Albania and the IMF
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The IMF and Good Governance -- A Factsheet
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THE INTERNATIONAL COMMUNITY RESPONDS TO THE KOSOVO CRISIS
MICHAEL DEPPLER, DIRECTOR,
EUROPEAN 1 DEPARTMENT, IMF,
JOHANNES LINN, VICE PRESIDENT
EUROPEAN AND CENTRAL ASIA REGION, WORLD BANK
April 28 1999
IMF Headquarters, B-702
MS. WHITE: Good morning. My name is Kathleen White with the Media Relations Office of the IMF. Welcome to the press conference on the economic consequences of the Kosovo crisis.
Addressing you today will be, on my right, Michael Deppler, the Director of the European One Department of the IMF. To his right is Johannes Linn, the Vice President of the European and Central Asia Region for the World Bank. Soon to arrive will be Jan Pakulski, at the end of the table, the External Affairs Officer for Europe and Central Asia.
Let me do a little bit of housekeeping first. The contents of the paper which I hope most of you have received upstairs, "The Economic Consequences of the Kosovo Crisis," will be embargoed until the end of the press conference, and I will announce a specific time at the end of our conference this morning, which needs to end promptly at 9:50.
We have some opening statements by both of our officials here this morning, and I invite Mr. Deppler to begin.
MR. DEPPLER: Good morning. We have reached a certain stage in the process where the two institutions have been doing work on the implications of the Kosovo crisis.
The first step was this paper which you see, which you have, and which was discussed by our respective Boards last week and endorsed by them in terms of the basic thrust, in terms of the roles and the work of our two institutions.
I will not discuss the report because I will wait for your questions later on.
What I thought I might do is relay a few points about the meeting we had yesterday evening, which was a further step in this process. My own reading is that that meeting was successful in achieving one of the objectives, which was furthering the process and galvanizing the process of international economic coordination about the implications of the crisis.
I thought it was a very good meeting. The donor countries were fulsome in their statements of support and commitments to the amounts of money they have already committed to support these countries. I thought we also had a very good set of statements from the affected countries, very responsible in their own assessments of the situation. So I thought it was a very positive meeting and helped move the process forward.
The other point I would see coming out of that meeting was the sense that the Europeans should be taking the lead in addressing and furthering the coordination process. This was a point that the Managing Director made.
It was also in line with what is on the table already. As you know, the Germans have called for a meeting of Foreign Ministers in late May. Indeed, yesterday's meeting was partly prompted by the call by the French Minister of Finance, Mr. Strauss-Kahn, for a Balkan committee. So this is part of an evolution.
I think there was also agreement, in terms of the nitty gritty of coordinating financing and so forth, that some version of the G-24 process which we have used in the transition economies over the past 8 or 9 years to help mobilize balance-of-payments financing might be suitably adapted. This, for those of you who do not know, is a process which is led, in the first instance, by the EU Commission and the World Bank. And my sense of the meeting yesterday is there is general agreement to proceed in these directions.
The other point I heard was the affected countries, while underscoring the severe difficulties that the crisis had placed on them, also emphasized their firm resolve to persevere with the economic adjustment and reform ethics. I think one of the concerns of the international community is that this crisis not disrupt the stabilization and reform process in these countries. Part of the assistance is needed to sustain that momentum so that these economies keep on the road to market-oriented stable economies.
Finally, as I said earlier about the Board's support for the basic vision of the goal of the Fund and the Bank that is in this paper, this was also something that was supported at this meeting. There was a particularly strong endorsement for the Fund to focus on the macroeconomic implications and balance of payments implications of this crisis for the affected region.
The final point, I think, is there was a strong theme that there was not only a need to look at the region on a country-by-country basis, but also to have a regional focus. As you probably know, Yugoslavia is not a member of the Bretton Woods institutions. So we have a non-member in the middle of the region, and it is very important to support the individual country analyses with a more regional framework.
