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USIA - Text: IMF OK's ESAF for Former Yugoslav Republic of Macedonia, 97-04-14
From: The United States Information Agency (USIA) Gopher at <gopher://gopher.usia.gov>
TEXT: IMF OK'S ESAF FOR FORMER YUGOSLAV REPUBLIC OF MACEDONIA
(3-year ESAF for $75 million announced April 14) (1130)
Washington -- The International Monetary Fund (IMF) approved a three-year
loan for the Former Yugoslav Republic of Macedonia under the Enhanced
Structural Adjustment Facility (ESAF), for $75 million, to support that
country's 1997-99 economic reform program.
Following is the text of the April 14 IMF announcement.
(Begin text)
International Monetary Fund
Washington, D.C. 20431
April 14, 1997
IMF APPROVES THREE-YEAR ESAF FOR FORMER YUGOSLAV REPUBLIC OF MACEDONIA
The International Monetary Fund (IMF) approved a three-year loan for the
Former Yugoslav Republic of Macedonia (FYRM) under the Enhanced Structural
Adjustment Facility (ESAF) [1], in an amount equivalent to SDR 54.56 million
(about $75 million), to support Macedonia's 1997-99
economic reform program. The first annual loan, equivalent to SDR 18.19
million (about $25 million), is available in two equal semiannual
installments, the first of which is available immediately.
Background
The economic program launched in early 1994 with IMF support under the
Systemic Transformation Facility (STF) achieved notable financial
stabilization, breaking the near-hyperinflationary conditions that
prevailed during 1991-93. By 1995 the post-independence collapse in output
had run its course and the FYRM had made considerable progress in
confronting financial imbalances. Key policies, supported by a stand-by
credit from the IMF in 1995, were the de facto nominal exchange rate anchor
to impose financial discipline and the strong support of fiscal policy for
both monetary policy and structural reforms. While the program was
successfully completed and achieved a remarkable degree of financial
stabilization, with inflation reduced to industrial country levels and
privatization begun in earnest, the economy has yet to turn around
decisively. The unemployment rate is as high as 30 percent and the banking
system is suffering from low loan collection rates and wide interest rate
spreads.
Medium-Term Strategy and the 1997 Program
Over the next three years the FYRM aims to achieve sustainable growth and
reduce unemployment and poverty by further restructuring the economy along
market lines and maintaining a stable financial environment. Over the
medium term, the program targets annual GDP growth of about 5 percent,
inflation of 2-3 percent yearly, and a decline in the external current
account deficit to 5.3 percent of GDP from 12 percent of GDP in 1996.
Financial policies will be underpinned by tight budget discipline which
will aim at balance in the general government accounts. To this end, the
program provides for the introduction of a value-added tax to shore up the
tax base and reduce the heavy burden of direct taxation. Agricultural and
export subsidies will be virtually eliminated, and the freeze on budget
sector wages will remain in place. Public investment, however, will be
expanded by 5 percent in real terms in order to support economic growth
and additional resources will be dedicated to provide an adequate
social safety net.
In the context of the medium-term strategy, the 1997 program aims for real
GDP growth of 5 percent, annual year-end inflation of 2 percent, and an
external current account deficit of 8.5 percent of GDP. To achieve these
objectives, budgetary policy will continue to be restrained, to support a
recovery in domestic savings, and aims at a general government surplus of
1.5 percent of GDP. Monetary policy has been designed to support the
inflation and balance of payments targets.
Structural Reform
A crucial condition for reviving economic growth in the FYRM is the further
restructuring of the enterprise sector. Effective enterprise ownership will
be encouraged by eliminating restrictions on secondary share transactions
and selling remaining government-owned shares. Tax and other incentives for
the conversion of wage arrears into equity are planned, as is the reform of
legislative and judicial procedures regulating commercial contracts and
bankruptcy procedures. By end-1997 the program aims to privatize all
eligible enterprises, including 70 percent of agricultural enterprises. New
laws are to be adopted on the use and ownership of state-owned land; and to
encourage small farm development, a minimum of 15 percent of state-owned
land will be offered for leasing on a competitive basis.
Recognizing that an open trade regime is essential to the development of a
small economy and for integration into European institutions, the FYRM will
continue to liberalize its trade regime by reducing average import taxes
and discretionary exemptions.
Addressing Social Issues
Under the program, additional resources will be channeled to social
assistance and the Employment Fund, which the government considers vital in
providing an adequate safety net to support the process of economic
restructuring. Spending on education as a share of GDP will be maintained
at the 1996 level, and health benefits will be restructured to restore the
financial balance of the Health Fund and clear outstanding arrears.
The Challenge Ahead
Although the FYRM's fiscal record in recent years has been strong, the risk
that financing gaps could result in destabilizing imbalances allows no room
for relaxation. A further challenge is to improve competitiveness through
productivity gains and wage discipline. Moreover, the financial system will
require further liberalization and more decisive use of indirect monetary
policy instruments.
The FYRM succeeded to the membership in the IMF of the former Socialist
Federal Republic of Yugoslavia, effective December 14, 1992. Its quota [2] is
SDR 49.6 million (about $68 million), and its outstanding use of IMF credit
totals SDR 47 million (about $64 million).
1. The ESAF is a concessional IMF facility for assisting eligible
members that are undertaking economic reform programs to strengthen their
balance of payments and improve their growth prospects. ESAF loans carry an
interest rate of 0.5 percent a year and are repayable over 10 years, with a
5 1/2-year grace period.
2. A member's quota in the IMF determines, in particular, the amount of its
subscription, its voting weight, its access to IMF financing, and its share
in the allocation of SDRs.
Former Yugoslav Republic of Macedonia: Selected Economic Indicators
1994 1995[3] 1996[3] 1997[4] 1998[4] 1999[4]
Real GDP growth -4.0 -1.4 1.1 5.0 5.3 5.3 (Percent change)
Consumer price index 55.0 8.6 -0.7 2.0 3.0 3.0 (end of period)
General government balance -3.2 -1.3 -0.4 1.5 0.0 0.0 (Percent of GDP)
Current accoun balance -6.4 -6.2 -11.9 -8.5 -7.3 -5.3
Official gross reserves 1.3 1.9 2.0 2.3 2.5 2.8 (Months of imports)
Sources: Authorities of the Former Yugoslav Republic of Macedonia; and IMF
staff estimates and projections.
3. Preliminary.
4. Projections.
(End text)
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