Commission reply to the special report "Macro-financial assistance and structural adjustment facilities"
Date: 2002-03-14
Institutions: European Commission
Subjects: economic cooperation, economic reform, emergency aid, financial aid, third country

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Commission reply to the special report (cid:145)Macro-financial assistance and structural adjustment
facilities(cid:146)

(2002/C 65/04)

SUMMARY

I-II.
Although similar in a number of aspects, MFA (macro-
financial assistance) and SAFs (structural adjustment facilities)
to address different
are designed differently and are meant
needs.

V.
All the countries concerned by such aid are regularly
subjected to IMF Article IV review, when budget implemen-
tation and the quality of the data concerning public finances
are examined and evaluated. These provide a major input to
assessing the quality of budgetary and accounting processes.

instrument (based on ad-hoc Council
MFA is an exceptional
Decisions) and is designed to help the beneficiary countries in
dealing with serious but generally short-term macroeconomic
imbalances (serious balance of payments and fiscal difficulties).

MEDA SAFs are regular instruments of financial cooperation
with the beneficiary countries. They address more long-term
budgetary needs associated with the development process of
these countries and are decided in the context of the normal
programming exercise applying to all operations implemented
under the MEDA Regulation.

(IFI),

institutions

in particular

III.
The amount allocated to an SAF takes into account the
costs of the reforms supported by the operation and since
2001 is documented more fully. The Commission conducts
close discussions with the country and the international
financial
International
Monetary Fund (IMF) and the World Bank (WB) to coordinate
action and to assess the country’s real needs. In the case of
SAFs, synergies with the World Bank are considered important,
either as parallel operations with identical conditionality (to
increase joint leverage and avoid (cid:145)donor splitting’ by the bene-
ficiary) or in the form of self-standing EU operations which
further the goals of the association agreements to which the
World Bank attaches great importance.(cid:146)

the

As SAFs accompany the reform programmes of the Mediter-
ranean partners, a fixed timetable of disbursements is not
required (instalments are released only upon compliance with
conditionality). This is because (a) the rhythm of reforms of the
partner country should be respected, and (b) SAFs are not
exceptional instruments to be used in the urgent financing of
internal and external deficits.

independent
It

experts,
is appropriate that

Highly qualified and experienced staff, who have
VI.
are
and
contacts with specialists
dedicated to the programmes.
the
Commission works closely with the IFIs and uses the same
information, as in many cases the objectives are the same.
Disbursement can be based on an overall evaluation of the
achievement of set objectives though all relevant available
information should be weighed up to arrive at an appropriate
conclusion. Some actions which may not have been foreseen in
an original agreement may be important
in achieving the
overall objective.

VII.
The Commission produces a report, which exceeds the
minimum requirements. However, it is looking for continual
improvement and as a result of a focus on evaluations the
report should be further improved in the future with details
of these results.

VIII.
A systematic effort is made to ensure adequate comple-
mentarity with IMF/WB programmes. Generally the mobili-
sation of MFA and SAFs is associated with additional reform
efforts required from the recipient partner countries. More
evaluations are foreseen as part of the reform process which
also includes output criteria. They should allow a better
assessment of the value added of the EU interventions.

Although these two instruments are designed differently and
pursue somewhat different objectives, an effort is under way to
ensure consistency in their implementation procedures. The
observation of the Court will be taken into account in this
context.

The Commission will ensure,
in all cases,
granting waivers are adequately documented.

that reasons for

Although the Ecofin conclusions referred to by the Court
IV.
are informal and not legally binding, the bulk of MFA follows
the principles. Some exceptions may occur, which is not unex-
pected given the nature of the programme, though these are
known about and subject to appropriate review.

This is foreseen as part of the general reform.

INTRODUCTION

Coordination, by its nature, can always be improved, but it is
felt that there is generally a good balance achieved between
coordination and action activities.

assistance

4. Macro-financial
an exceptional
instrument (based on ad hoc Council decisions) designed to
help beneficiary countries in dealing with mainly short-term
macroeconomic imbalances.

(MFA)

is

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In contrast, Structural adjustment facilities (SAFs) are a standard
instrument of economic cooperation, aimed at supporting the
beneficiary countries in their reform efforts over a long period.