MR. LINN: I do not really need to add much to what my colleague from the IMF said. I perhaps just want to point to the press release that I am sure you have all seen, and in particular point to the five critical dimensions which are mentioned on the second page, which I think very effectively summarize the sense in the room in terms of the criteria that should govern the support that is being provided. First, the urgency of the need and the quickness of response. Secondly attention to reform and governance, which is one of the last points that Michael Deppler made. Third, additionality; that there is a need for additional resources. Fourth, concessionality, meaning that the resources should be on appropriate terms for the situation. And finally, that, of course, they should be properly coordinated. So these, I think, were very useful. It was also very useful to have that agreement all around the table, including, as Michael said, from the countries that are directly affected, quite apart from the donor countries.
I might perhaps say a few words on the next steps because I think one question one can rightfully ask is: all these meetings, that is great, but what is actually happening?
Well, first of all, let me say that there are country-specific donor mobilization meetings which I expect to yield specific results in terms of commitments for countries concerned. So we are, in fact, moving forward with country-specific donor meetings, following the one that was already held last week on the 21st in Brussels for Bulgaria, which resulted in total pledges of $750 million, of which $275 million for 1999, and of that, an estimated roughly $100 million in additional incremental support to deal with the impacts of the Kosovo crisis.
So there is already a very clear indication that the donor community is actively engaged beyond the humanitarian and refugee assistance, which is ongoing currently on the ground, which UNHCR and other relief and refugee organizations are running.
We have an emergency meeting, a donors meeting planned for May 5th on FYR Macedonia in Paris, where we are hopeful that we can also achieve specific pledges based on country-specific assessments of impact. We are also currently preparing donor meetings for Bosnia-Herzegovina and for Albania later in May.
So these meetings will proceed and are a very important framework in which country-specific efforts, assessments and donor efforts will be made more precise, and, of course, the basis for implementation.
The second follow-up set of instruments are, as Mike has already indicated, regional meetings because it became clear at yesterday's meeting that we really do need, in addition to the country-specific fora, a broader regional perspective and coordination mechanism.
In connection with the May 5 donors meeting in Paris on Macedonia, there will be an additional short, brief updating meeting for the representatives of the donor community to report on further progress in assessment impact estimates and planning for region-wide response, and that in turn is prepared as a preliminary for the meeting that the Germans and the EU presidency has now announced for May 27 in Bonn. That will be a broad Balkans meeting assessment and response coordination meeting.
So there are these two tracks, first of all, country and bilateral country-specific meetings between countries and donors; secondly, the region-wide approach. But let me also say a few things about immediate assistance from at least ourselves because I think it is important for you to realize that we are actually also doing things on the ground.
In Albania, in particular, we have approved two $1 million post-conflict grants in support of infrastructure improvements in the refugee areas, and I am now talking about World Bank assistance specifically. Secondly, we are ready with a $30 million quick-disbursing public expenditures support program which will be presented to and, we expect, approved by our Board next Thursday. We are finalizing another $35 million quick-disbursing operation next week with Albanian officials for approval later in May or June. And we are organizing, as I mentioned, a donors meeting for Albania late in May.
For Macedonia, we are preparing a $1-million grant from our post-conflict fund to provide educational materials, supplies, and teacher training to help with refugee education, children's education. We expect to see approval from our Board of a $50-million emergency critical imports credit in early May. And finally, as I mentioned, we are planning the CG for Macedonia on May 5.
For Bosnia-Herzegovina, we intend to increase budget support within our regular program. We have two adjustment credits which are being prepared for Board approval in May-June, and they will be increased from $44 million to $60 million to allow for the increased needs in the context of the Kosovo crisis. Also for Bosnia-Herzegovina, we have a donor meeting planned for late May.
In the case of Bulgaria, Romania, and Croatia, we are also preparing very actively adjustment operations. In each case, we will look at incremental needs and make, where possible, appropriate additional funding available.
I should perhaps clarify, in the case of Albania, Macedonia, and Bosnia-Herzegovina, all our lending is on IDA terms. In the case of Bulgaria, Romania, and Croatia, our lending is on IBRD terms.
