News Brief: IMF Approves US$65 Million Tranche Under Stand-By Credit to Federal Republic of Yugoslavia

September 19, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the first review of the Federal Republic of Yugoslavia's economic program supported by a stand-by credit. The completion of the review will enable the FRY to draw another SDR 50 million (about US$65 million) from the IMF immediately.

The stand-by credit of a total of SDR 200 million (about US$259 million) was approved on June 11, 2001, and will expire March 31, 2002 (see Press Release No. 01/31).

Following the Executive Board discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:

"The FRY authorities have made good progress in stabilization and reform since late last year under difficult conditions, through the firm implementation of prudent policies. However, the tasks ahead are extremely challenging, requiring continued perseverance and clear ownership of the program by the authorities as well as strong support from donors and creditors.

"Prudent macroeconomic policies have reduced inflation pressures and strengthened foreign exchange reserves, while supporting a recovery of output. On the structural front, the tax system was streamlined , and the exchange, trade, and price systems were almost completely liberalized earlier this year. With the recent adoption of a new privatization framework and the formulation of a bank resolution strategy, an appropriate legal and regulatory framework have been put in place to guide the market transformation of the economy. Problems in fiscal policy implementation and transparency are a source of concern in Montenegro, but the implications for the program are considered limited given the republic's small share in the FRY economy.

"Achievement of the fiscal objectives will be challenging, in both Serbia and Montenegro, owing to pressures for increased spending and uncertainties surrounding budgetary revenue and financing. This highlights the need for the authorities to prioritize expenditure commitments and limit spending in line with available resources, with a view to avoiding expenditure arrears and recourse to inflationary financing.

"It would be important for the central bank to monitor closely developments in the foreign exchange market and to calibrate exchange rate policy, with a view to limiting the loss of external competitiveness.

"On the structural side, the authorities appropriately intend to intensify their efforts to privatize state and socially owned enterprises, while improving their operational efficiency through cost savings. It would also be important to decide expeditiously on the resolution of banks, based on a realistic assessment of their potential viability and taking into account the severe fiscal constraints.

"Given the devastation and heavy external indebtedness of its economy, FRY will need continued support from donors and creditors, to achieve sustainable growth and external viability. In particular, FRY's external prospects will remain highly uncertain—thus hampering investment and growth—until the external debt is restructured on concessional terms," Mr. Sugisaki said.


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