DESIGN OF PROGRAMMES

As part of the reform of the management of external
the Commission is planning to draft a manual of

19.
aid,
procedures and to provide specific training on this manual.

The Commission believes that the necessary expertise exists
within the departments managing these
to
the performance criteria
guarantee effective evaluation of
associated with implementation.

instruments

20.
The amount allocated to an SAF takes into account the
costs of the reforms supported by the operation and since
2001 is documented more fully.

Through the

(cid:145)Country strategy papers 2000-2006(cid:146)
21.
exercise and the three-year indicative programmes 2000-2002,
Commission departments have managed to provide, for the
medium term, a structure for setting up SAF operations. In
this way it is possible to expand, year by year, the scope of
the reforms required for the modernisation of the country, in a
framework which guarantees the coherence of EU support.

23.

See the reply to point 53.

24.
The withdrawal of the World Bank was in part due to
Lebanon’s economic situation. There were extremely close
consultations with the IMF and WB on the maintenance of
the SAF. Both the IMF and the WB strongly urged the
Commission to continue its operation so that there would be
one way of bringing pressure to bear on the reform policy in
Lebanon.

Although the Article IV consultations were delayed, the IMF,
which was keeping a constant watch on the situation in
Lebanon, was able to inform the Commission about all the
necessary developments.

Meeting the conditions for the first tranche meant that prep-
arations for VAT, the key item in fiscal reform in Lebanon,
could be completed and the deadlock was broken in the
negotiations on the association agreement. This
justified
disbursement, even though we made a point of expressing
our deep concern about the macroeconomic situation in a
letter from the Commissioner to the Finance Minister dated
28 July 2000.

The Commission opted for a non-binding formulation to
demonstrate that it was reserving its freedom of judgment in
relation to the IMF.

25.
considered important, either

In the case of SAFs, synergies with the World Bank are
in the form of parallel

(a)

operations with identical conditionality so as to increase joint
leverage and to avoid (cid:145)donor splitting(cid:146) by the beneficiary, or (b)
in the form of self-standing EU operations, not incompatible
with World Bank ones, but
the
association agreements to which the World Bank attaches
great importance.

furthering the goals of

In each of the cases to which the Court refers, the
26.
Commission made a point of consulting the experts from the
World Bank, who shared all
the social
sector. More generally this dialogue allowed the Commission
departments to establish a balance in the nature of the actions
covered by the programmes.

their knowledge of

Only

in exceptional

tranche
27.
conditions been left open. However since January 2001, the
Commission has not
left any open conditions relating to
second tranches in any SAF agreements.

cases have

second

28.
The Genval informal Ecofin conclusions referred to by
the Court provide general guidance for
the design and
implementation of MFA. However because of
its ad hoc
financial
each macro-financial or
character,
assistance decision sets de novo the principles and the
conditions of implementation of the corresponding assistance
package.

exceptional

30.
The motivation of the Commission’s proposal, including
its assessment of the factors that justify financial intervention
by the Community, is generally laid down in the explanatory
memorandum accompanying the Commission’s proposal. The
existence of a residual external financing gap in the recipient
country’s balance of payments (after financing from the inter-
national financial institutions has been taken into account) is
an important, but not a sufficient condition for this type of
assistance to be initiated.

The expected added value of the Community’s intervention
derives from the very nature of macro-financial assistance.
The assistance is generally made available to partner third
countries, which are geographically close to the EU and
maintain important political and economic links with it. This
type of assistance complements financing provided by the
relevant IFIs and its objectives are therefore consistent with
those agreed by these institutions and the recipient country.
However, the economic policy conditions (notably on structural
reform) attached to the implementation of the assistance are
also inspired by the economic cooperation agenda between the
EU and the recipient country, as set out in association or
cooperation agreements.

31.
The Commission has put forward proposals for macro-
financial assistance when there were residual external financing
needs, over and above those that could be covered by the IFIs.

