there  are  no  early  repayments 
(see Table 2 below); 

-  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 below). 

The  latter  exercise  gives  some  idea  about  the  future  level  of  risks  connected  with  the 
proposals  made.  However,  a  number  of  assumptions  have  to  be  made  about  dates  of 

-7 

disbursement  and terms of repayment  (details  are given in the annex)  as well  as interest1 
and exchange rates.2 

The results are shown in Tables  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 macrofmancial  assistance and loans for projects guaranteed by the borrowers in the case 
of NCI and EEB operations, for example. 

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

III.A  Amount outstanding at 31 December  1997 (Table 1) 

total  risk  at  31  December  1997  came  to  ECU 12171 million  as  against 

The 
ECU  11 941 million at 30 June 1997, an increase of  2%.3 

The  following  table  shows  the  operations  which  have  had  an  effect  on  the  amount 
outstanding since the last report. 

Amount outstanding at 30 June 1997 

Loan repayments 

Euratom 

NCI 

Financial assistance 

Former Soviet Union 

EIB 

Exchange rate differences between ecu and other currencies 

Loans disbursed 

Financial assistance 

EIB 

Amount outstanding at 31 December 1997 

11 941.00 

-1.30 

-110.70 

-825.00 

-115.33 

-150.00 

+ 6.33 

+195.00 

+1231.00 

12 171.00 

1  An  average  interest  rate  of  10%  is  assumed  for  EIB  loans.  The  average  interest  rate  assumed  for 

borrowing and lending operations is 4.4%. 

2  The exchange rate used for loans in currencies other than the ecu are those of 31 December  1997. 

3 

In the case of loans in currencies other than the ecu, part of the  change over the past six months is due to 
exchange rate  differences. 

8-

The  capital  outstanding 
in  respect  of  operations 
ECU 4 497 million at 31 December  1997, a fall of 3.2% compared with 30 June 1997. 

the  Member  States  was 

in 

This fall is mainly due to the repayment of ECU 112 million in Euratom and NCI loans 

The amount outstanding from other operations in the Member States has remained stable. 

The  capital  outstanding  from  non-member  countries  at  31  December  1997  was 
ECU 7 674 million, an increase of 5.2% compared with 30 June 1997. 

III.B  Maximum  annual  risk  borne  by  the  Community  budget:  operations 

disbursed  at 31 December 1997 (see Table 2) 

The total annual risk, which comes to ECU 3 289 million in  1998, will increase to around 
ECU 3 682 million in 2000, although the situation in  1999 is special in that there will be 
no capital repayments for the balance-of-payments loans to the Member States and in that 
capital  repayments  on  loans  to  Hungary,  the  Czech  and  Slovak  Republics  and  the 
ECU 290 million loan to Bulgaria end in 1998. 

-  The risk for  1998 in respect of the Member States comes to ECU  1 967 million.  This 
figure  changes  in  line  with  the  capital  repayments  on  balance-of-payment  loans  to 
Greece  and  Italy.  The  risk  will  reach  ECU 2 734 million  in  2000  when  Italy's  last 
repayment is due. 

-  The risk for  1998 in respect of non-member countries comes to ECU  1 323 million as 

the following  capital payments fall due: 

-  ECU  100 million from Hungary; 

-  ECU  123 million from the Czech Republic; 

-  ECU 62 million from the Slovak Republic; 

-  ECU  150 million from Bulgaria; 

-  ECU  185 million from Romania; 

-  ECU 288 million from EIB loans. 

From  1999 the amount of capital repayments on borrowing and lending operations will 
fall.  The  risk  in respect  of  non-member  countries  will  then  average  ECU 880 million 
over the period  1999-2005. 

III.C  Maximum  theoretical  annual  risk  borne  by  the  Community  budget 

(see Table 3) 

This risk comes to ECU 3 400 million in  1998 and will increase to ECU 4 266 million  in 
2000, before  stabilising at an average of ECU 2 550 million between 2001 and 2005. The 
risk in  1999 will total ECU 1 544 million. 

-9 

The trend  in the maximum risk in respect  of the Member  States is much the same as 
in Table 2 up to 2000 when the risk will amount to ECU 2 734 million. 

The  risk  in  respect  of  non-member  countries  will  rise  from  ECU  1 433 million  in 
1998 to  ECU  1  263 million  in  1999. The  risk  will  increase  by  an  average  of  20% a 
year from 2000 until 2005. 

10 

IABLEJ. 

CAPITAL OUTSTANDING IN RESPECT OF OPERATIONS  DISBURSED 

(ECU  million) 

Operation 

ceiling 

outstanding 

outstanding 

be disbursed 

Authorised 

Capital 

Capital 

Remainder to 

30.06.97 

31.12.97 

31.12.97 

MEMBER  STATES 

A.Balance of payments 

1.  Greece 

2. Italy 

B.Others 

3. Euratom 

4. NIC and NCI earthquake 

5.EIB  Mediterranean 

Spain, Greece, Portugal. 

14000 

4000 

6830 

1500 

500 

3455 

120 

327 

246 

500 

3448 

118 

219 

212 

MEMBER  STATES - TOTAL 

26330 

4648 

4497 

THIRD  COUNTRIES 

A.Financial assistance 

1.  Hungary 

2. Czech Republic 

3. Slovak Republic 

4. Bulgaria 

5. Romania 

6. Algeria 

7. Israel (*) 
8.  FYROM 

9. Baltic States 

10. Moldova 

11.  Ukraine 

12. Belarus 

13.Georgia, Armenia 

14. Former Soviet Union  (**) 

B.Other 

15. EIB  Mediterranean 

16. EIB Central and Eastern Europ 

17. EIB Asia, Latin America 

18. EIB South Africa 

180 

250 

125 

650 

580 

600 

160 

40 

220 

60 

285 

55 

170 

1250 

8672 

8220 

1925 

675 

THIRD  COUNTRIES - TOTAL 

24117 

180 

250 

125 

400 

510 

500 

160 

0 

135 

60 

185 

30 

0 

331 

2541 

1531 

301 

56 

7294 

100 

123 

62 

260 

580 

250 

0 

25 

130 

60 

285 

30 

0 

216 

3150 

1919 

385 

100 

0 

0 

0 

0 

0 

0 

0 

0 

0 

250 

0 

100 

0 

15 

85 

0 

0 

25 

170 

0 

2513 

4052 

653 

199 

7674 

8062 

GRAND  TOTAL 

50447 

11941 

12171 

8062 

(*)  Loan repaid in full at 31.12.1997. 

(**)  The ECU 216 million outstanding corresponds to the principal due but not paid at 31.12.1997 

ANNEX TQ TABLE 1 

SITUATION  IN RESPECT  OF EIB OPERATIONS  (31.12.97) 

Operations 

authorised 

available minus 

disbursed 

outstanding 

Credit line 

Loans made 

Amounts 

Amounts 

Mediterranean Member States 

Third countries, old mandates 

Mediterranean  Protocols 

Central and Eastern Europe I 

Central and Eastern Europe II 

Asia, Latin America I 

Asia, Latin America II 

South Africa 

Third countries, new mandates!*): 

Mediterranean 

Central and Eastern Europe 

Asia, Latin America 

South Africa 

Total 

(*) Council Decision of 14 Apnl 1997 

1500 

6362 

1700 

3000 

750 

275 

300 

2310 

3520 

900 

375 

20992 

cancellations 

at 31.12.97 

1465 

1590 

212 

5736 

1628 

3000 

657 

153 

300 

934 

1466 

215 

0 

15553 

4251 

1255 

762 

324 

78 

100 

114 

30 

0 

0 

3036 

1128 

761 

307 

78 

100 

114 

30 

0 

0 

8503 

5765 

NB:  As the loans are disbursed in national currencies, the loan ceiling may be exceeded when the amounts 

disbursed up to the date ot the report are converted into ecus. 

IABJ£2 
MAXIMUM ANNUAL  RISK BORNE BY THE COMMUNITY  BUDGET 
(Estimate in ECU million based on all operations disbursed at 31.12.97) 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

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 

Capital - subtotal 

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 

500 
981 

91 
50 

45 

1667 

48 
209 

10 
16 

18 

2467 

12 
40 

38 

2557 

15 
40 

40 

96 

155 

155 

3 
13 

14 

1 
10 

11 

71 

21 

92 

7 

7 

Interest  - subtotal 

300 

184 

177 

15 

500 
3448 

118 
219 

211 

4496 

48 
519 

13 
51 

62 

693 

8 

8 

1 

1 

23 

23 

22 

22 

2 

6 

7 

2 

3 

5 

17 

15 

32 

2 

2 

4 

MEMBER  STATES - TOTAL 

1967 

280 

2734 

107 

30 

27 

36 

8 

5189 

NON-MEMBER  COUNTRIES 

CAPITAL 
A. Financial  assistance 

6. Hungary 
7. Czech Republic 
8. Slovak  Republic 
9. Bulgaria 
10. Romania 
11. Algeria 
12. FYROM 
13. Baltic  States 
14. Moldova 
15. Ukraine 
16. Belarus 
B.  Guarantees 
17. EIB  Mediterranean 
18.  ElBC+EEur. 
19. EIB Asia  Latin America 
20. EIB South Africa 

100 
123 
62 
150 
185 

190 

80 

5 

5 

174 
92 
22 

200 
134 
27 

95 
5 

215 
172 
34 

70 

150 

9 
17 
6 

233 
183 
40 
34 

55 
100 

25 
12 
37 
6 

243 
182 
43 
19 

40 

12 
57 
6 

250 
175 
50 

70 

12 
57 
6 

236 
172 
22 

7 
57 
6 

226 
164 
23 

100 
123 
62 
260 
580 
250 
0 
130 
57 
225 
30 

1777 
1274 
260 
53 

Capital - subtotal 

912 

556 

601 

742 

721 

590 

575 

483 

5180 

INTEREST 
A. Financial  assistance 

6. Hungary 
7. Czech  Republic 
8. Slovak  Republic 
9.  Bulgaria 
10. Romania 
11. Algeria 
12. FYROM 
13. Baltic  States 
14. Moldova 
15. Ukraine 
16. Belarus 
B.  Guarantees 
17. EIB  Mediterranean 
18.  ElBC+EEur. 
19. EIB Asia Latin America 
20. EIB South Africa 

2 
3 
1 
8 
22 
16 
1 
7 
3 
13 
2 

185 
115 
18 
15 

5 
14 
16 
1 
7 
3 
13 
2 

178 
109 
15 
15 

5 
8 
16 
1 
6 
3 
13 
2 

164 
101 
15 
15 

5 
6 
16 
1 
1 
3 
13 
2 

149 
90 
14 
15 

2 
6 
5 
1 
1 
2 
12 
1 

135 
79 
12 
9 

2 
3 

1 

2 
11 
1 

119 
68 
11 
7 

3 

1 

1 
8 
1 

104 
57 
10 
7 

2 
3 
1 
27 
62 
67 
9 
21 
18 
88 
13 

1124 
666 
104 
88 

1 

1 
5 
1 

90 
47 
9 
7 

Interest  - subtotal 

410 

378 

347 

315 

265 

225 

192 

160 

2292 

NON-MEMBER  COUNTRIES -
TOTAL 

1323 

933 

948 

1056 

986 

815 

767 

643 

7472 

GRAND  TOTAL 

3289 

1213 

3682 

1163 

1016 

842 

803 

652 

12661 

(Eastern  Europe) 
(Other non-member  countries) 

892 
430 

482 
451 

490 
459 

405 
651 

419 
566 

377 
438 

388 
380 

288 
356 

3741 
3731 

12 

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

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

TOTAL 

MEMBER  STATES 

CAPITAL 
A.  Balance of payments 

1.  Greece 
2.  Italy 

B. Structural  loans 

3. Euratom and NCI 
4.  EIB Spain, Greece,  Portugal 

Capital - subtotal 

INTEREST 
A. Balance of  payments 

1.  Greece 
2.  Italy 

B. Structural  loans 

3. Euratom and NCI 
4.  EIB. Spain, Greece, Portugal 

500 
981 

141 
45 

1667 

48 
209 

26 
18 

2467 

52 
38 

2557 

55 
40 

96 

155 

155 

15 
14 

11 
11 

Interest  - subtotal 

300 

184 

177 

71 
21 

92 

7 
7 

15 

23 

23 

22 

22 

2 
6 

7 

2 
3 

5 

17 
15 

32 

2 
2 

4 

500 
3448 

337 
211 

4496 

48 
519 

65 
62 

693 

8 

8 

1 

1 

MEMBER  STATES - TOTAL 

1967 

280 

2734 

107 

30 

27 

36 

8 

5189 

THIRD  COUNTRIES 

CAPITAL 
A. Financial assistance 

5.  Hungary 
6. Czech  Republic 
7. Slovak  Republic 
8.  Bulgaria 
9.  Roumania 
10. Algeria 
11.  FYROM 
12. Baltic  States 
13. Moldova 
14. Ukraine 
15. Belarus 
16.  Georgia 
17. Armenia 
18. Euratom C+E Europe 
B.  Guarantees 
19. EIB  Mediterranean 
20.  EIB C+E Europe 
21.  EIB Asia, Latin America 
22.  EIB South Africa 

100 
123 
62 
150 
185 

190 

80 

5 

5 

95 
5 

174 
92 
22 

200 
134 
27 

215 
172 
34 

Capital - subtotal 

913 

556 

601 

INTEREST 
A. Financial  assistance 

5.  Hungary 
6.Czech  Republic 
7. Slovak  Republic 
8.  Bulgaria 
9. Romania 
10. Algeria 
11.FYROM 
12. Baltic States 
13.  Moldova 
14. Ukraine 
15.  Belarus 
16. Georgia 
17. Armenia 
18. Euratom C+E Europe 
B.  Guarantees 
19. EIB  Mediterranean 
20. EIB C+E  Europe 
21.  EIB Asia. Latin America 
22.  EIB South Africa 

Interest  - subtotal 

2 
3 
1 
13 
22 
21 
2 
11 
3 
16 
3 
5 
3 
1 

205 
166 
26 
18 

520 

15 
14 
21 
2 
11 
3 
19 
3 
5 
3 
5 

272 
267 
43 
25 

15 
8 
21 
2 
10 
3 
19 
3 
5 
3 
14 

341 
385 
68 
35 

55 
100 

25 
12 
37 
6 

352 
360 
74 
31 

12 
37 
6 

1 

436 
470 
107 
23 

70 

12 
72 
11 

5 

509 
596 
110 
35 

31 

100 

17 
7 
87 
11 

14 

537 
631 
127 
42 

100 
123 
62 
251 
580 
350 
0 
147 
57 
250 
40 
0 
0 
20 

2706 
2722 
554 
171 

1052 

1092 

1420 

1604 

8133 

12 
6 
14 
2 
5 
2 
18 
2 
5 
3 
49 

469 
587 
123 
47 

12 
3 
9 
2 
5 
2 
17 
2 
5 
3 
69 

476 
593 
135 
48 

12 
3 
9 
2 
5 
1 
14 
2 
5 
3 
86 

457 
569 
136 
47 

11 

4 
2 
5 
1 
11 
2 
5 
3 
98 

362 
519 
128 
42 

2 
3 
1 
105 
62 
120 
16 
57 
18 
133 
20 
39 
21 
352 

3001 
3599 
758 
306 

70 

150 

9 
17 
6 

283 
267 
53 
40 

895 

15 
6 
21 
2 
5 
3 
19 
3 
5 
3 
30 

419 
513 
99 
44 

707 

931 

1186 

1343 

1380 

1350 

1192 

8613 

THIRD COUNTRIES - TOTAL 

1433 

1263 

1532 

2081 

2395 

2472 

2771 

2796 

16746 

GRAND TOTAL 

3400 

1544 

4266 

2188 

2426 

2500 

2807 

2805 

21935 

(Eastern  Europe) 
(other non-member  countries) 

965 
468 

673 
590 

816 
716 

970 
1111 

1183 
1212 

1236 
1236 

1466 
1305 

1452 
1344 

8764 
7982 

13 

IV.  ACTIVATION OF BUDGET  GUARANTEES 

IV.A  Payments from cash  resources 

The  Commission  draws  on its cash  resources  under  Article 12 of Council  Regulation 
No  1552/89 of 29 May 1989 implementing Decision  88/376/EEC, Euratom on the system 
of  the Communities'  own resources  to avoid  delays  and resulting  costs  in servicing its 
borrowing operations when a debtor is late in paying. 