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financial assistance to
The characteristics of the exceptional
Armenia, Georgia
to those
and Tajikistan were
applying to other macro-financial assistance programmes
with in particular:

similar

(cid:151) the necessity to be current on its external financial obli-
gations towards the Community before being allowed to
benefit from a new assistance package,

(cid:151) a grant element

justified by the exceptionally difficult
economic and social situation in these countries and their
limited debt-servicing capacity, as in Albania, Kosovo or
Bosnia Herzegovina,

(cid:151) grant disbursements subject to the fulfilment by the bene-
ficiary countries of macroeconomic and structural reform
conditions.

The requested reduction in the net debt position of Armenia,
Georgia and Tajikistan was designed to ease the debt servicing
obligations of these low income countries.

It is necessary to put the implementation of macro-

33.
financial assistance within a broader perspective.

In the early 1990s during the first years of the transition from
central planning to market economies of most of the countries
in central and eastern Europe, many of
these countries
benefited from one-off assistance packages (Hungary, Czech
and Slovak Republics, Baltic countries). The fact that macro-
financial assistance has been provided repeatedly to a limited
number of countries (notably, Romania, Bulgaria and Ukraine)
of eastern and south-eastern Europe simply demonstrates that
the transition process to the market economy has in some
cases been complex and discontinuous. Because of difficult
political circumstances, the necessary structural reforms have
been delayed or imperfectly implemented in some countries
and exceptional circumstances have reappeared.

35. With regard to the geographical proximity Armenia and
Georgia can in many respects be regarded as European NIS.
With the possible accession of Turkey, they will even become
like Belarus, Ukraine and
the EU’s immediate neighbours,
Moldova. They are of strategic interest
to the Community,
since their macroeconomic and political stability is essential
to adequate energy supplies to Europe through the oil and
gas corridors linking it to Central Asia. These countries are
linked to the European Union by a special
relationship
through their Partnership and Cooperation Agreements and
important programmes like Traceca and Inogate. The case of
Tajikistan is somewhat different, but the country’s stability is
also essential to Central Asia’s stability and to the proper func-
tioning of the oil and gas corridors.

Although it is recognised that further progress in the area of
human rights is required in some of the countries concerned,
the Commission considers that the political preconditions have
so far been respected and no country with a dubious track
record in the respect of democratic principles and human
rights is presently benefiting from an active MFA programme.

financing needs of

this assistance are fulfilled,

The Community assistance is generally decided at a
38.
particular point in time and committed on the basis of the
estimated average residual
the recipient
country’s balance of payments,
in the context of an IMF
supported programme. The disbursements take place, when
the conditions of
in principle
during the programme period, but irrespective of the balance
of payments effective needs (which are constantly varying
during the period) at the time of the disbursements (unless
unexpected circumstances arise, the programme is discontinued
or a reassessment of the external financial situation has been
explicitly foreseen from the outset). This is the only practical
way to implement financial assistance of this type and is the
approach adopted by all major official donors.

39.
As reflected in Annex 2.1 of the Commission report to
the Parliament and to the Council on the implementation of
macro-financial assistance in 2000 (COM(2001) 288 final),
Community assistance to Bulgaria in 1999/2000 represents
about 50 % of the total bilateral support made available to
this country (see also reply to point 38).

In the view of

40.
the Commission, UNMIK had made
particularly good progress in establishing a macroeconomic
framework under very difficult circumstances. This included
fiscal authority ensuring fiscal
e.g.
control and the development of a revenue base. This justified
in the Commission’s view the release of the second payment.

setting up a central

This positive appraisal was corroborated by the positive
appreciation of Kosovo’s economic transformation from the
IFIs and other
international bodies. As appropriate when
taking its decision, the Commission also took into account
financing needs and the urgency. The Pristina
the external
Office of the European Agency for Reconstruction was not
responsible for determining whether the conditions necessary
for releasing the second payment had been met. It was deemed
appropriate to proceed with the implementation of macro-
financial assistance when conditions specifically attached to it
were fulfilled, rather
than introducing cross-conditionalities
thereby running the risk of stalling progress in the area of
the economic framework and the provision of basic services
to Kosovo.

41. When the Kosovo crisis erupted,
the Commission
decided to provide Albania with emergency budgetary
support
(a grant) of up to EUR 67 million to help the
country to cope with the presence of a larger number of
refugees. Although only EUR 33 million was ultimately
disbursed, because the refugees returned more quickly than
anticipated, Albania then decided not to take advantage of
the loan support already approved. This assistance is no
longer programmed and the Commission agrees, could be
cancelled.