IV.B  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. 

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

"' 

', 

,L 

',  " T ," 

• '— 

' •— 

,",  M! 

• — — I . . - . . — I. 

• 

! 

I 

! 

I 

! 

! 

• • • ,

. • • •„ 

. ,I I IL 

. 

,U 

• 

L I.  J.  1.1.1 

• . ! . . _ _. 

I I ..  1 U I I . . I L II  — — P — • — ^— 

•• 

• 

, l|  — ^-

Non-member country 

Former Yugoslavia 

Date 

16.10.97 

Amount (principal + interest) 

6134 806.85 

IV.C  Late  repayments 

During  the period  covered  by this  report,  the following  non-member  countries  repaid 
debts on which  they 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, Euratom)  No 2728/94  of 31  October  1994 establishing  a  Guarantee 
Fund for external  action. 

The  former  Yugoslav  Republic  of Macedonia  (FYROM)  has repaid  all its arrears of 
ECU  19.7 million. 

Non-member country 

Repayment date 

Amount (principal + interest + 

Armenia 

FYROM 

FYROM 

Total 

28.11.97 

3.11.97 

23.12.97 

default interest) 

8 000 000.00 

16 509 236.82 

3195 400.83 

27 704 637.65 

- 1 4-

IV.D  Situation  as regards unpaid debts at 31 December 1997 

The following  amounts had not been paid at 31 December  1997: 

Non-member country 

Amount (principal + interest + default interest) 

Tajikistan 

Georgia 

Armenia 

Former Yugoslavia 

Total 

72130 543.72 

127 912 418.30 

48 510 587.09 

67 207 757.63 

315 761306.74 

V.  ANALYSIS  OF  THE  COMMUNITY'S  THEORETICAL  LENDING  AND 
IN  RESPECT  OF  NON-MEMBER 

GUARANTEE  CAPACITY 
. 
COUNTRIES 

In practice,  the  Guarantee  Fund  and reserve  facility  limits  the  Community's  lending  and 
guarantee  capacity  to  non-member  countries  since  the  appropriations  available  for 
provisioning the Fund whenever a new lending decision is adopted (or any annual tranche 
in the case of guarantees for multiannual operations) are limited by the amount entered  for 
the guarantee reserve in the financial perspective.4 

At any given time, lending capacity corresponds to the margin remaining in the guarantee 
reserve.  This  margin  is  equal  to  the  difference  between  the  reserve  and  the  estimated 
amount  needed  to provision  the  Guarantee Fund  for  operations which  have already been 
adopted and which are in preparation. 

Table  4  contains  an  estimate  of  the  Community's  lending  capacity  in  respect  of  non-
member  countries  over  the  period  1997-99  compatible  with  the  Guarantee  Fund 
mechanism.  The method  of calculation  and references  to legal texts are set out in greater 
detail in the Annex. 

On  the  basis  of  the  decisions  adopted  by  the  Council  and  decisions  proposed  and  in 
preparation  (see  Table 4),  ECU 259 million  is  expected  to  be  used  from  the  guarantee 
reserve in 1998, leaving ECU 79 million available at the end of the year. 

Outstanding  lending  and  loan  guarantee  operations  for  non-member  countries  plus 
unpaid interest due totalled ECU 7 961 million at 31 December  1997. 

The  ratio  between  the  Fund's  resources  and  outstanding  capital  liabilities  within  the 
meaning  of the Regulation  establishing  the Fund was  10.83%.  Since this  is higher  than 
the  target  amount  of  10%, the  surplus  had  to be  "paid  back  to  a special  heading  in  the 

4  ECU 300 million at  1992 prices. 

-15 

statement  of revenue  in the general budget  of the Communities",  as provided  for  in the 
Regulation. The surplus came to ECU 66 million at the end of the  1997 financial  year. 

The  Guarantee  Fund  could  amount  to  around  ECU  1 100 million  at  the  end  of  1998 
assuming: 

-  a transfer  of ECU 259 million from the reserve in  1998; 

-  no further  defaults requiring activation of the Fund; 

-  no late repayment of arrears by defaulting  countries; 

- 

revenue of around ECU 40 million on investments from the Fund's assets. 

If account is taken of the effect  on the guarantee reserve of the provisioning of the Fund in 
respect  of  loans  already  decided  and  loans  proposed  and  in  preparation  for  the  period 
1998-99, the annual capacity available for loans varies: 

-  from  ECU 516 million  to  ECU 568 million  for  loans  with  a  100%  guarantee  under 

the Community budget; 

-  from  ECU 688 million  to  ECU 757 million  for  loans  with  a  70%  guarantee  (in 
accordance  with  the  contract  of  guarantee  signed  between  the  Community  and  the 
EIB on 25 and 29 July 1997). 

VI.  RELATIVE  SOLIDITY  OF THE GUARANTEE  FUND 

The ratio  between  the amount  in the Fund  at  31 December  1997  (ECU 862 million)  and 
the maximum  annual risk for  loans to non-member countries  (defined  as the total  amount 
falling due) shown for  1998 in Table 3 (ECU  1  433 million) comes to 60%. 

-16 

TABLE 4 

THE COMMUNITTS THEORETICAL  ESTIMATED  LENDING  & GUARANTEE  CAPACITY 

IN RESPECT OF NON-MEMBER  COUNTRIES 

OVER THE  PERIOD  1997-1999 

under the Guarantee Fund mechanism(*) 

ECU million 

Outturn 
31.12.1997 

Forecast 

Forecast 

1998 

1999 

Reserve for  loan guarantees to  non-member  countries 

329 

338 

346 

Bases for the calculation  of the provisioning  of the Guarantee  Fund 

-  EIB loans 
-  Mediterranean (a) 
-  Countries of Central and Eastern Europe (b) 
-  Asia, Latin America (c) 
-  South Africa (d) 
-  EIB loans • Total 

-  Euratom loans 

-  Macrofinancial assistance 

553 
850,5 
60 
125 
1588,5 

931,6 
665,7 
190,55 
17,5 
1805,35 

693,25 
710,5 
322 
105 
1830,75 

0 

305 

0 

50 

0 

125 

Provisioning  of the Guarantee  Fund 

286 

259 

274 

Margin  remaining  in the guarantee  reserve 

43 

79 

72 

Residual  lending capacity  (balance  of payments loans, 
EIB loans  and  Euratom  loans) 

- Maximum if used in full for 100% guarantee (e.g. BP loans) 
- Maximum if used in full for EIB loans (70% guarantee) 

286 
409 

568 
811 

516 
737 

(*) The provisioning rate for 1998 and 1999 is 14%, the Fund having reached its target amount at the end of 1997. 

(see Council recommendations of 2 December  1996 and 27 January 1997) 

Description of the loans for which the Fund will be provisioned in the period 1997-1999: 

•  EIB 
a. Mediterranean: 

- loans decided: 1994-96: ECU 115 million under the Fourth Financial Protocol with Syria (overall 75% guarantee). 
31.1.1997-31.1.2000:  ECU 2 310 million for the renewal of the EIB mandate, covered by overall 70% guarantee 

- loans proposed or in preparation:  1998-2002: ECU 750 million for financial cooperation with Turkey. 
1998-2001:  ECU 230 million for financial cooperation with Croatia.  1998-2000:  ECU 150 million 
for financial cooperation with the Former Yugoslav Republic of Macedonia (FYROM). 

b. Central and Eastern Europe: 

- loans decided: 31.1.1997-31.1.2000:  ECU 3 520 million for the renewal of the EIB mandate, covered by 

overall 70% guarantee. 
c. Asia and Latin America: 

- loans decided: 1993-1996: ECU 750 million. Loans of ECU 54.6 million cancelled. 
1996:  ECU 275 million (100% guarantee).  ECU 122 million still to be signed when the decision of 14.4.1997 
was adopted is now covered by the overall 70% guarantee. 
31.1.1997-31.1.2000: ECU 900 million for renewal of the EIB mandate, covered by overall 70% guarantee. 

d. South Africa: 

- loans decided:  1.7.1997-1.7.2000:  ECU 375 million for the renewal of the EIB mandate, covered by 

overall 70% guarantee. 

- Euratom 

No loans proposed. 

Macrofinancial  assistance 
- loans decided: 1997: loans of ECU 25 million to Belarus released and carried forward to 1999;  loans of ECU 130 million to Slovakia 

cancelled. 
1998: loans of ECU 100 million to Algeria released in 1998 and carried forward to 1999; 

- loans proposed or in preparation: 1998:  ECU 150 million in loans to Ukraine. 

17 

PART TWO 
EVALUATION  OF POTENTIAL RISKS: ECONOMIC AND  FINANCIAL 
SITUATION  OF THE NON-MEMBER COUNTRIES BENEFITING  FROM 
THE MOST IMPORTANT LOAN  OPERATIONS 

I. 

INTRODUCTION 

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.  Recent  events  which  may  influence  the 
portfolio  country risk are analysed below. 

The  country  risk  evaluation  presented  in  this  chapter  provides  a  set  of  country  risk 
indicators  for  all  countries  that  have  been  recipients  of  macro-financial  assistance  in 
Central  and  Eastern  Europe, the NIS  and the Mediterranean  area,  in the  form  of  a  full-
page  table  per  country.  To  complement  this,  textual  analysis  is  provided  for  those 
countries where significant  new information  influencing  the risk evaluation has become 
available  since  the previous  report  covering  the  first  six  months  of  1997. Brief  textual 
analysis is also provided  for the countries which have still to repay loans outstanding  in 
the  context  of  the  ECU  1250  million  commercial  credits  made  available  to  the  then 
Soviet Union in 1991. 

The  evaluation  in  this  section  does  not  deal  with  other  regions  than  those  mentioned, 
mainly  because  Community  exposure  elsewhere  (notably  through  guarantees  of  EIB 
lending)  represents  only  a  small  fraction  of  total  exposure  (less  than  3  %)  and  is  also 
well  diversified  among countries. Israel will no longer be included  in the next report, as 
the  country  repaid  in  December  1997  the  ECU  160  million  loan  granted  by  the 
Community in 1991. 

II.  CENTRAL AND EAST EUROPEAN COUNTRIES 

BULGARIA 

Bulgaria's  prospects  continue  to improve. The  stand-by  arrangement  reached  in  Spring 
1997 with the International Monetary Fund remains on track. Foreign reserves are more 
than  adequate  to  cover  the  central  bank's  liabilities  under  the  currency  board 
arrangement  introduced on  1 July. 

The  1997 budget  deficit  was around 4% of  GDP,  some 2 percentage points  smaller  than 
the target  agreed with the IMF. This is in part  due to  lower than  expected  interest  rates, 
which  reflect  both  successes  in macroeconomic  stabilisation  and  depressed  demand  for 
credit. 

Structural  reform  has  speeded  up.  Prices  of  all  but  a  handful  of  basic  foodstuffs  have 
been  liberalised.  Widespread  privatisation  of  large  enterprises  is  under  way,  and  the 

18 

pace  should  accelerate  in  1998. One bank  has been  privatised,  and  others  may  be  sold 
soon.  Foreign  direct  investment  inflows  in  the  first  half  of  1997  were  substantially 
greater than in the full years  1995 and  1996 combined. 

Notwithstanding  the progress  which Bulgaria has made,  its  external  finances  are  likely 
to remain somewhat  fragile  for some years to come: service on foreign  debt continues to 
be substantial, at close to US$1 billion per year. Important  to note in this context  is the 
ECU  140  million  repayment  made  in  December  1997  by  Bulgaria  to  the  Community, 
out  of  the  ECU  400  million  disbursed  so  far,  in  the  framework  of  the  Community 
macro-financial  assistance to this country,  as well  as the July  1997 Council Decision  to 
provide  to  Bulgaria  new  macro-financial  assistance  for  a  maximum  amount  of  up  to 
ECU 250 million. A sustained  reform  effort  will ensure continued  support from the IMF 
and other international institutions, and attract larger flows  of foreign  direct  investment. 

CZECH  REPUBLIC 

Since the last report, the situation in the Czech Republic has remained  unsettled.  In the 
second  half  of  1997,  growth  slowed  further  to  only  0.8%  year-on-year.  After  poor 
output  data  for  the  first  six  months  of  the  year,  the  Czech  Republic  suffered  severe 
flooding  over  the  summer,  which  dented  hopes  of  a  recovery  of  output  in  the  third 
quarter.  However,  although  many  large  industrial  firms  were  forced  to  stop  production 
for  a few weeks, output in the third quarter, though not buoyant, was higher than for the 
same  period  of  1996.  This  slight  improvement  in  the  trend  of  industrial  output 
continued  into  the  final  quarter,  when  some  signs  of  a  recovery  appeared,  led  by 
manufacturing.  Data  on  the  construction  sector,  on  the  other  hand,  are  not  so 
encouraging: the sector is suffering  badly from government investment  expenditure  cuts 
made in fiscal  austerity packages earlier in the year. 

On  the  external  side,  the  continued  poor  growth  combined  with  the  devaluation  of  the 
currency in May, resulted in a marked improvement  in the evolution of the trade balance 
in  the  second  half  of  the  year.  Despite  the  improvement  of  the  trade  balance  and  the 
current  account,  the  currency  remained  unsteady.  The  main  source  of  continuing 
currency  turbulence  has  been  the  political  instability,  which  culminated  with  the 
resignation  of the Czech government  at the end of November.  The political  uncertainty 
is  due  to  continue  until  the  country  has  fresh  elections  which  are  likely  to  be  in  mid-
1998 at the earliest. 