43. MAF drawn up on policy-based conditionality may
sometimes need to be formulated in general terms, so as to
take into account complex circumstances and leave a margin of
judgment.

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In the case of
observe:

the two examples,

the Commission would

(cid:151) with regard to Kosovo, at the second Donors’ Conference of
17 November 1999, UNMIK,
the European Commission
and the World Bank presented detailed programmes and
documentation. These documents described priority areas
for which regulatory frameworks had to be established (e.g.
telecommunications
energy, water and waste,
etc.). Results can be assessed on the basis of preparatory
documents (e.g. the White Paper for private sector devel-
opment), draft regulations (circulated in the JIAS or sent to
the legal office) or adopted regulations,

transport,

(cid:151) the condition mentioned in the case of FYROM was
inspired by the World Bank’s public expenditure and insti-
tutional review action plan. This action plan sets out certain
steps to be undertaken, but was not very specific on the
timetable to be followed (as most of the timetable was
relative to the creation of
the Civil Servants Agency).
Therefore,
it was deemed appropriate to formulate the
condition broadly and to use the WB action plan for
assessing whether the authorities had (cid:145)made significant
progress . . .(cid:146).

All

the conditions associated with the 1999 macro-
44.
financial
loan to Romania were key issues identified in the
Commission’s Opinions and Regular Reports of 1997, 1998
and 1999.

45.
At the time of the action, Montenegro both faced a very
complex and difficult external environment and was embarking
on a transition period that involved institution-building and
modernising the administration. The assistance needed to be
implemented urgently for political, economic and financial
it was decided to reduce
reasons. Against this background,
the usual minimum interval between disbursements
from
three to two months. The structural reform conditionality
attached to the disbursement
focused on the budgetary
sphere, notably on the enhancement of fiscal and budgetary
transparency, where it was considered feasible for the auth-
orities to make satisfactory progress within two months.

However, as the Council Decision made clear, the two-month
period was a minimum and the assistance could not in any
case be disbursed until conditions had been fulfilled. The actual
disbursement of the second tranche took place four months
after
tranche precisely because of unsatisfactory
compliance with the conditions.

the first

ASSESSMENT OF PARTNER GOVERNMENT’S BUDGETARY
AND ACCOUNTING PROCESSES

The MEDA countries are subject each year to an IMF
47.
Article IV review, when budget implementation and the quality
of
the data concerning public finances are examined and
evaluated. The reason why the Commission did not conduct
a specific evaluation of these matters was because it works in
close coordination with the World Bank, which carries out

reviews of public spending in the region, and with the IMF,
including its fiscal department, on all the fiscal aspects. These
provide a major input to assessing the quality of budgetary and
accounting processes.

48.
The guide to budgetary aid procedures currently in
preparation states that the assessment of public finances is
one of the main steps in the preparation of a budgetary aid
operation.

49. When macro-financial assistance is used for its usual
purpose of strengthening the country’s external reserves, a
close monitoring of the beneficiary country’s national budget
is not the main focus. The government is not expected to use
the money paid to the Central Bank, since an increase in
external
is not automatically translated into an
increase in the Central Bank’s credit to the government. The
IMF quantitative targets monitoring is a sufficient guarantee in
this respect.

reserves

When macro-financial assistance is paid directly to the national
budget (e.g. Kosovo, Montenegro), it is appropriate to monitor
this budget. In this respect, the Commission services benefited
from the overall budgetary monitoring implemented by the
IFIs, by the EU pillar of
the UN administration in Kosovo
and by a consultant in Montenegro.

50.
The Commission agrees that lessons learned should be
duly taken into account. It also agrees with the importance of
assessing the quality of public finance management in countries
benefiting from budgetary aid, a major point emphasised by
the
IAS report. The Commission consults with donors
including the WB and IMF on the assessment of public
finance management.

MONITORING OF MFA AND SAF

51. With regard to MFA,
rules and
strictly formalised. The
procedures, although not always
informal character of such rules and procedures results from
the exceptional nature of the instrument.

there are internal

The responsibility for the implementation of macro-financial
assistance lies with the geographical Units, but the adviser in
charge of coordination of
financial assistance supervises all
operations and ensures overall consistency.

Commission departments,

53.
including the delegations,
regularly monitor the economic and political developments
of the beneficiary countries.

In implementing its programme of deconcentration of staff to
the delegations, the Commission is enhancing their capacity to
monitor the political and economic conditions in beneficiary
countries.

retaining

55. While
the
Commission now systematically coordinates its action with
the World Bank.

freedom of

judgment,

its

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The

rationale of SAFs

(accompanying the

reform
56.
programmes of the Mediterranean partners) does not require
the establishment of a fixed timetable for disbursements.
Payment of instalments is made only when conditionality is
met. The rhythm of reforms of the partner country should
be respected. It should be recalled that SAFs are not exceptional
instruments used in response to short-term urgent external
financing needs.

58.
As foreseen in the Memorandum of Understanding
defining disbursement conditions the Government of Jordan
approved a draft competition law taking into account
the
comments of DG Competition. This draft was submitted by
the Government to the Parliament in 1997. Since then Parlia-
mentary Committees have discussed the draft and sent it back
several times to the Government with request for amendments.
Unfortunately, in April 2001 the Parliament refused the Law. In
the
conclusion,
Government of Jordan, has fully complied with the conditions
as set out in the memorandum of understanding.

the Commission,

interlocutor

the

of

It is correct that there is generally consensus between
59.
in the
the Commission and the IMF/WB about progress
adjustment and reform process of
the recipient countries.
However, the Commission decisions concerning disbursements
of macro-financial assistance and of SAFs are taken inde-
pendently.

The Council Decisions
stipulate

authorising macro-financial
60.
assistance operations
the Commission is
that
responsible, in consultation with the EFC and in coordination
with the IMF, for agreeing with the authorities of the recipient
countries
the macro-financial assistance
operations and for verifying that these conditions have been
fulfilled. The Commission endeavours in all cases to document
fully the reasons for waiving conditions. The same approach is
applied to SAFs (see also point 74).

the conditions of

The structural

report broadly corresponds

reform analysis contained in the
64.-65.
annual
to the policy-based
conditions agreed with the beneficiary countries. However,
given the sensitivity and the confidential character of
the
reforms agreed in the memoranda of understanding with the
beneficiary countries’ governments,
the link between our
analysis and the precise conditions attached to operations is
generally not made explicit.

The Commission is planning to initiate independent evaluations
of MFA programmes from 2003 onwards.

CONCLUSIONS AND RECOMMENDATIONS

66.
The Commission shares the views of the Court and is
presently exploring the best way to structure and implement
these policy-based instruments so as to enhance consistency
and efficiency.

links with the EU.

67.
As mentioned under point 30, the MFA is generally
made available to geographically close partner countries with
important economic and political
It
complements financing provided by the relevant IFIs and its
objectives are therefore consistent with those agreed by these
institutions and the recipient country. However, the economic
policy conditions (notably on structural reform) attached to the
implementation of
the assistance are also inspired by the
economic cooperation agenda between the EU and the
recipient country, as set out
in association or cooperation
agreements.

(a)

In the case of SAFs, synergies with the World Bank are
68.
systematically sought, either
in the form of parallel
operations with identical conditionality so as to increase joint
leverage and to avoid (cid:145)donor splitting(cid:146) by the beneficiary, or (b)
in the form of self-standing EU operations, not incompatible
with World Bank ones, but
the
association agreements to which the World Bank attaches
great importance.

furthering the goals of

REPORTING AND EVALUATION

61-62.
All the SAFs approved since 2000 include a financial
provision to carry out a final independent evaluation of the
programmes. The Court’s comment about the report to be
submitted by the recipient country will be taken into account
for current and future programmes.

In the case of MFA, the justification of a separate EU action is
made explicit in the explanatory memoranda of the relevant
Council decisions. Consistency is always sought with other EU
instruments (see reply to point 30).

69. MFA and SAFs have different objectives as they aim to
fulfil different needs although certain operational elements are
similar, as noted by the Court.