In  December  1997,  the  Czech  Republic  repaid  some  ECU  127  million  to  the 
Community, out of the ECU 250 million granted by the Community  in the context of its 
macro-financial  assistance to this country. 

ESTONIA 

Despite recent financial  turbulence, Estonia's risk assessment continues to be among the 
best  in  the  region.  The  economy  is  expanding  very  rapidly  (real  GDP  growth  reached 
11.7%  on  a year-on-year  basis  in  the  first  half  of  1997),  exports  are  growing  strongly 
(during the first ten months  of  1997, they were  38% higher,  in dollar terms, than  in  the 
corresponding  period  of  1996)  and  the  country  recorded  a  budget  surplus  in  1997. 

19 

Foreign  debt  remains  small  as  a proportion  of  GDP. In  September,  the  country's  good 
economic  performance  was  acknowledged  by  two  favourable  sovereign  risk  ratings. 
Moody's  gave Estonia a Baal,  investment  grade, long-term  foreign  currency rating, and 
ICBA gave a BBB, investment  grade, long-term  foreign  currency rating. Moody's  rating 
is the highest  rating given to a country  of the former  Soviet Union  and the same as that 
of the Czech Republic. 

The multiplication  of overheating  signs, in particular  the growth  of the  current  account 
deficit  and the very fast  pace  of expansion  of bank  lending,  led the authorities  to take a 
number  of restrictive  measures  in the  last  quarter  of  1997. Fiscal  policy  was  tightened, 
notably  by  depositing  abroad  a large share of extra  fiscal  revenues  (500 million  kroons 
in  1997)  and  by  increasing  the  planned  surplus  for  1998.  Also,  the  capital  adequacy 
ratio was raised from 8% to  10% on  1 October and reserve requirements  for banks were 
tightened. While these measures will slow down growth in  1998, they will address some 
of Estonia's macroeconomic  imbalances. 

As  a  result  of  the  difficult  situation  on  the  international  financial  markets  and  the 
authorities'  measures  to  cool  down  the  economy,  Estonia  experienced  serious  liquidity 
difficulties  in  the  last  quarter  of  1997.  This  led  to  a  significant  increase  in  interbank 
interest  rates  and to massive  selling  on the  stock market, which  fell  by more than  50% 
between end-August and end-November. These financial difficulties  have dented banks' 
profit  outlook,  but  have  not  prevented  Estonian  banks  from  continuing  to  tap  the 
international  financial  markets. In November  1997, the authorities  agreed  with  the  IMF 
a new memorandum  of economic policy but announced that they did not intend to make 
any purchase under the stand-by arrangement backing the memorandum. 

FYROM 

Since its  independence  in  1991, the former  Yugoslav  Republic  of Macedonia  has  made 
substantial  progress  in  economic  stabilisation  and  liberalisation  and  has  undertaken  a 
number  of  structural  measures  to  reform  its  economy.  These  efforts  have  reduced 
inflation  to low single-digit  rates, stabilised  the  exchange rate (except  for  a devaluation 
in  July  1997),  halted  the  output  decline,  and  earned  the  former  Yugoslav  Republic  of 
Macedonia  a  reputation  for  stability  and  willingness  to  reform.  However,  despite  a 
resumption  of GDP growth in  1996 of some  1 % and  an increase of about  2 % in  1997, 
the output  level is only 60 % of that prevailing in  1991, unemployment  is very high, and 
the FYROM remains one of the poorest countries in Europe. 

In  1997, the  country  continued  its transition  to  a market  economy  in the  framework  of 
an IMF ESAF arrangement  approved  in April  1997. Following  a programme  adjustment 
in  July  (accompanying  the  14%  devaluation),  the  programme  was  implemented 
satisfactorily  and  is  now  on  track.  One  important  element  of  the  programme  has  been 
the clearance  of the country's  arrears vis-à-vis the Community  and the EIB, which  took 
place  on  10  September.  In  support  of  the  IMF  programme,  the  Council  decided  on  a 
Community  loan  of  up  to  40  MECU,  of  which  the  first  tranche  (25  MECU)  was 
disbursed  on  30  September.  The  release  of  the  second  tranche  is  expected  for  early 
1998. 

20 

The good track record of economic stabilisation and reform  and the clearance of  the last 
outstanding  external  arrears  certainly  are  positive  factors  in  the  risk  evaluation  of  the 
former  Yugoslav  Republic  of  Macedonia.  In  1995  and  1996,  the  FYROM  reached 
rescheduling  agreements  with  the  Paris  and  London  Clubs  respectively,  and  the  last 
bilateral Paris Club agreements  are being finalised.  The country's debt increased to 38% 
of  GDP  in  1997, while  the  debt  service  fell  to  8.7%  of  exports  of  goods  and  services, 
which is not overly high. However, the FYROM continues to have a relatively high risk. 
This  is  particularly  due  to  the  unstable  political  situation  in  the  region,  as  well  as  to 
internal political  difficulties  related to the minority  issue. Moreover,  important  progress 
in restructuring  enterprises and strengthening the banking sector remains to be made. 

LATVIA 

The  economic  situation  in  Latvia  remains  favourable.  In  1997,  growth  accelerated, 
reaching  4.6% in the first six months  of the year. Moreover,  inflation  continued  to  fall, 
interest  rates  fell  substantially  throughout  the year,  and the  fiscal  position  continued  to 
improve -  the budget outturn for  1997 showed a surplus. The imbalances on the external 
side  continue  to  grow,  but  for  the  moment  there  is  little  threat  to  the  stability  of  the 
currency. 

LITHUANIA 

During  1997,  the  Lithuanian  economy  continued  to  perform  positively.  GDP  grew  by 
2.5%o during  the first half,  driven  by  investment  and  consumption.  Unemployment  and 
inflation  have  stopped  falling  but  remain  relatively  low,  respectively  at  5.9%  and  9% 
year-on-year  in  October.  Fiscal  revenues  have  been  higher  than  projected,  and  the 
budget deficit  remained within the targeted  1.9%  of GDP. 

The trade balance has been  deteriorating  significantly  as buoyant  domestic  demand  has 
caused imports to grow faster than exports. As a result, the trade deficit  for the first nine 
months  of  1997  nearly  equalled  the  deficit  for  the  whole  of  1996.  Nevertheless,  this 
increasing  external imbalance was easily  financed.  Borrowing rates on the  international 
capital  market  have  continued  to  improve,  and  portfolio  and  foreign  direct  investment 
flows  have  been  rising  strongly.  Official  reserves  increased  during  the  first  half  of  the 
year  and  provide  more  than  two  months  of  import  coverage.  The  foreign  debt  grew 
rapidly  in  the  first  nine  months  of  the  year  but  remains  low  as  a percentage  of  GDP. 
New  regulations  on  external  borrowing  introduced  a  ceiling  of  20%  of  GDP  on  total 
foreign  debt. 

The  banking  sector  continues  its  recovery  from  the  1995  crisis.  The  authorities  have 
strengthened  regulation  and  taken  a  tougher  stance  against  the  weakest  banks.  This 
caused  the bankruptcy  of one of the banks to which the proceeds  of Community  macro-
financial assistance were on-lent by the Lithuanian  authorities at their own risk. In order 
to further  the restructuring  of the financial  sector, the government  is finalising  plans  for 
the privatisation  of two of the three state-owned banks. 

2 1-

ROMANIA 

Romania's  country  risk,  while  still  one  of  Eastern  Europe's  highest,  continued  to 
improve during the second half of  1997. A year after  the Romanian  authorities  launched 
their  radical  and  ambitious  economic  programme,  much progress  has been  achieved  in 
transforming  the  economy  and  accelerating  the transition  towards  a functioning  market 
economy.  The  implementation  of  the  authorities'  programme  has  continued  to  affect 
negatively  the  level  of  economic  activity.  GDP  fell  by  about  6%  in  1997.  The 
macroeconomic  framework  continues  to be  fragile.  After  a period,  during  the  summer, 
when  inflation  and  interest  rates  fell  to  their  lowest  levels  since  the  beginning  of  the 
year,  inflation  jumped  in  October  to  6.5%  on  a  monthly  basis.  Also,  there  have  been 
delays  in restructuring  the large public  sector  enterprises  and uncertainty  with regard  to 
the legal framework for foreign  investment and privatisation. 

However,  there has been  significant  progress  in key  areas. Fiscal  policy  has  been  very 
tight, with the government  strictly controlling  expenditures. For  example, by the end of 
November,  the  public  sector  work-force  had  shrunk  by  10%.  The  external  accounts 
clearly  improved  during  1997.  Relatively  high  capital  inflows  more  than  offset  the 
current  account deficit,  allowing the National Bank of Romania to build up its reserves, 
from  $700  million  in  February  to  $2.6  billion  in  November,  equivalent  to  more  than 
three  months'  imports.  The  current  account  deficit  for  1997  amounted  to  $2  billion,  a 
fall  of  almost  25%  over  1996.  Foreign  investment,  and  in  particular  foreign  direct 
investment  (FDI),  increased  sharply  in  1997,  reflecting  growing  investor  confidence. 
According  to the Romanian Development  Agency, FDI in the first nine months of  1997 
totalled  $1.3  billion,  which  is  about  two  thirds  of  the  cumulative  amount  received 
between  1989 and 1996. 

Romania  has  passed  successfully  the  first  IMF  review  under  the  SBA.  Already,  three 
tranches  of  the  SBA  have  been  disbursed.  Romania  is  also  on  track  with  the  World 
Bank on the various loans approved in June. The EC also disbursed in the second half of 
1997  the  remaining  ECU  70  million,  out  of  the  ECU  125  million  macro-financial 
assistance decided by the Council in  1994. Finally, the government reshuffle  announced 
at the beginning  of December  1997, and the nomination  of reform-minded  independent 
personalities  at  key  economic  ministries,  is  a  positive  sign  of  the  authorities'  strong 
determination to continue and accelerate economic  restructuring. 

SLOVAKIA 

Slovakia's  country risk remains  moderate, but  external  balances  are.still registering  big 
deficits  and  foreign  debt  is  increasing  rapidly.  Following  the  sharp  deterioration  of  the 
current  account  in  1996, the external  situation  stabilised  somewhat  in  1997, but  deficits 
remained  high.  After  eight  months,  the  current  account  deficit  was  reduced  to  about 
814%) of  GDP, compared  to  10% in  1996. Nevertheless,  external  debt  continued  to  rise 
rapidly to finance  the external  deficit. 

The  fast  economic  growth registered  in  1995  and  1996 barely  slowed  down  in the first 
half  of  1997, which  led  to  an  overheating  of  the  economy.  Preliminary  figures  for  the 
first  two  quarters  of  1997  now  show  that  economic  activity  was  expanding  by  6%, 

22 

compared  to  slightly below  7% in  1995 and  1996. Inflation  has  started  to  edge up  after 
three years of uninterrupted decline. 

Because  fiscal  policy  became more  expansionary,  monetary  policy  had  to be  tightened 
gradually  to preserve the attained  level of macroeconomic  stability. Especially  after  the 
attack  on the currency  in May  and June  1997, monetary policy became very restrictive, 
with high interest rates and very limited  liquidity. Without  a significant  reduction of the 
government  budget  deficit,  no  significant  improvement  of  the  current  account  balance 
can be expected, while pressures to depreciate the currency might  intensify. 

In December  1997, Slovakia repaid  some ECU 63 million to the Community,  out of the 
ECU  125  million  granted  by  the  Community  in  the  context  of  its  macro-financial 
assistance to this country. 

III.  NEWLY  INDEPENDENT  STATES 

ARMENIA 

The Armenian  economy continued to recover for  a fourth  consecutive year in  1997, but, 
it  seems,  at  a slower pace  than  expected  (3  %  rise  in  GDP  instead  of  the  6 %  initially 
targeted). Although  the  average  inflation  rate  fell  further  in  1997 to  about  14 %, this is 
significantly  above  the  Government's  target  of  9.5%. Moreover,  partly  because  of  the 
blockade  imposed  on  the  country,  the  current  account  deficit  (excluding  official 
transfers)  widened  in  1997  (to  around  US$  450  million  or  about  28  % of  GDP), while 
the  foreign  debt  increased  to  around  50  %  of  GDP  at  year-end.  The  level  of  foreign 
direct investment is still very low (around US$ 25 million for  1997). 

Important  progress  has  been  made  in  price  and  trade  liberalisation  and  with 
privatisation.  However,  much  remains  to be  done  in  large  enterprise  restructuring,  and 
in  the  banking  sector,  which  is  still  fragile  (high  levels  of  non-performing  loans  and 
inadequate  capitalisation). In June, the IMF  approved  the second  annual credit  (US$ 47 
million)  of  an  ES AF  arrangement.  In the political  sphere, the recent  resignation  of  the 
Armenian  President  has  cast  doubts  on  the  prospects  for  a  peaceful  settlement  of  the 
Nagorno-Karabakh  conflict.  Moreover, 
the  expected  settlement  of  Armenia's 
outstanding  debt  arrears  towards  the  Community  has  not  yet  taken  place. For  all  these 
reasons, Armenia remains in the category of high-risk debtors. 

BELARUS 

The  assessment  of the  economy  of Belarus  has not  changed  significantly  since  the  last 
report.  Current  economic and political developments  are a matter  of grave concern.  The 
lack of  elementary political  and  economic freedom represents  a major  constraint  on the 
development of a market  economy. 

Censorship  and  data  manipulation  prevent  a  proper  evaluation  of  the  real  state  of  the 
economy.  Real  GDP  is reported  to have  increased  by  2.6% in  1996, and by  more  than 
10%)  in  the  first  half  of  1997.  Officially  recorded  growth  of  industrial  production  is 
particularly  buoyant:  above  18%  in  the  first  half  of  1997  with  respect  to  the 

23 

corresponding period  of the previous year. However, this rise in output is unsustainable. 
It  has  been  based  exclusively  on  a  policy  of  credit  expansion  and  repayment  of  gas 
arrears  to  Gazprom  through  barter  trade.  Macroeconomic  stability  is  in  jeopardy. 
Monetary  expansion  has  had  an  impact  on  inflation,  which  despite  far-reaching  price 
controls, was reported at 75% in October  1997 (year-on-year basis). 

improve  corporate  governance,  accelerate 

Implementation  of  structural  reforms  has  been  very  slow.  Very  little  has  been  done  to 
liberalise  domestic  prices  and  trade, promote  competition  through  the  entry  of  foreign 
companies, 
the  privatisation  of  state 
enterprises  and  housing,  and  begin  the  privatisation  of  land.  Belarus  remains  highly 
dependent  on imported  energy. Its export  structure has remained  almost  unaltered  since 
the Soviet times. The official  external debt, however, remains low, at US$900 million or 
6.9 per cent of GDP. 

The  overall  risk  remains  high.  Its  reduction  would  require  a major  effort  to  tackle  the 
fundamental  disequilibria  on  the  basis  of  a  comprehensive  blueprint  encompassing 
macroeconomic, microeconomic, structural and institutional  reforms. 

GEORGIA 

The growth of around  12 % achieved in  1997 continued the positive evolution registered 
in the Georgian  economy  since  1995. The tight monetary  and credit policies resulted  in 
a reduction  in the state budget  deficit  to around  3.5  % of GDP (on a commitment  basis) 
and end-of-period  annual inflation  rate declined to 8 % in  1997. The low level of budget 
revenue  is, however,  unsatisfactory.  The  level  of  foreign  direct  investment  is  still  low 
(US$ 70 million expected for  1997). 

in  line  with  IMF  and  World  Bank 
The  implementation  of  structural  reforms 
expectations  is encouraging. Very positive developments  have  occurred  in  privatisation 
and  in  bank  restructuring.  The  energy  sector,  however,  despite  improvements,  in 
particular  with  regard  to  the  adoption  of  a  sound  legal  and  regulatory  framework, 
remains  a source of concern because of insufficient  collection  rates. The  government  is 
proceeding  with  the  adoption  of  a market-oriented  legal  framework,  and  is now  giving 
priority  to the development  of the enforcement  capacity  of the  legal  system. In  October 
1997, the IMF Board  formally  approved  the completion  of the second  mid-term  review 
under  the  ESAF.  Georgia  is  expected  to  clear  shortly  all  its  outstanding  debt  arrears 
towards  the  Community.  This would  allow  the normalisation  of the  country's  financial 
cooperation with the EU. Political difficulties  persist: the Abkhazian  and South  Ossetian 
problems are still unresolved. As a result, the country risk remains high. 

MOLDOVA 

Moldova  has  made  considerable  progress  towards  macroeconomic  stabilisation,  but 
achievements  in  carrying  out  robust  and  rigorous  macroeconomic  policy  need  to  be 
consolidated.  The  sustainability  of  macroeconomic  stabilisation  cannot  be  taken  for 
granted,  as  the  financial  situation  remains  fragile.  Inflation  has  been  substantially 
reduced, and trend inflation  is now estimated  at about  10%. The exchange rate of the leu 
has  shown  a remarkable  stability  since May  1995. However,  a widening  budget  deficit 

- 2 4-

has put pressure  on monetary  policy  and on the current  account; tax  collection  remains 
inefficient;  and wage, and especially pension, arrears are very large. There is also a lack 
of  substantial  progress  in  the  process  of  agricultural  reform,  privatisation  and 
restructuring. All this in a context of continuous output decline. 

On  the  whole,  data  for  the  second  half  of  1997  confirm  the  previous  assessment  of  a 
deterioration  in  the  country's  risk.  In  particular,  increasing  reliance  on  external 
financing  has contributed to a steady increase of the external debt, now well  above 50% 
of GDP. This  level  is not particularly  high. However,  the  debt has been  increasing  at a 
very  rapid  pace,  almost  doubling  every  year  since  1993, and  about  one  third  is  short 
term.  This  component  could  prove  highly  sensitive  to  the  conditions  prevailing  in  the 
international  financial  markets  for  emerging  economies.  Minimising  its  potential 
volatility will require improvements  in Moldova's  fundamentals,  especially in the fiscal 
stance  and  in  the  balance  of  payments.  Equally  important  will  be  to  make  significant 
efforts  to revive the agricultural  sector through privatisation,  farm  restructuring  and  the 
creation of a land market. 

TAJIKISTAN 

Output  expanded  by  4  %>  in  1997,  after  the  sharp  decline  (20.1  %)  registered  in  1996. 
Annual  average  inflation,  which,  as  a result  of  tight  credit  and  monetary  policies,  fell 
dramatically  to 40  % in  1996, increased  substantially  in  1997 (80  % for  the  first  seven 
months), because  of directed  credits from the National  Bank  and  a large budget  deficit 
(13 % of GDP in the first half of the year). However, the authorities implemented  tighter 
monetary  and  fiscal  policies  for  the  remainder  of  1997.  The  current  account  deficit 
improved slightly to 5 % of GDP in  1997, while the foreign  exchange reserves  increased 
to  two  weeks'  imports.  The  external  debt  of  Tajikistan  amounts  to  100% of  GDP, but 
major  creditors have agreed to reschedule the debt falling  due in  1996 and  1997. Despite 
some  minimum  servicing  of  outstanding  debts  toward  the  Community,  the  country 
maintains important arrears. 

The Government  attempted  to apply direct  control  on the  foreign  exchange  and  foreign 
trade  markets,  but,  since  July,  foreign  exchange  auctions  have  been  restarted  and  the 
exchange  rate  is  once  again  largely  market  determined.  Export  taxes  have  been 
eliminated, while plans  are being  developed  to adopt  a low uniform  import tariff  and to 
unify  excise  taxes. Privatisation  in the  enterprise  and  agricultural  sectors  is  proceeding 
well  and  reform  of  the  banking  system  has  begun.  In  December  1997,  a  post-conflict 
facility  was  approved by the IMF Board. Despite recent  adverse  security  developments, 
the  political  situation  continues  to  improve.  The  risk  remains  very  high  in  absolute 
terms, but a positive trend has been recorded in recent months. 

UKRAINE 

Although  the  pace  of  economic  decline  is  decelerating  in  Ukraine,  with  real  GDP 
expected  to  fall  by  3.4%  in  1997  compared  to  a  contraction  of  10%  in  1996,  macro-
economic  stabilisation has slowed down considerably in recent months, as the country is 
entering a long pre-electoral campaign. Parliamentary  elections are scheduled  for March 
1998  and  presidential  elections  for  mid-1999.  Spending  has  rapidly  increased,  and  the 

-25 

cumulative  budget  deficit  rose  to  7.3%  of  GDP  in  the  first  nine  months  of  1997 
compared  to  an overall  4.6%) in  1996. The increased  outlays  led to the overshooting  of 
the budget  deficit  targets  of  the  stand-by  arrangement  with  the  IMF, but  after  revision 
the programme was put back on track in late November. The EC disbursed in the second 
half  of  1997  the  remaining  ECU  100  million,  out  of  the  ECU  200  million  macro-
financial assistance decided by the Council in  1995. In November, the central bank was 
forced  to  raise  key  interest  rates  and to  intervene  heavily  in both  the  foreign  exchange 
and Treasury bill markets  after  the national  currency, the hryvnia, repeatedly  fell  out of 
the  announced  exchange  rate  band  vis-à-vis  the  dollar.  The  external  balances  are 
deteriorating: the merchandise  trade and  services  deficit  rose to US$  1.23  billion  in  the 
first  half  of  1997  compared  to  US$  1.1  billion  for  the  whole  of  1996.  Structural 
adjustment,  and  in particular  privatisation,  has  almost  stagnated  in  recent  months.  The 
overall risk assessment is unfavourable. 

IV.  MEDITERRANEAN  COUNTRIES 

ALGERIA 

While  macro-economic  stabilisation  continued  to  be  strong  in  1997, Algeria's  country 
risk  remains  high  owing  to  the  escalation  of  political  violence  and  the  vulnerable 
medium-term  economic prospects. A key prerequisite  for  a more  favourable  outlook  is 
the  early  establishment  of  a  lasting  civil  peace.  Despite  the  legislative  and  local 
elections  in  June  and  October  1997,  respectively,  and  the  announcement  by  the 
outlawed Front Islamique  du Salut  (FIS) of an end to its armed  opposition,  the  security 
situation has deteriorated further  in recent months. 

Progress  in  implementing  the  stabilisation  and  structural  reform  programme  supported 
by  the  IMF  three-year  arrangement  continued  during  1997.  All  IMF  performance 
criteria  for  end-June  and  end-September  were  met.  Owing  to  the  impact  of  a  severe 
drought  on  agricultural  production,  real  GDP  growth  was revised  downward  to  around 
2.3%)  in  1997.  While  industrial  production  continued  to  decline  in  1997,  the 
hydrocarbon  sector  expanded  by more than  8%. As  a result  of  a tight  monetary  policy, 
the  12-month  rate  of  increase  in  consumer  prices  fell  from  15%  in  December  1996  to 
3%  in  October  1997.  Inflation  was  around  6%  for  the  year  as  a  whole.  In  September 
1997,  Algeria  decided  to  establish  the  convertibility  of  the  dinar  for  current  account 
transactions  and  accepted  the  obligations  of  Article  VIII  of  the  IMF's  Articles  of 
Agreement.  The external  current  account  and fiscal balances  registered  large  surpluses, 
equivalent  to  about  6.7%  and  2.3%  of  GDP,  respectively.  Gross  foreign  exchange 
reserves, which already doubled to US$ 4.2 billion in  1996, increased  further  in  1997 to 
reach  about  US$  7.5  billion  at  end-year,  covering  about  9  months'  imports.  Algeria's 
outstanding  external  debt  declined  from  73.2% of  GDP  in  1996 to below  70%) of  GDP 
at end-1997 and Algeria repaid in December  1997 ECU 250 million out of the ECU 500 
million  disbursed  so  far  by  the  Community  in  the  context  of  its  macro-financial 
assistance to this country. 

However,  despite continued  structural reforms  in external  trade and the financial  sector, 
restructuring  of  public  enterprises,  and  privatisation,  the  economy  remains  poorly 

26 

diversified  and  particularly  vulnerable  to  the  vagaries  of  world  energy  prices  and 
weather conditions. Although the Algerian authorities have announced that they will not 
seek  a  new  IMF  arrangement  when  the  current  programme  expires  in  June  1998, 
Algeria's  balance-of-payments  viability  will  remain  vulnerable  in  view  of  the  lack  of 
diversification  of  the  export  base,  limited  foreign  direct  investment,  and  absence  of 
access to international capital markets. If the oil prices remain depressed  at their present 
nominal  level  in  the  coming  years,  Algeria's  external  financial  situation  could 
deteriorate significantly.  Algeria needs social cohesion  and public support  to embark on 
a  new  critical  stage  of  its  reform  process  aimed  at  developing  a  dynamic  private 
economy.  However,  growing  unemployment  (estimated  at  28.3  per  cent  in  1996)  and 
mounting  social  difficulties,  including  a housing  shortage,  have  somewhat  slowed  the 
reform  momentum. 

27 

ANNEX 

ANNEX 

I. 

EXPLANATORY NOTES ON THE SITUATION OF RISKS COVERED BY THE 
COMMUNITY BUDGET 

LA  TABLES  1 TO 3 

I.A.I  Authorised  ceiling (Table 1) 
I.A.2  Capital outstanding ( Table I) 
I.A.3  Annual  risk (Tables 2 and 3) 

I.B  LOAN OPERATIONS  COVERED BY A BUDGET GUARANTEE 
I.C  EXPECTED SIGNATURE AND DISBURSEMENT OF EIB  LOANS 
I.D  PAYMENT OF THE BUDGET GUARANTEE 

I.D.I  Borrowing/lending operations 
I.D.2  Guarantees given  to third parties 

28 

28 
28 
28 
29 
30 
35 
35 
35 
36 

H.  METHODOLOGICAL  NOTE ON THE ANALYSIS OF THE COMMUNITY'S  ESTIMATED 

LENDING  CAPACITY IN RESPECT OF NON-MEMBER  COUNTRIES  OVER THE 
PERIOD 1997-99 UNDER THE GUARANTEE FUND MECHANISM  (TABLE 4) 

II.A  RESERVE FOR LOAN GUARANTEES  TO NON-MEMBER  COUNTRIES 
II.B  BASES  FOR THE CALCULATION  OF THE PROVISIONING  OF THE  GUARANTEE  FUND 

II.C  BASIS  FOR THE PROVISIONING  OF THE FUND  IN THE  EVENT  OF A PART  GUARANTEE 

II.D  PROVISIONING  OF THE  GUARANTEE  FUND 

ILE  MARGIN  REMAINING  IN THE GUARANTEE  RESERVE 

II.F  RESIDUAL  LENDING  CAPACITY 

m.  TABLES: COUNTRY-RISK INDICATORS 

37 

37 
37 

38 

38 

39 

39 

40 

28 

I. 

EXPLANATORY  NOTES  ON  THE  SITUATION  OF  RISKS  COVERED 
BY THE COMMUNITY  BUDGET 

LA  Tables  1 to 3 

The purpose of Tables  1 to 3 is to show the outstanding  amount of guarantees and 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, 
in particular, it is not certain that all the operations described will actually be disbursed. 

I.A.I 

Authorised  ceiling (Table 1) 

This  is  the  aggregate  of  the  maximum  amounts  of  capital  authorised  (ceilings)  for  each 
operation decided by the Council. 

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 authorised ceiling 

Factors reducing the risk: 

At> 

• 

• 

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

limitation  of  the  guarantee  given  to  the  ELB to 70%  of  the  loans  signed  as  part  of 
lending  operations  with  certain  non-member  countries  authorised  by  the  Council 
Decision of  14 April  1997 and a sharing of risk between the Community and the EIB 
as the budget guarantee covers only political risks in some cases; 

•  operations  already repaid, since the amounts concerned,  except in the case of balance 
of payments support (Member States), are the maximum  amount of loans granted and 
not outstanding amounts  authorised; 

• 

the amounts authorised  are not necessarily taken up in  full. 

I.A.2 

Capital outstanding ( Table 1) 

This  is  the  amount  of  capital  still  to  be  repaid  on  a  given  date  in  respect  of  operations 
disbursed. 

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. 

-29-

I.A. 3  Annual risk (Tables 2 and 3) 

Estimated amount of principal and interest due each financial year. 

This amount is calculated for: 

a)  disbursements alone (Table 2), in which case the capital to be repaid corresponds to 

the amount outstanding; 

b) 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  authorised  plus,  where  applicable,  the  amounts  in  respect  of 
operations proposed by the Commission and not yet decided. 