An evaluation of macroeconomic policy support

62.
planned for 2004/2005.
It
Once the evaluation report
available on the Commission’s website.

is
is not planned to cover MFA.
it will be made

finalised,

is

Substantial progress has

63.
the
Commission adopted the report on the implementation of
macro-financial assistance in 2000 (COM(2001) 288) on 1
June 2001.

recently been made:

The Commission wishes throughout its operations to
ensuring
approach where possible while

70.
harmonise
sufficient flexibility to cope with different requirements.

its

73. With respect to SAFs, the guide on budgetary aid, which
is currently being prepared by AIDCO, takes into consideration
several of the Court’s recommendations. See also replies to
points 60 and 74.

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The Commission is working towards the establishment
74.
of a more systematic set of rules and procedures that should
apply to financial
instruments with macroeconomic impli-
cations. For instruments like MFA and SAFs, implementation
is generally subject to the satisfactory fulfilment of policy-based
conditionality. This type of conditionality may sometimes need
to be formulated in broad terms, so as to take into account
complex circumstances. It is often not only necessary but also
productive to leave a margin of judgment.

For this reason, the verification of the satisfactory implemen-
tation of the conditions attached to MFA and SAFs require an
expert and comprehensive assessment of the country’s macro-
economic adjustment and structural reform programme.

The Commission fully agrees with the emphasis placed
75.
by the Court on the quality of budgetary processes and the
importance of transparency.

The Commission intends to further enhance monitoring

76.
of financial management in the beneficiary countries.

The Commission maintains close working relations with the
IMF and WB, but the EC is not a member of these institutions.
They may therefore be
the
Commission to be involved in their work.

institutional

constraints

for

considering ways

The Commission is

from 2003 onwards. Annual

78.
to enhance
evaluation procedures for MFA, notably by financing evaluation
reporting by the
exercises
Commission to the Council and the Parliament concerning
the implementation of MFA, as well as any future exercise of
evaluation of this type of assistance, have to duly take into
account the sensitivity and the confidential character of the
policy measures agreed between the Commission and the bene-
ficiary countries, as conditions for the disbursement of the
assistance.

regards

the SAF,

As
the Commission, when preparing
operations, begins the analysis of the feasibility and impact
of
In addition,
since 2001 provision is systematically made for the evaluation
of the SAF.

the reform process supported by an SAF.

ANNEX 3

FULFILMENT OF CONDITIONS

Kosovo

With regard to Kosovo’s budget, the conditionality did not
require budget consolidation, but enhanced revenue collection
and better expenditure control. UNMIK had progressed in these
areas and was commended on this by the international
community (Working Level Steering Group of 20 June 2000).

As the Court acknowledges (footnote 15), there are important
social and economic reasons ((cid:145)important concerns of equity(cid:146))
behind the decision of UNMIK not to introduce the wage with-
holding tax. The Commission concurred with this view and
therefore accepted this decision.

With regard to self-financing,
in the Commission’s view,
UNMIK had made significant progress towards increasing the
domestically financed part of the budget: in the four budgeted
months of 1999 (September-December), roughly one-third of
recurrent expenses had been covered by own resources, albeit
in a distinct budgetary framework. In 2000, the budget plan
foresaw external financing of about 50 % or DEM 220 million,
while in fact the budget closed with a cash surplus of DEM 46
million, of which DEM 38 million was from domestic revenues.
The 2001 budget plan foresees a further reduction in external
financing (in absolute and relative terms).

Bulgaria

As mentioned above the Commission always leaves a
in the formulation of policy-based

judgment

2.
margin of
conditions.

The Commission considers that naming individual enterprises
in policy-based conditionality may, in some cases, be necessary
to ensure minimum progress in the privatisation process,
large banks and other State-owned enterprises.
notably of
The argument that this may affect the sales price is only true
if the conditionality is made public, which is not the case with
the conditions attached to macro-financial assistance. It should
be noted that the sale of (cid:145)Biochim(cid:146) was also explicitly part of
the IMF/WB conditionality.