30 

LB  Loan operations covered by a budget guarantee 

TABLE 5a 

Borrowing and lending operations: Member  States 

Changes in amounts outstanding during six-month period 

COUNTRY 

Decision 

Date 
of  decision 

Loan 
term 
(years) 

Loan  situation 

- closed  (a) 
- partially disbursed  (b) 
• disbursed  in full (c) 
-  not yet disbursed  (d) 

GREECE 

91/136/EEC 

04.03.91 

ITALY 

93/67/EEC 

18.01.93 

EURATOM 

NCI 

TOTAL 

77/270-271/Euratom 
80/29/Euratom 
82/170/Euratom 
85/537/Euratom 
90/212/Euratom 

78/870/EEC 
81/19/EEC(1) 
81/1013/EEC(2) 
82/169/EEC 
83/200/EEC 
87/182/EEC 

29.03.77 
20.12.79 
15.03.82 
05.12.85 
23.04.90 

16.10.78 
20.01  81 
14.12.81 
15.03.82 
19.04.83 
09.03.87 

6 

-

6 
6 

(3) 

(3) 

(c) 
(d) 
(d) 

(c) 
(c) 
(d) 
(d) 

(c) 
(c) 
(c) 
(b)(4) 
(d)(4) 

(c) 
(c) 
(c) 
(c) 
(c) 
(c) 

ECU million 

Amount 
decided 

Amount 
outstanding 
at 1.7.97 

Operations  in  six-month 
period 

Amounts 
disbursed 

Amounts 
repaid 

Amount 
outstanding  at 
31.12.97 

500,00 

3  454,50 

500.00 

3  447,80 

119,60 

1.30 

118.40 

I 

327,30 

110.70 

218,60 

2 200,00 
1  000,00 
600,00 
600,00 

8  000,00 
2  000.00 
2  000,00 
2  000,00 
2  000,00 

4  000.00 
500,00 
500,00 
1  000,00 
1  000,00 
1  000,00 

6  830,00 
1  000,00 
1  000,00 
B0,00 
1  000,00 
3  000,00 
750,00 

21  030,00 

4  401,40 

0,00 

112,00 

4  284,80 

(5) 

(1 ) Exceptional aid for  the reconstruction  of  areas hit  by  the earthquake  in Italy  in  1980. 
(2)  Exceptional aid for  the reconstruction  of  areas hit  by  the  earthquake  in Greece  in  1981. 
(3) Long-term  loans  for  which  the schedule  of  repayments  depend on the dates  of  disbursement. 

(4) By Decision 94/179/Euratom of  21  March  1994  the Council decided  to  extend  Euratom  loans  to  the  financing of  projects  in certain non-member  countries. 

At  31  December  1996 no loans had yet  been granted  in non-member  countries. 
(5) Discrepancy  caused by  change  in the rates  of  the  other  currencies  against  the ecu. 

TABLE  5b  (1) 

Financial assistance to  non-member countries 

Changes in  amounts  outstanding during six-month  period, broken down  by  countries  and  tranche 

COUNTRY 

Decision 

Date  of 

decision 

Loan 
term 
(years) 

Expiry  date 

Loan  situation 

-  closed  (a) 

-  partly  disbursed  (b) 
-  disbursed  in  full  (c) 
-  not  yet  disbursed  (d) 

Amount 
decided 

Amount 
outstanding  at 

1.07.97 

Operations  in  six-month  period 

Amounts 
disbursed 

Amounts 
reapid 

Amount 
outstanding  at 

31.12.97 

ECU million 

HUNGARY 

1st  tranche 

2nd  tranche 
CZECH  REPUBLIC 
1st  tranche 

2nd  tranche 

SLOVAKIA 

1st  tranche 

2nd  tranche 

BULGARIA  I 

1st  tranche 

2nd  tranche 

BULGARIA  II 

1st  tranche 

2nd  tranche 

ROMANIA  I 

1st  tranche 

2nd  tranche 

ROMANIA  II 
ROMANIA  III 

1st  tranche 

2nd  tranche 

91/310/EEC 

24.06.91 

91/106/EEC 

25.02.91 

91/106/EEC 

25.02.91 

91/311/EEC 

24.06.91 

92/511/EEC 

19.10.92 

91/384/EEC 

22.07.91 

92/551/EEC 
94/369/EC 

27.11.92 
20.06.94 

BALTIC  STATES 

92/542/EEC 

23.11.92 

ESTONIA 

1st  tranche 

2nd  tranche 

LATVIA 

1st  tranche 

2nd  tranche 

7 

5 

7 

5 

7 

5 

7 

5 

7 

7 

7 

6 

7 

7 
-

7 
-

7 
-

18.03.98 

15.12.97 

18.03.98 

15.12.97 

18.03.98 

15.12.97 

18.03.98 

15.12.97 

07.12.2001 

29.08.2003 

01.02.99 

18.03.98 

26.02.2000 

20.11.2002 
-

31.03.2000 
-

31.03.2000 
-

(c) 

(a) 

(c) 
(a) 

(c) 

(a) 

(c) 

(a) 

(c) 

(c) 

(c) 

(c) 

(c) 

(c) 

(c) 

(c) 

(d) 

(c) 

(d) 

180,00 

100,00 

80,00 

250,00 
723,30 

126.70 

125,00 
61.70 

63.30 

290,00 
150,00 

140.00 

110,00 

70,00 

40,00 
375,00 

190,00 

185.00 

80,00 
125,00 
55,00 

70.00 

220,00 
40,00 

20,00 

20,00 

80,00 

40.00 

40,00 

100.00 

80,00 

123.30 

126,70 

61,70 

63,30 

150,00 

140.00 

70,00 

40,00 

190,00 

185,00 

80,00 

55,00 

0.00 

20,00 

0.00 

40,00 

0,00 

0J 

80,00 

126,70 

63,30 

140,00 

5,00 

100,00 

0,00 

123,30 

0.00 

61,70 

0.00 

150.00 

0.00 

70,00 

40,00 

190.00 

185,00 

80,00 

55.00 

70,00 

15.00 

0.00 

40.00 

0.00 

70,00 

TARI  F  fin  f?) 
Financial assistance to non-member  countries 

Changes  in amounts  outstanding  during  six-month  period, broken  down  by  countries  and  tranche 

COUNTRY 

Decision 

Date of 
decision 

Loan 
term 
(years) 

Expiry date 

Loan situation 

• closed (a) 
- partly disbursed (b) 
- disbursed in full (c) 
- not yet disbursed (d) 

LITHUANIA 

1st tranche 
2nd tranche 

MOLDOVA I 

1st tranche 
2nd tranEC 
MOLDOVA II 
UKRAINE I 
UKRAINE II 

1/2 tranche 
1/2 tranche 
2nd tranche 

BELARUS 

1st tranche 
2nd tranche 

FYROM 

1st tranche 
2nd tranche 

ALGERIA I 

1st tranche 
2nd tranche 

ALGERIA II 

1st tranche 
2nd tranche 

94/346/EC 

13.06.94 

96/242/EC 
94/940/EC 
95/442/EC 

25.03.96 
22.12.94 
23.10.95 

95/132/EC 

10.04.95 

97/471/EC 

22.07.97 

91/510/EEC 

23.09.91 

94/938/EC 

22.12.94 

ISRAEL 
REPS.OF FORMER USSR(') 

91/408/EEC 
91/658/EEC 

22.07.91 
16.12.91 

7 
7 

10 
10 
10 
10 

10 
10 

10 
-

15 
-

5 
7 

7 
-
5 
3 

27.07.2000 
16.08.2002 

07.12.2004 
08.08.2005 
30.10.2006 
28.12.2005 

29.08.2006 
30.10.2006 

28.12.2005 
-

27.09.2012 
-

15.12.97 
17.08.2001 

27.11.202 
-
15.12.97 
28.09.97 

(c) 
(b) 

(c) 
(c) 
(c) 
(c) 

(c) 
(c) 
(c) 

(c) 
(d) 

(c) 
(d) 

(a) 
(c) 

(c) 
(d) 
(a) 

Amount 
decided 

Amount 
outstanding at 
1.07.97 

Operations in six-month period 

Amounts 
disbursed 

Amounts 
repaid 

Amount 
outstanding at 
31.12.97 

ECU million 

100,00 
50,00 
50,00 
45,00 
25,00 
20,00 
15,00 
85,00 
200,00 

55,00 
30,00 
25,00 
40,00 
25,00 
15,00 
400,00 
250,00 
150,00 
200,00 
100.00 
100,00 
160,00 
1 250,00 

50,00 
25,00 

25,00 
20.00 
15.00 
85,00 

50,00 
50,00 
0,00 

30.00 
0.00 

0,00 
0,00 

250,00 
150,00 

100.00 
0.00 
160,00 
331,30 

f 

50,00 
25,00 

25,00 
20,00 
15,00 
85,00 

50,00 
50,00 
100,00 

30.00 
0,00 

25,00 
0,00 

0.00 
150.00 

100.00 
0.00 
0.00 
216.00 

100,00 

25,00 

250,00 

160,00 
115.30 

TOTAL 

4 205,00 

2 866,30 

195,00 

940,30 

2  121.00 

(*) The ECU 216 million outstanding corresponds to the principal due but not paid at 31.12.1997 

GEOGRAPHICAL  AREA 

Decision 

Date  of 

decision 

Rate  of 

guarantee 

Loan  term 
(years) 

Date  of 

guarantee 

contract 

Amount 
decided 

TABLE  6 

LOAN GUARANTEES TO EIB 

Loans  signed 

Amount  outstanding 

at  1.07.97 

during 
six-month 

period 

at  1.07.97 

at  31.12.97 

MED. financial  protocols(l) 

8.03.77 

75%  (2) 

MED.  horizontal  coop. 

R/1762/92/CEE 

29.06.92 

75%  (2) 

TOTAL  MED. 

C and  E  Europe 1 

90/62/CEE(4) 

12.02.90 

91/252/CEE(5) 

14.05.91 

100% 

100% 

C and  E  Europe  II 

93/696/CE(6) 

13.12.93 

100% 

Asia,  Latin America 1 

93/115/CEE 

15.02.93 

100% 

Asia,  Latin America  II 

96/723/CE 

12.12.96 

100% 

Asia,  Latin America  II 

96/723/CE 

12.12.96 

70% 

South  Africa 

95/207/CE 

01.06.95 

100% 

New  mandates 

97/256/CE(7) 

14.04.97 

70% 

TOTAL 

15 

15 

15 

15 

15 

15 

15 

15 

15 

15 

30.10.78/10.11.78 

09.11.92/18.11.92 

24.04.90/14.05.90 

19.01.93/04.02.93 

22.07.94/12.08.94 

04.11.93/17.11.93 

18.03.97/26.03.97 

21.10.97 

04.10.95/16.10.95 

25.07.97/29.07.97 

6062 

1800 

7862 

1000 

700 

3000 

750 

153 

122 

300 

7105 

20992 

5385 

1800 

7185 

(3) 

928 

700 

3000 

647 

50 

0 

176 

75 

12761 

-

-

15 

0 

15 

(3) 

0 

10 

103 

52 

124 

2488 

2792 

I 

2321 

466 

2787 

664 

380 

486 

250 

51 

0 

56 

0 

2469 

779 

3248 

691 

437 

761 

307 

78 

0 

100 

144 

4674 

5765 

(1) Including ECU  1 500 million for Spain, Greece and Portugal. 

(2) General gurantee of 75% for all credits made available under lending operations under a guarantee contract signed between the Community and the EIB on 30.10.78 and  10.11.78. 

By way of exception, a  100% gurantee applies to the emergency aid granted to Portugal in accordance with the Council Decision of 7 October  1975. 

(3) The Community has guaranteed ECU 5 435.9 million, of which ECU  141.5 million is covered by a  100% guarantee for Portugal. 
(4) Non-member countries:  Poland, Hungary. 
(5) Non-member countries:  Czech Republic and Slovak  Republic, Bulgaria, Romania. 

(6) Non-member countries:  Poland, Hungary, Czech Republic and Slovak Republic, Bulgaria, Romania. Baltic States and Albania. 
(7) Non-member countries:  Central and Eastern Europe, Mediterranean, Asia and Latin America, South Africa. 

-35 

I.C  Expected signature and disbursement of EIB loans 

The EEB 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). 

Expected signatures 

At 31 December  1997 a total of ECU 4 838 million was still to be signed: 

Mediterranean: former mandates 
...  ~  . . 
. 
(protocols with Syria) 

. 

. 

Mediterranean countries: 

Central and Eastern Europe: 

Asia and Latin America: Decision of December  1996 

Asia and Latin America: 

South Africa: 

Disbursement  forecasts 

._«.. 
o oc 
ECU  225 million 

.... 

ECU 1 376 million 

ECU 2 054 million 

ECU  70 million 

ECU  738 million 

ECU  375 million 

As regards  disbursement  of the  loans  still  awaiting  signature, it is assumed  that  nothing 
will be paid in the year of signature,  10% in the second year, 25% a year between the third 
and fifth years and  15% in the sixth year. 

At 31 December  1997 ECU 7 417 million still had to be disbursed against loans signed at 
that date. The total breaks down as follows:5 

Mediterranean 

Central and Eastern Europe 

Asia and Latin America 

South Africa 

ECU 2513 million 

ECU 4 052 million 

ECU  653 million 

ECU  199 million 

I.D  Payment of the budget guarantee 

I. D. 1  Borrowing/len ding 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). 

5  Based on a working assumption that 25% of the loan will be disbursed every year for four years and that 

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

36 

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. 

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

a)  The  amount  required  may  be  taken  provisionally  from  cash  resources  in  accordance 
with  Article  12  of  Council  Regulation  No  1552/89  of  29 May  1989  implementing 
Decision 88/376/EEC, Euratom on the system of the Communities' own resources. 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. 

b)  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. 

c)  The  transfer  procedure  can  be  used  to  provide  the  budget  heading  with  the 
appropriations  needed  to  cover  the  default;  any  margin  available  in  the  guarantee 
reserve is drawn on first. This method is used when there are insufficient  appropriations 
in the Guarantee Fund and must be authorised in advance by the budgetary authority. 

d)  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.D.2 

Guarantees given to third parties 

The  loan  guarantee  is  in  respect  of  loans  granted  by  a  financial  institution  such  as  the 
European Investment Bank (EEB). When the recipient of a guaranteed loan fails to make a 
payment  on the due date, the EIB  asks the Community  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 EEB 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. 

Since  the  entry  into  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 authorise 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. 

37-

II.  METHODOLOGICAL  NOTE  ON  THE  ANALYSIS  OF  THE 
COMMUNITY'S  ESTIMATED  LENDING  CAPACITY  IN  RESPECT  OF 
NON-MEMBER  COUNTRIES  OVER THE  PERIOD  1997-99 UNDER  THE 
GUARANTEE  FUND MECHANISM (TABLE 4) 

II.A  Reserve for loan guarantees to non-member  countries 

As  agreed  at  the  Edinburgh  European  Council,  the  Interinstitutional  Agreement  of 
29 October  1993  on  budgetary  discipline  and  improvement  of  the  budgetary  procedure 
provided  for  the  entry  of  a  reserve  for  loan  guarantees  to  non-member  countries  as  a 
provision in the general budget of the European Communities. This reserve is intended to 
cover the requirements of the Guarantee Fund  and, where necessary,  activated  guarantees 
exceeding the amount  available in the Fund, so that these amounts may be charged to the 
budget. 

The  amount  of  the  guarantee  reserve  is  the  same  as  in  the  financial  perspective, 
viz. ECU 300 million  at  1992  prices.  The  amount 
to 
ECU 338 million in 1998. 

reserve  comes 

the 

in 

The conditions  for the entry, use and financing  of the guarantee reserve  are laid down in 
the following  decisions: 

•  Council Decision-94/729/EC of 31 October  1994 on budgetary  discipline 

•  Council Regulation (ECSC, EC, Euratom) No 2730/94 of 31 October  1994 amending 
the  Financial  Regulation  of  21  December  1977  applicable  to  the  general  budget  of 
the European  Communities 

•  Council  Decision  94/728/EC of 31 October  1994 on the system  of the  Communities' 

own resources. 

II.B  Bases for the calculation of the provisioning  of the Guarantee Fund 

The bases for the provisioning of the Fund are calculated by applying the appropriate rate 
of guarantee (70%, 75% or 100%): 

- 

to the loan guarantees  authorised by the Council  and to the loan guarantees  proposed 
or being prepared by the Commission on the basis of the estimates of loan  signatures 
contained  in the financial statements (EIB and Euratom loans); 

- 

to  the  loans  (for  financial  assistance)  authorised  by  the  Council  and  to  the  loans 
proposed or being prepared by the Commission. 

The  annex  to  Council  Regulation  (EC,  Euratom)  No  2728/94  of  31  October  1994 
establishing  a Guarantee Fund  for  external  actions, which relates  to the arrangements  for 
payments into the Guarantee Fund, states that, in the case of borrowing/lending operations 
or guarantees to financial bodies under a framework facility  spread over a number of years 
and with a microeconomic and structural purpose, payments into the Fund will be made in 
annual  tranches  calculated  on  the basis  of  the  annual  amounts  indicated  in  the financial 

38 

statement  attached to the Commission proposal,  adapted where appropriate in the light of 
the Council decision. 

For  other  Community  borrowing/lending  operations,  such  as  loans  for  the  balance  of 
payments of third countries, whether made in one or more than one tranche, payments into 
the Fund are calculated on the basis of the total amount for the operation decided on by the 
Council. 

The  annex  to  the  Regulation  establishing  the  Guarantee  Fund  states  that,  as  from  the 
second year  (in the case of operations  spread over a number of years), the amounts to be 
paid  into  the  Fund  will  be  corrected  by  the  difference  recorded  on  31 December  of  the 
previous  year between the  estimates  that were taken  as a basis  for  the previous  payment 
and the  actual  figure  for  the loans signed  during that year. Any difference  relating  to the 
previous year will give rise to a payment in the following year. 

The annex  states that, when it starts a payment procedure, the Commission will check the 
situation  with  regard  to  the  performance  of  the  operations  which  were  the  subject  of 
previous  payments  and,  where  the  commitment  deadlines  originally  laid  down  have  not 
been met, will propose that this will be taken into account in calculating the first payment 
to be made at the start of the following financial year for operations already under way. 

In the second half of 1997 the budgetary authority therefore  adopted transfer  58/97 so that 
payments  could  be  made  into  the  Guarantee  Fund  in  respect  of  loans  to  non-member 
countries (Bulgaria, the Former Yugoslav Republic of Macedonia, Georgia and Armenia). 

II.C  Basis for the provisioning of the Fund in the event of a part guarantee 

For  EIB  loans  covered  by  an  aggregate  75% guarantee,  the  Fund  is  provisioned  on  the 
basis of 75%) of the total amount of operations authorised. 

The guarantee on the EIB loans authorised by the Council on  14 April  1997 is limited to 
70% of the total amount of credits opened. The basis for provisioning is 70% of the annual 
forecast of signatures. 

II.D  Provisioning  of the Guarantee Fund 

The amounts paid into the Fund are obtained by applying the rate of provisioning (14%) to 
the calculation base set out above. 

Pursuant to Articles 2 and 4 of the Regulation  establishing the Guarantee Fund, the Fund 
is endowed by payments from the general budget equivalent to 14% of the capital value of 
the  operations  until  it  reaches  the  target  amount.  As  the  target  amount  was  reached  at 
31 December  1997,  the  Commission,  in  accordance  with  the  Regulation,  will  submit 
proposals  reviewing  the  rate  of  provisioning.  These  proposals  will  appear  in  the 
comprehensive  report on the functioning  of the Fund which the Commission  has to draw 
up in accordance with Article 3 of the Regulation. 

-39 

ILE  Margin remaining in the guarantee reserve 

The margin remaining in the guarantee reserve is equivalent to the difference between the 
reserve and the heading for the provisioning of the Guarantee Fund. 

II.F  Residual lending capacity 

The  residual  lending  capacity  is  the  loan  equivalent  of the  margin  left  in  the  reserve, 
allowing for the guarantee rates in force. 

40 

in.  TABLES: COUNTRY-RISK INDICATORS 

-41 

Country-risk  indicators 

Country:  Bulgaria 

footnotes 

1995 

1996 

1997 

Real GDP growth  rate  (%) 
Industrial production  ( % change) 
Unemployment 
Inflation  rate 
Exchange  rate (Leva per USD) 

(end of  period) 
(Dec/Dec) 
(end of  period) 

2,1 
8,6 
11,6 
32,8 
71 

-10,9 
-8,3 
12,5 
310,8 
487 

-7,4 
-11,5 
13,7 
580 
1792 

(5) 

(6) 

General government  balance (as %  of GDP) 

-5,7 

-11,0 

-3,1 

(5) 

Balance of  payments 

Exports of goods and services (bn USD) 
Current account  balance  (% of  GDP) 
Net inflow of foreign direct  investment  (m  USD) 
Official  reserves, including gold (end of  period) 

bnUSD 
months' imports of goods and services 

External  debt 

Convertible currency external debt 

(bn  USD, end of  period.) 

Convertible cuurency  debt service (bn  USD) 

principal 
interest 

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

Indicators of EU  exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external  debt  (%) 
EU exposure/exports  of goods and services  (%) 

IMF  arrangements 

Type 
(Date) 
On track 

Indicators  of  market's  perception  of  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 
(number of  countries) 
The  Institutional  Investor 
Position in the  ranking 
(number of  countries) 
Credit  rating 

Footnotes 
(1)(2)(3)  See explanatory notes. 
(4) 
(5) 
(6) 

SBA suspended in 09/96. 
Preliminary 
First nine months of 1997 compared to same period of 1996 

7,0 
-0,5 
90 

1.5 
2,8 

10,2 

0,9 
0,3 
0,6 
79 
151 
14 
none 
none 

7,3 
5,7 
7,7 

-

6,3 
0.9 
115 

0,8 
1.6 

9,6 

1,0 
0,4 
0,6 
99 
159 
17 
none 
none 

8,1 
6,5 
10,0 

(01/97-06/97) 

(01/97-09/97) 

3,0 
n.a. 
328 

2,3 
4,6 

9,7 

(06/97) 

0,5 
0,3 
0,2 
n.a. 
n.a. 
n.a. 
none 
none 

5,7 
4,8 
15,5 

(06/97) 

(06/97) 

(06/97) 

(01/97-06/97) 

(01/97-06/97) 

SBA 
(7/96-2/98) 
no (4) 

SBA 
(6/97-5/98) 
yes 

none 
none 
03/95  09/95 
90  90 
(187)  (181) 
03/95  09/95 
93  94 
(135) (135) 
21.9  22.2 

none 
none 
03/96  09/96 
99  92 
(178)  (178) 
03/96  09/96 
92  93 
(135) (135) 
23.1  23.5 

B3 
none 
03/97  09/97 
111  96 
(179)  (180) 
03/97  09/97 
97  99 
(135)  (135) 
22.5  22.2 

(1) 

(2) 

(2) 

(3) 

-42 

Country-risk indicators 

Country: Czech Republic 

footnotes 

1995 

1996 

1997 

Real GDP growth rate  (%) 
Industrial production (%  change) 
Unemployment 
Inflation rate 
Exchange rate (CK's per USD) 

(end of period) 
(Dec/Dec) 
(end of period) 

General government  balance (as % of GDP) 

Balance of payments 

Exports of goods and services (bn USD) 
Current account balance (% of GDP) 
Net inflow of foreign direct investment (m USD) 
Official foreign exchange reserves (end of period) 

bnUSD 
months' imports of goods and services 

External debt 

Convertible currency external debt 

(bn USD, end of period.) 

Convertible currency debt service (bn USD) 

principal 
interest 

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

Indicators of EU exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports of goods and services  (%) 

(1) 

IMF arrangements 

Type 
(Date) 
On track 

Indicators of market's  perception of 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 
(number of countries) 
The Institutional  Investor 
Position in the ranking 
(number of countries) 
Credit rating 

Footnotes 
(1)(2)(3)  See explanatory  notes 
(4) 
(5) 

First nine months of 1997 compared to same period of 1996. 
First eleven months of 1997 compared to same period of 1996. 

4,8 
8,7 
2,9 
7,9 
26,6 

0,3 

28,2 
-2.9 
2526 

14,0 
5,6 

16,5 

2,6 
2,0 
0,6 
35,1 
58,6 
9,2 
none 
none 

5,8 
2,6 
2,5 

-

4,4 
6,8 
3,5 
8,6 
27,1 

-0,4 

29,7 
-8,6 
1388 

12,4 
4,4 

20,4 

3,8 
3,0 
0.8 
39,2 
68,8 
12,8 
none 
none 

7.3 
2,8 
1,9 

-

(4) 
(5) 

1.1 
2,3 
5,2 
10,0 
34,4 

-1,7 

(09/97) 

21,5 
-7,4 
845 

11,0 
4,6 

(01/97-09/97) 
(01/97-06/97) 
(01/97-09/97) 

(10/97) 
(10/97) 

21.2 

(06/97) 

(06/97) 
(06/97) 

(06/97) 
(06/97) 

n.a. 
n.a. 
n.a. 
41.3 
73,8 
n.a. 
none 
none 

5,9 
2.3 
2,2 

-

Baal  (09/95) 
A 
03/95  09/95 
35  41 
(187) (181) 
03/95  09/95 
33  30 
(135) (135) 
55.8  58.4 

Baal 
A 
03/96  09/96 
36  35 
(178) (178) 
03/96  09/96 
30  29 
(135) (135) 
60.1  62.0 

Baal 
A 
03/97  09/97 
37  37 
(179) (180) 
03/97  09/97 
28  28 
(135) (135) 
62.8  63.1 

(2) 

(2) 

(3) 

-43 

Country-risk  indicators 

Country: Estonia 

footnotes 

1995 

1996 

1997 

Real GDP growth rate  (%) 
Industrial production (%  change) 
Unemployment 
Inflation rate 
Exchange rate (Kroons per USD) 

(end of period) 
(Dec/Dec) 
(end of period) 

4,3 
1,4 
4,1 
28,9 
11,5 

4.0 
1,1 
4,3 
14,8 
12.0 

11,7 
13,4 
3,6 
12,5 
13,9 

(5) 

General government  balance (as % of GDP) 

-1,2 

-1,5 

0,4 

est. 

Balance of payments 

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

mUSD 
months' imports of goods 

1838 
-7,4 
199 

583 
2,7 

2074 
-11,7 
111 

640 
2,4 

2892 
-12,0 
152 

830 
1.8 

(01/97-06/97) 

(01/97-09/97) 

(12/97) 

External debt 

Convertible currency external debt  (incl. to IMF) 

(m USD, end of period) 

Convertible currency debt service (m USD) 

principal 
interest + charges to IMF 

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

Indicators of EU exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports  of goods  (%) 

IMF arrangements 

Type 
(Date) 
On track 

Indicators of market's  perception of 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 
(number of countries) 
The Institutional  Investor 
Position in the ranking 
(number of countries) 
Credit  rating 

" 

268,6 

295,2 

246,2 

21,0 
6,0 
15,0 
7,5 
14,6 
1,1 
none 
none 

0,5 
16,5 
2,2 

51,2 
27,5 
23,7 
6,8 
14,2 
2,5 
none 
none 

0,5 
13,8 
2,0 

51,7 
40,1 
11.6 
5,3 
8,3 
1,8 
none 
none 

0.6 
19,9 
1.7 

est. 

est. 

SBA 
(4/95-6/96) 
yes 

SBA 
(7/96-8/97) 
yes 

SBA 
(11/97-12/98) 
yes 

-

none 
none 
03/95  09/95 
66  76 
(187) (181) 
03/95  09/95 
79  79 
(135) (135) 
25.4  26.3 

none 
none 
03/96  09/96 
73  71 
(178) (178) 
03/96  09/96 
76  71 
(135) (135) 
28.9  31.1 

Baal 
BBB+ 
03/97  09/97 
69  63 
(179) (180) 
03/97  09/97 
65  63 
(135) (135) 
33.6  36.9 

(4) 

(D 

(2) 

(2) 

(3) 

Footnotes 
(1 ) (2) (3)  See explanatory  notes 
(4) 

Kroon figures have been converted using the yearly average exchange rate of the dollar. 
In 1996 and 1997, Estonia repaid foreign loans in advance. 
First half of  1997 compared to same period of 1996, on an annual basis. 

(5) 

- 4 4-

Country-risk  indicators 

Country:  FYROM 

footnotes 

1995 

1996 

Real GDP growth  rate  (%) 
Industrial  production  ( % change) 
Unemployment 
Inflation  rate 
Exchange  rate  (denar  per USD) 

(end of  period) 
(Dec/Dec) 
(end of period) 

1,6 
10,0 
23,7 
8,6 
38,0 

0,9 
3,0 
24,9 
0,7 
41,3 

1997 

(8) 

2,0 
2,7 
27,0 
5,0 
55,2 

General government  balance  (as % of GDP) 

-1,3 

-0,4 

-0,6 

Balance  of  payments 

Exports of goods and services (bn  USD) 
Current  account  balance  (% of  GDP) 
Net inflow of foreign direct  investment  (m USD) 
Official  reserves, including gold (end of  period) 

mUSD 
months' imports of goods and services 

External  debt 

Convertible currency  external debt 

(bn USD, end of  period.) 

Convertible  currency  debt  service  (m USD) 

principal 
interest 

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

Indicators of EU  exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports  of goods and services  (%) 

IMF  arrangements 

Type 
(Date) 
On track 

Indicators  of market's  perception  of  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 
(number of  countries) 
The  Institutional  Investor 
Position  in the  ranking 
(number of  countries) 
Credit  rating 

1.2 
-6,2 
13 

270,0 
1,9 

1,1 
-7,4 
12 

267,0 
2,0 

1,1 

1,1 

141,0 
84,0 
57,0 
28,5 
78,0 
10,4 
n.a. 
326,0 

124,0 
70,0 
54,0 
30,8 
86,1 
9,5 
34,0 
37,0 

(4) 
(5) 

(6) 

(1) 

1,2 
-8,4 
16 

279,0 
2,0 

1,2 

117,0 
47,0 
69,0 
38,2 
88,6 
8,7 
none 
87,0 

0,3 
2,4 
2,4 

SBA 
(05/95-04/96) 
yes 

SBA 
(05/95-04/96) 
yes 

ESAF 
(04/97) 
yes  (7) 

none 
none 

none 
none 

none 
none 

(2) 

(2) 

(3) 

03/95  09/95 
108  118 
(187)  (181) 
none 

03/96  09/96 
85  59 
(178)  (178) 
none 

03/97  09/97 
107  151 
(179)  (180) 
none 

none 

none 

none 

Footnotes 
(1 ) (2) (3)  See explanatory  notes 
(4) 
(5) 
(6) 
(7) 
(8) 

Discontinuities  in the trade series due to changes in the coverage of trade data, particularly  in  1996. 
The current  account deficit  may  be overestimated  due to unreported  remittances. 
Debt service excluding  IMF; it includes an estimate of debt service due to commercial creditors. 
Following a programme  adjustment  in July, the mid-term review was completed on 31 October  1997. 
Projections. 