At the time of the release of the second tranche, the
3.
Commission was able to verify that a new bill on EIA was
prepared by the Ministry of Environment to ensure compliance
with the EU EIA directive. Assurances received by the Bulgarian
authorities concerning the adoption of
this new legislation
were considered sufficient.

In the case of Kosovo, the identification of conditions was
1.
particularly delicate given the exceptional circumstances and
difficult situation on the ground. Nevertheless, following its
review mission in June 2000, the Commission was convinced
that the UNMIK progress in implementing the conditionality
was sufficient to allow a disbursement.

The Commission considered that

the condition was
4.
sufficiently met with respect to the objectives of the macro-
financial assistance operation. Full compliance with the (cid:145)acquis
communautaire(cid:146), which is required for EU membership and is
reviewed in the regular reports,
is a far more demanding
requirement and was not asked for in the agreed MoU.

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The agreement with the Bulgarian authorities specified
5.
that the assistance would be disbursed in two tranches. The
conditions for the release of the second tranche were met to a
very large extent in the second half of 1998. In June 1998, the
indeed
possibility of
considered. The process was delayed, however,
for reasons
related to difficulties with several EU Member States arising
from debt
issues. The full payment was only made in
December 1998, after the Commission was satisfied that the
respect of conditionality was adequate.

second tranche was

splitting the

Montenegro

The main task of

6.
the consultant was: supporting the
Montenegrin Government in the area of budget/fiscal reform
and helping the authorities to implement the economic policy
conditions of this assistance. In pursuing his tasks the expert
obviously provided useful information to the Commission that
helped it to monitor the assistance. The Commission pursued
its own monitoring and evaluation of the assistance through
regular contacts and an assessment mission in December 2000.

The consultant accomplished his tasks satisfactorily, especially
given the short period of his assignment and the difficult
environment at that time. In particular, the consultant helped
the Montenegrin Ministry of Finance to make substantial
progress in enhancing budgetary transparency and improving
budgetary procedures. The Commission did not expect a clear
recommendation for or against a disbursement decision, since
it considered this to be its own responsibility.

The Commission went on mission to carry out its assessment
of conditionality early in December 2000. At that time the
Consultant was also present in Podgorica and the Commission
had the opportunity to discuss his draft final report, which was
available at the beginning of the mission. The consultation of
the Economic and Financial Committee was based on the
Commission’s own assessment and the conclusions in the
draft final report.

During its mission in December 2000,
the Commission
observed that the progress made in some areas had not been
It therefore warned the Montenegrin authorities
satisfactory.
that without
further substantial progress in these areas a
disbursement of the second tranche would not be possible.

The Commission also specified action that had to be taken,
in no way softened the conditions laid down in the
but
memorandum of understanding.
It was also necessary to
explain the conditions in greater detail, since information
about some aspects of the situation on the ground and of
the policy environment had been incomplete at
the time
when the conditions were formulated.

Tunisia

(a) Sale

of

the

five

companies:

joint World

Bank/
ADB/Commission evaluation mission considered
this
condition to have been fulfilled, as the stock market
it would not have
situation was so unfavourable that
the three remaining
been reasonable to demand that
companies be put up for sale.
In return the Tunisians
provided a timetable for sale going beyond what had
been demanded.
the
technical waiver procedure could have been more trans-
parent in this instance, but the head of mission (World
Bank) did not consider it necessary and this procedure
does not exist at the Commission.

true that, with hindsight,

is

It

(b) Five of

the 35 conditions for the second tranche were
fulfilled in part. This was reflected in the file submitted
for the approval of the Director-General and subsequently
of the FC. Mathematically, therefore, performance exceeded
85 %.

that

certain conditionalities went

the Tunisians offered guarantees for

Given that there is never 100 % compliance, that performance
far beyond what was
of
demanded,
total
achievement of the remaining conditions, the decision-makers
gave the go-ahead for disbursement provided that the funds
were not
(cid:145)full
compliance(cid:146) had been established. This will not happen again
as the double signature procedure has been discontinued. At
the time nobody could have known that it would take six
months.
It is quite clear that the Commission cannot alter
the regulations of the Tunisian Central Bank.

finally acquired (double

signature) until

in particular in
This programme was considered exemplary,
terms of coordination between donors and the delivery of
the privatisation programme.