45-

Country-risk  indicators 

Country:  Hungary 

footnotes 

1995 

1996 

1997 

Real GDP growth  rate  (%) 
Industrial  production  ( % change) 
Unemployment 
Inflation  rate 
Exchange  rate (forints  per USD) 

(end of  period) 
(Dec/Dec) 
(end of  period) 

1,5 
4,6 
10,4 
28,5 
139,5 

1,3 
3,4 
10,5 
19,8 
164,0 

4,0 
11,2 
10,4 
18,4 
195,4 

(5) 

(5) 

(08/97) 

Consolidated  state  budget  balance  (as % of GDP) 

-6,8 

-3,3 

-4,6 

(5) 

Balance  of  payments 

Exports of goods and services  (bn  USD) 
Current  account  balance  (% of  GDP) 
Net inflow of foreign direct  investment  (m  USD) 
Official  reserves  (end of  period) 

bnUSD 
months' imports of goods 

External  debt 

Convertible  currency  external debt 

(bn USD, end of period) 

Convertible  currency debt service  (bn  USD) 

principal, including early  repayments 
interest 

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

Indicators of  EU  exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external  debt  (%) 
EU exposure/exports  of goods and services  (%) 

IMF  arrangements 

Type 
(Date) 
On track 

Indicators  of  market's  perception  of  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 
(number of  countries) 
The  Institutional  Investor 
Position  in the  ranking 
(number of  countries) 
Credit  rating 

Eootnotes 
(1)(2)(3)  See explanatory  notes 
(4) 
(5) 

For  1995 and  1996, goods only. 
Preliminary 

(4) 

(1) 

(2) 

(2) 

(3) 

12,8 
-5,8 
4453 

12.0 
9,5 

31,7 

7,7 
5.3 
2.4 
72,3 
185,9 
43,8 
none 
none 

13,0 
3,1 
6,6 

. 

14,2 
-3,9 
1987 

9,7 
6,9 

27,6 

7,4 
5,1 
2,3 
63,6 
144,1 
44,7 
none 
none 

9,6 
2,7 
5,2 

22,2 
n.a. 
1835 

8,7 
5,0 

(01/97-11/97) 

(01/97-11/97) 

(11/97) 

(11/97) 

22,8 

(11/97) 

n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
none 
none 

8,6 
3,1 
3,2 

(11/97) 

(11/97) 

SBA 
(3/96-2/98) 
yes 

SBA 
(3/96-2/98) 
yes 

Ba1 
BB+ 
03/95  09/95 
50  44 
(187)  (181) 
03/95  09/95 
45  48 
(135)  (135) 
46.4  45.0 

Baa3 
BBB-
03/96  09/96 
44  44 
(178)  (178) 
03/96  09/96 
50  50 
(135)  (135) 
43.6  44.7 

Baa3 
BBB-
03/97  09/97 
46  41 
(179)  (180) 
03/97  09/97 
48  46 
(135)  (135) 
47.6  49.7 

46 

Country-risk  indicators 

Country: Latvia 

footnotes 

1995 

1996 

1997 

Real GDP growth rate  (%) 
Industrial production (%  change) 
Unemployment 
Inflation rate 
Exchange rate (Lats per USD) 

(end of period) 
(Dec/Dec) 
(end of period) 

-0,8 
-6,3 
6,1 
23.1 
0,54 

2.8 
1.4 
7.2 
13,0 
0,56 

5,6 
6.1 
6,7 
7,0 
0.59 

(4) 

General government  balance (as % of GDP) 

-3,4 

-1,9 

n.a. 

Balance of payments 

Exports of goods & services (m USD) 
Current account balance (% of GDP) 
Net inflow of foreign direct investment (m USD) 
Official foreign exchange reserves (end of period) 

mUSD 
months' imports of goods and non-factor services 

External debt 

Convertible currency external debt 

(m USD, end of period) 

Convertible currency debt service (m USD) 

principal 
interest 

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

Indicators of EU exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports of goods  (%) 

IMF arrangements 

Type 
(Date) 
On track 

Indicators of market's  perception of 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 
(number of countries) 
The. Institutional  Investor 
Position in the ranking 
(number of countries) 
Credit rating 

Footnotes 
(1 ) (2) (3)  See explanatory  notes 
(4) 

First nine months of  1997 compared to same period of 1996. 

d) 

(2) 

(2) 

(3) 

2088 
-0,4 
180 

527 
2,9 

403 

39,0 
n.a. 
n.a. 
9,2 
19,3 
3,0 
none 
none 

0,7 
12.3 
4,0 

2628 
-8,3 
288 

652 
2,9 

409 

71,0 
n.a. 
n.a. 
8,2 
15,6 
4.9 
none 
none 

0,7 
12.4 
1.9 

1304 
-8.0 
165 

n.a. 
n.a. 

394 

n.a. 
n.a 
n.a 
7.5 
15,1 
n.a. 
none 
none 

0.7 
14,8 
4,5 

(01/97-06/97) 

(01/97-06/97) 

(01/97-06/97) 

(10/97) 

(10/97) 

(10/97) 

(10/97) 

(06/97) 

SBA 
(4/95-4/96) 
no 

SBA 
(5/96-8/97) 
yes 

SBA 
(9/97-2/99) 
yes 

none 
none 
03/95  09/95 
106  116 
(187) (181) 
03/95  09/95 
91  89 
(135) (135) 
22.6  23.4 

none 
none 
03/96  09/96 
89  75 
(178) (178) 
03/96  09/96 
86  88 
(135) (135) 
24.7  25.7 

none 
BBB 
03/97  09/97 
63  59 
(179) (180) 
03/97  09/97 
79  74 
(135) (135) 
29.1  32.6 

-47-

Country-risk  indicators 

Country: Lithuania 

footnotes 

1995 

1996 

1997 

Real GDP growth rate  (%) 
Industrial production  ( % change) 
Unemployment 
Inflation rate 
Exchange rate (Litas per USD) 

(end of period) 
(Dec/Dec) 
(end of period) 

General government balance (as % of GDP) 

Financial balance 

Fiscal balance 

Balance of payments 

3,0 
5,3 
7,3 
35,7 
4,0 

(4) 

(4) 

-1.8 

-3,3 

Exports of goods and services (bn USD) 
Current account balance (% of GDP), excl. official transfers 
Net inflow of foreign direct investment (m USD) 
Official foreign exchange reserves (end of period, gross foreign assets) 

mUSD 
months' imports of goods and services 

External debt 

Convertible currency external debt 

(m USD, end of period) 

Convertible currency debt service (m USD) 

principal 
interest 

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

Indicators of EU exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports of goods and services  (%) 

IMF arrangements 

Type 
(Date) 
On track 

Indicators of market's  perception of 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 
(number of countries) 
The Institutional  Investor 
Position in the ranking 
(number of countries) 
Credit  rating 

0) 

(2) 

(2) 

(3) 

4,2 
3,7 
6,2 
13,1 
4,0 

-1,9 
-3,6 

4,2 
-2,7 
153 

834 
2,4 

(5) 

(11/97) 

(01/97-09/97) 

(01/97-09/97) 

6,4 
0,7 
6,7 
8,6 
4,0 

n.a. 

n.a. 

3,7 
n.a. 
256 

1063 
2,1 

1076 

1407 

120 
n.a. 
n.a. 
15,3 
32,7 
3,6 
none 
none 

1,4 
10,2 
2,6 

n.a. 
n.a. 
n.a. 
15,4 
n.a. 
n.a. 
none 
none 

1,6 
9,4 

3,6 

(6) 

(10/97) 

(06/97) 

3,2 
-3,2 
71 

819 
3,9 

757 

69 
n.a. 
n.a. 
13,9 
34,3 
3,1 
none 
none 

1.4 
13,9 
4,8 

EFF 
(10/94-10/97) 
yes 

EFF 
(10/94-10/97) 
yes 

EFF 
(10/94-10/97) 
yes 

none 
none 
03/95  09/95 
108  118 
(187) (181) 
03/95  09/95 
95  90 
(135) (135) 
21.7  22.9 

Ba2 
none 
03/96  09/96 
85  59 
(178) (178) 
03/96  09/96 
89  90 
(135) (135) 
23.8  25.3 

Ba1 
BBB-
03/97  09/97 
72  62 
(179) (180) 
03/97  09/97 
85  80 
(135) (135) 
27.4  31.1 

Footnotes 
(1)(2)(3)  See explanatory  notes 
(4) 
(5) 
(6) 

Financial balance does not take into account government net lending, whereas fiscal balance does. 
First nine months of 1997 compared to same period of 1996. 
Preliminary. 

48 

Country-risk  indicators 

Country:  Romania 

footnotes 

1995 

1996 

1997 

Real GDP growth  rate  (%) 
Industrial  production  ( % change) 
Unemployment 
Inflation  rate 
Exchange  rate  (lei  per USD) 

(end of  period) 
(Dec/Dec) 
(end of  period) 

7,1 
9,4 
8,0 
27,8 
2760 

4,1 
9,9 
6,3 
56,9 
4035 

-6,5 
-8,2 
8,8 
151,4 
8023 

(6) 
(11/96-11/97) 

General  government  balance (as % of GDP) 

-2,6 

-3,9 

-4,5 

est. 

Balance  of  payments 

Exports of goods and services  (bn  USD) 
Current  account  balance  (% of GDP) 
Net inflow of foreign direct  investment  (m USD) 
Official foreign exchange  reserves  (end of  period) 

mUSD 
months' imports  of goods and  services 

External  debt 

Convertible  currency  external debt,  incl. short-term debt 

(bn USD, end of  period) 

Convertible  currency debt service  (m  USD) 

principal 
interest 

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

Indicators  of EU  exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external  debt  (%) 
EU exposure/exports  of goods and services  (%) 

(1) 

7,9 
-5,0 
417 

334 
0,4 

6,5 

1366 
1073 
293 
18,1 
68,7 
14,5 
none 
none 

10,2 
11,5 
10,1 

8,1 
-7,2 
263 

551 
0,6 

7,1 
-5,4 
806 

2555 
2,8 

(01/97-10/97) 
est. 

m  (01/97-09/97) 

(12/97) 
(10/97) 

8,2 

8,8 

(08/97) 

2000 
1632 
368 
23,1 
85,1 
20,7 
none 
none 

10,2 
9,2 
12,5 

2600 
1900 
700 
27.2 
89,0 
23,8 
none 
none 

11,0 
10,2 
12,6 

est. 
est. 
est. 
est. 
est. 
est. 

(08/97) 
(10/97) 

IMF  arrangements 

Type 
(Date) 
On track 

Indicators  of  market's  perception  of  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 
(number  of  countries) 
The  Institutional  Investor 
Position  in the  ranking 
(number of  countries) 
Credit  rating 

SBA 
(5/94-12/95) 
yes 

SBA 

(4) 
no (5) 

SBA 
(4/97-5/98) 
yes 

none 
none 
03/95  09/95 
68  64 
(187)  (181) 
03/95  09/95 
73  71 
(135)  (135) 
28.1  29.7 

Ba3 
BB-
03/96  09/96 
67  61 
(178)  (178) 
03/96  09/96 
68  72 
(135)  (135) 
30.9  31.0 

Ba3 
BB-
03/97  09/97 
75  75 
(179)  (180) 
03/97  09/97 
64  67 
(135)  (135) 
32.7  34.1 

(2) 

(2) 

(3) 

Footnotes 
(1) (2) (3)  See explanatory  notes 
(4) 
(5) 
(6) 

The SBA  approved  in May  1994 was augmented  and extended through  1997. 
Suspended  in March  1996. New SBA  approved  by  IMF Board on 22 April  1997 
First  half  of  1997 compared  to same period of  1996. 

49-

Country-risk  indicators 

Country: Slovak  Republic 

footnotes 

1995 

1996 

1997 

Real GDP growth  rate  (%) 
Industrial production (%  change) 
Unemployment 
Inflation rate 
Exchange  rate (SK's per USD) 

(end of  period) 
(Dec/Dec) 
(end of  period) 

6,8 
8,3 
13,1 
7,2 
29,6 

6,9 
2,5 
12.8 
5,4 
31,9 

6,0 
2,0 
12,5 
6,4 
34,8 

(5) 

General  government  balance (as % of GDP) 

0,1 

-1,3 

n.a. 

Balance of  payments 

Exports of goods and services  (bn USD) 
Current  account  balance (% of  GDP) 
Net inflow of foreign direct  investment  (m USD) 
Official foreign exchange  reserves  (end of  period) 

mUSD 
months' imports of goods and  services 

External  debt 

Convertible currency external debt 

(bn USD, end of period) 

Convertible  currency debt service (m USD) 

principal 
interest 

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

Indicators of EU  exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external  debt  (%) 
EU exposure/exports  of goods and services  (%) 

(D 

IMF  arrangements 

Type 
(Date) 
On track 

11,0 
2,3 
134 

3418 
4,1 

5,7 

1390 
1130 
260 
32,9 
52,0 
12,7 
none 
none 

4,1 
5,2 
2,8 

10,9 
-10,1 
106 

3473 
3,4 

7,7 

1444 
1186 
258 
40,6 
70,6 
13,3 
none 
none 

4,5 
4,5 
3,2 

(01/97-10/97) 
(01/97-10/97) 
(01/97-10/97) 

9,2 
8,4 
61 

3299 
3,2 

9,6 

(01/97-09/97) 

n.a. 
n.a. 
n.a. 
50,6 
87,4 
n.a. 
none 
none 

4,3 
3,6 
3,8 

(01/97-09/97) 
(01/97-09/97) 

(09/97) 
(09/97) 

SBA 
(7/94-3/96) 
no (4) 

-

-

Indicators  of market's  perception  of  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 
(number of  countries) 
The  Institutional  Investor 
Position in the  ranking 
(number of  countries) 
Credit  rating 

Baa3 
BB+ 
03/95  09/95 
53  51 
(187)  (181) 
03/95  09/95 
61  59 
(135)  (135) 
33.2  35.7 

Baa3 
BBB-
03/96  09/96 
48  49 
(178)  (178) 
03/96  09/96 
57  53 
(135)  (135) 
38.6  41.2 

Baa3 
BBB-
03/97  09/97 
53  54 
(179)  (180) 
03/97  09/97 
52  52 
(135)  (135) 
43.9  44.8 

(2) 

(2) 

(3) 

Footnotes 
(1 ) (2) (3)  See explanatory notes 
(4) 
(5) 

The mid-term review of the programme, which had been scheduled for February  1995, was not completed. 
First nine months of 1997 compared to same period of 1996. 

50-

Country-risk  indicators 

Country:  Moldova 

footnotes 

1995 

1996 

Real GDP growth rate  (%) 
Industrial  production  ( % change) 
Unemployment 
Inflation  rate 
Exchange  rate  (leu per USD) 

(end of  period) 
(yearly  average) 
(end of  period) 

-1,9 
-6,0 
1,4 
24 
4,50 

-8,0 
-5,1 
1,8 
15 
4,59 

1997 

(3) 

-0,5 
n.a. 
1,6 
11 
4,68 

General government  balance (as % of  GDP) 

-5,9 

-10,0 

-4,5 

est. 

Balance of  payments 

Exports of goods  (m USD) 
Current  account  balance  (% of  GDP) 
Net inflow of foreign direct  investment  (m USD) 
Official foreign exchange  reserves  (end of  period) 

mUSD 
months' imports of goods 

External  debt 

Convertible  currency  external debt 

(m  USD, end of  period) 

Convertible  currency  debt service  (m USD) 

principal 
interest 

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

Indicators of EU  exposure 

EU exposure/total  EU exposure  (%) 
EU exposure/external  debt  (%) 
EU exposure/exports  of goods(%) 

(1) 

739 
-8,1 
63,7 

257 
3,2 

801 
-18,8 
40,0 

315 
4,1 

573,2 
n.a. 
15,7 

358 
n.a. 

(01/97-09/97) 

(01/97-06/97) 

696,3 

818,2 

935,0 

91,0 
n.a. 
n.a. 
38,0 
91,1 
11,0 
none 
none 

0,8 
8,7 
7,9 

n.a. 
n.a. 
n.a. 
57,6 
102,1 
n.a. 
none 
none 

1,0 
9,3 
9,5 

n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
none 
none 

0,8 
n.a. 
n.a. 

IMF  arrangements 

Type 
(Date) 
On track 

Indicators  of market's  perception  of  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 
(number of  countries) 
The  Institutional  Investor 
Position in the  ranking 
(number of  countries) 
Credit  rating 

Footnotes 
(1 ) (2) 
(3) 

See explanatory  notes 
Preliminary,  unless otherwise indicated. 

SBA 
(3/95-3/96) 
yes 

EFF 
(5/96-5/99) 
yes 

EFF 
(5/96-5/99) 
no 

none 
none 
03/95  09/95 
157  141 
(187)  (181) 

none 
none 
03/96  09/96 
134  125 
(178)  (178) 

Ba2 
none 
03/97  09/97 
113  104 
(179)  (180) 

(2) 

none 

none 

none 

none 

none 

none 

51 

Country-risk  indicators 

Country: Belarus 

footnotes 

1995 

1996 

1997 

Real GDP growth rate  (%) 
Industrial production ( % change) 
Unemployment 
Inflation rate 
Exchange rate ( Rbs per USD) 

(end of period) 
(yearly average) 
(average) 

-10,4 
-11,5 
2,7 
244 
11500 

2,6 
3,3 
3,9 
39,3 
15500 

9,8 
17.6 
2,3 
63,8 
31000 

General government  balance (as % of GDP) 

-2,3 

-1,8 

-2,0 

est. 

Balance of payments. 

Exports of goods and services (bn USD) 
Current account balance (% of GDP) 
Net inflow of foreign direct investment (m USD) 
Official foreign exchange reserves (end of period) 

mUSD 
months' imports of goods and services 

External debt 

Convertible currency external debt 

(bn USD, end of period) 

Convertible currency debt service (m USD) 

principal 
interest 

External debt/GDP  (%) 
External debt/exports of goods and services  (%) 
Debt service/exports of goods and services  (%) 
Arrears (on both interest and principal, m USD) 
Debt rescheduling  agreement 

Indicators of EU  exposure 

EU exposure/total EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports  of goods and services  (%) 

(D 

IMF arrangements 

Type 
(Date) 
On track 

(01/97-11/97) 

4,7 
-4.7 
7 

377,0 
0,7 

1,5 

178,0 
n.a. 
n.a. 
14,7 
32.7 
3,4 
460 
none 

0,5 
2,6 
0,8 

5,4 
-9.1 
6 

10,0 
0.0 

1,0 

163,2 
n.a. 
n.a. 
8.1 
17,6 
3,0 
n.a. 
none 

0,5 
4,0 
0,7 

SBA 
(12/95-11/96) 
no (4) 

SBA 
(12/95-11/96) 
no (4) 

6,4 
n.a. 
n.a. 

n.a. 
n.a. 

0,9 

170,4 
n.a. 
n.a. 
7,9 
n.a 
n.a 
n.a 
none 

0,4 
3,8 
n.a. 

. 

Indicators of market's  perception of 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 
(number of countries) 
The Institutional  Investor 
Position in the ranking 
(number of countries) 
Credit  rating 

none 
none 
03/95  09/95 
135  134 
(187) (181) 
03/95  09/95 
112  112 
(135) (135) 
15.2 15.5 

none 
none 
03/96  09/96 
128  142. 
(178)(178) 
03/96  09/96 
116  118 
(135) (135) 
14.5 14.6 

none 
none 
03/97  09/97 
154  131 
(179) (180) 
03/97  09/97 
118  121 
(135) (135) 
14.5  14.2 

(2) 

(2) 

(3) 

Footnotes 
(1)(2)(3)  See explanatory  notes 
(4) 

The first quarterly  review of the programme, initially scheduled for December  1995, has never been completed. 

-52 

Country-risk  indicators 

Country: Ukraine 

footnotes 

1995 

1996 

Real GDP growth (%) 
Industrial production ( % change) 
Unemployment 
Inflation rate 
Exchange rate (Krb per USD) (Hrv per USD for 1996) 

(end of period) 
(Dec/Dec) 

- auction / interbank 
- cash 

(end of period) 
(end of period) 

-11,8 
-11,7 
0,6 
182,0 

179400 
186000 

-10,0 
-5,1 
1,3 
39,7 

1,9 
1,9 

1997 
(6) 

-3,0 
-1,9 
2.6 
15,0 

1,7-1.9 
1.7-1,9 

(7) 
(08/97) 

General government  balance (as % of GDP) 

-5,0 

-3,2 

-4.6 

Balance of payments 

Exports of goods and services (bn  USD) 
Current account balance (excl. transfers) (% of GDP) 
Net inflow of foreign direct investment (bn USD) 
Gross official foreign exchange  reserves 

mUSD 
weeks' imports of goods and services 

External debt 

Convertible currency external debt 

(bn USD, end of period) 

Convertible currency debt service (m USD) 

principal 
interest 

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

Indicators of EU exposure 

EU exposure/total EU exposure (%) 
EU exposure/external debt (%) 
EU exposure/exports of goods and services (%) 

'  (1) 

16,4 
-5,0 
0,27 

1134 
3,7 

8,1 

1531 
986 
545 
23,3 
53.6 
9,3 
236 
(4) 

1,5 
1,4 
0,7 

20,3 
-3,9 
0,52 

1994 
5,3 

9,2 

1221 
716 
505 
21,2 
45,3 
6,0 
n.a. 
(4) 

3,0 
2.6 
1,2 

20.9 
-3.6 
0.41 

2406 
6,0 

10,3 

1500 
944 
556 
19,4 
49,2 
7,1 
n.a 
(4) 

4,0 
3,1 
#VALUE! 

IMF arrangements 

Type 
(Date) 
On track 

Indicators of market's  perception of 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 
(number of countries) 
The Institutional  Investor 
Position in the ranking 
(number of countries) 
Credit rating 

Footnotes 
(1)(2)(3)  See explanatory  notes 
(4) 
(5) 
(6) 
(7) 

Rescheduling of debt owed to Russia and Turkmenistan. 
Suspended in November 1995. 
IMF projections, unless otherwise indicated. 
Second quarter of 1997 compared to same period of 1996. 

SBA 
(04/95-04/96) 
no (5) 

SBA 
(05/96-02/97) 
yes 

SBA 
(07/97-06/98) 
yes 

none 
none 
03/95  09/95 
145  138 
(187) (181) 
03/95  09/95 
109  111 
(135) (135) 
15.5  15.7 

none 
none 
03/96  09/96 
136  135 
(178) (178) 
03/96  09/96 
107  111 
(135) (135) 
16.7  16.6 

none 
none 
03/97  09/97 
136  129 
(179) (180) 
03/97  09/97 
109  105 
(135) (135) 
17.6  19.8 

(2) 

(2) 

(3) 

5 3-

Country-risk  indicators 

Country: Algeria 

footnotes 

1995 

1996 

Real GDP growth rate  (%) 
Hydrocarbon production ( % change) 
Inflation rate 
Exchange rate (dinars per USD) 

(Dec/Dec) 
(end of period) 

General government balance (as % of GDP) 

Balance of payments 

Exports of goods and services (bn USD) 
Current account balance (% of GDP) 
Net inflow of foreign direct investment  (m USD) 
Official foreign exchange reserves 

bnUSD 
months' imports of goods and services 

External debt 

Convertible currency external debt 

(bn USD, end of period) 

Convertible currency debt service (bn USD) 

principal 
interest 

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

Indicators of EU exposure 

EU exposure/total EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports of goods and services  (%) 

(D 

3,9 
4.4 
21,9 
52.2 

-1,4 

10,3 
-5,4 
0,0 

2,1 
2,1 

32,5 

9,4 
7,1 
2.3 
78,6 
297,1 
42,5 
none 
4,9 

12,2 
2,8 
8,9 

3,8 
6.3 
15,1 
56,2 

3,0 

13,2 
2,7 
0,3 

4,2 
4,5 

33,5 

7,4 
5,2 
2.2 
73,2 
240,1 
29,2 
none 
3,5 

11,6 
2,7 
6,8 

1997 
(4) 

2,3 
8,3 
6,1 
58,0 

2,3 

13,9 
6,7 
0,4 

7,6 
9,0 

32,6 

6,4 
4,2 
2,2 
69,5 
238,0 
33,1 
none 
2,2 

7,7 
1,9 
4,5 

IMF arrangements 

Type 
(Date) 
On track 

Indicators of market's perception of  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 
(number of countries) 
The Institutional Investor 
Position in the ranking 
(number of countries) 
Credit rating 

Footnotes 
(1) (2) (3)  See explanatory notes 
Projections. 
(4) 

SBA/EFF 
(5/94 - 5/95) 
yes 

EFF/CCFF 
(5/95 - 5/98) 
yes 

EFF 
(5/95-5/98) 
yes 

none 
none 
03/95  09/95 
102  107 
(187) (181) 
03/95  09/95 
89  91 
(135) (135) 
23.5  22.8 

none 
none 
03/96  09/96 
109  97 
(178) (178) 
03/96  09/96 
95  95 
(135) (135) 
21.5  22.8 

none 
none 
03/97  09/97 
102  97 
(179) (180) 
03/97  09/97 
96  96 
(135) (135) 
23.2  24.5 

(2) 

(2) 

(3) 

54 

Country-risk  indicators 

Country: Israel 

footnotes 

1995 

1996 

Real GDP growth rate  (%) 
Industrial production (%  change) 
Unemployment 
Consumer  Price Index 
Exchange rate (shekel per USD) 

(yearly average) 
(yearly average) 
(end of period) 

7.1 
8.4 
6,9 
8,1 
3,12 

4,5 
5,4 
6,7 
10,6 
3,24 

1997 
(6) 

2.0 
3,2 
8,1 
6,8 
3,53 

(4) 
(5) 

Central government overall deficit (as % of GDP) 

-3,1 

-4.2 

-3,2 

Balance of payments 

Exports of goods (bn USD) 
Current account balance (% of GDP) 
Net inflow of foreign direct investment (bn USD) 
Gross official foreign exchange reserves 

bnUS$ 
months' imports of goods 

External debt 

Convertible currency external debt 

(bn USD, end of period) 

Convertible currency debt service (bn USD) 

principal 
interest (gross) 

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

Indicators of EU exposure 

EU exposure/total EU exposure  (%) 
EU exposure/external debt  (%) 
EU exposure/exports of goods  (%) 

IMF arrangements 

Type 
(Date) 
On track 

Indicators of market's perception of 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 
(number of countries) 
The Institutional  Investor 
Position in the ranking 
(number of countries) 
Credit rating 

Footnotes 
(1 ) (2) (3)  See explanatory  notes 
(4) 
(5) 
(6) 

First nine months of 1997 compared to same period of 1996. 
Seasonaly-adjusted  data for the third quarter. 
Projections, unless otherwise indicated. 

29,2 
-4.4 
1,2 

8.7 
2,6 

45,2 

5.6 
2,5 
3.1 
51.2 
155.9 
19,2 
none 
none 

4,4 
0,7 
1,7 

-

31,0 
-5,6 
1,7 

11,8 
3,6 

48,1 

5,5 
2,2 
3.3 
49.3 
155,2 
17,7 
none 
none 

3.9 
0,6 
1,6 

-

32,9 
-3.6 
2,4 

20,3 
6,3 

50,8 

6,8 
3,4 
3,4 
50,7 
154,4 
20,7 
none 
none 

1.5 
0,2 
0,4 

-

(9/97) 

(9/97) 

A3 
A-
03/95  09/95 
31  31 
(187) (181) 
03/95  09/95 

43 

42 

(135) (135) 
47.9  49.2 

A3 
A-
03/96  09/96 
33  32 
(178) (178) 
03/96  09/96 
41  40 
(135) (135) 
50.8  52.2 

A3 
A-
03/97  09/97 
35  33 
(179) (180) 
03/97  09/97 
39  40 
(135) (135) 
52.2  52.9 

(1) 

(2) 

(2) 

(3) 

Explanatory notes for country-risk indicators 

-55-

Standard footnotes 

(1 ) 
(2) 
(3) 

Includes only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED 
The higher the ranking number, the lower the creditworthiness  of the country. 
Countries are rated on a scale of zero to  100; 100 represents the least chance of default. A 
given country may improve its rating and still fall in the ranking if the average global rating 
for all rated countries  improves. 

Abbreviations  and English words used in tables 

S&P 

Standard and Poor's 

CCFF= 

Compensatory  and Contingency  Financing Facility 

EFF= 
SBA = 
STF= 

Extended  Financing Facility 
Stand-By  Arrangement 
Systemic Transformation  Facility 

est.= 
n.a. = 
prelim.= 

estimates 
not available 
preliminary 

c 56 

ISSN 0254-1475 

COM(98) 252 final 

DOCUMENTS 

EN 

01  09  17 

Catalogue  number  :  CB-CO-98-271-EN-C 

ISBN  92-78-35341-8 

Office  for  Official  Publications  of the European  Communities 

L-2985  Luxembourg