Let me stop here.
QUESTION: I wonder if you could talk for a moment about thinking further ahead. There are, of course, reasons why Yugoslavia itself, it is difficult for you to talk about, but the reality or our reality may be that when peace is achieved, the country will be perhaps bombed to semi-oblivion.
Can you talk about the regional perspective, and how you will think about that perhaps in a year or when peace or some settlement is achieved?
MR. LINN: Let me say the discussion yesterday was around two broad time frames. One was the immediate short term, the other one around the medium term, and we were asked as part of the discussion to begin to put in place a thinking and planning process for the longer-term, hopefully, peaceful context of reconstruction of the whole region, including also thinking about reconstruction needs especially in Kosovo and hopefully, then, also of Yugoslavia.
So the focus will be from now on not just on the short term, but also on the medium term, reconstruction needs, and, of course, in that context, one will want to think about how regional integration and cooperation can be fostered through various mechanisms, whether it is infrastructure that links countries and peoples in the region or institutional mechanisms, or just facilitation of trade.
We actually are currently preparing a project, a multi-country project, under the aegis of the so-called SECI regional initiative, which is in support of facilitation of cross-border trade. We know that, even forgetting for a moment about the current difficulties that cross-border trade has been impeded because of lack of information flow across countries as regards the simple movement of trucks and their contents, the lack of proper border crossing regulation, inappropriate customs procedures, and lack of effective institutions, corruption, of course, at the border, et cetera, et cetera.
So we have a project under preparation that we will hope to bring to our Board this summer that would start with three countries and expand to six countries and could be further expanded as we see more peace, peace returning, to assure that trade flows both through the countries.
So I think your question is very well taken, and it is indeed in our agenda, very much reinforced by yesterday's discussion.
QUESTION: A quick follow-up, if I could. Is it a risk of Yugoslavia becoming a bit of black hole?
MR. LINN: Well, from our perspective, I am not sure that the term is the right term. But for us, unfortunately, Yugoslavia has been a country which we have not been able to work in, and it's also clear because of the impacts of past blockades and continuing elements of lack of integration of the country.
I am told that when the most recent conflict started, the country had not been fully integrated. It had been an important conduit for transit. It had been an important country for bilateral trade for some of the countries, such as Macedonia and some of the other countries, but also, for example, Republika Srpska in Bosnia-Herzegovina depended very heavily on trade with Yugoslavia.
Looking forward, obviously, for the region to become fully integrated and for transit trade to be again fully reestablished, after the conflict has been settled, the infrastructure reconstruction needs are now humongous, and the need for an integration for Yugoslavia for a lasting economic, let alone political, settlement, integration of Yugoslavia will be essential, in my view.
QUESTION: I would like to understand the last table of your document, whether some figures can be added up or not and why. You have got a figure for total financing needs in two different scenarios. Why is the budgetary gap not included? Can one add them up, or not?
And second, if indeed these are preliminary evaluations of the needs, do you expect that the total aid will meet these needs?
MR. DEPPLER: On your first question, the balance-of-payments and the financing-need estimates include the financing needs that stem from the budgetary gaps. So the budgetary gap estimates is an estimate of the pressure on their budgets stemming from the crisis. But the balance-of-payments gap includes that, plus all the pressures that come from the disruptions to trade and tourism and so forth.
Now, as regards the extent to which financing is sufficient to meet these needs, I would make a clear distinction between refugee costs and balance-of-payments gaps.
My sense of the meeting yesterday, and I am thinking in particular of the representative from the UNDP, is that financing needs are being met currently for refugee costs, which is the important thing. That is not to say everything is running smoothly, but I do not think there is a financing bottleneck, if that is what your question is.
With respect to the balance-of-payments gap, we are still in an earlier phase. Bear in mind that these are estimates for the balance of the year. So these are numbers that have to be forthcoming during the year. They do not have to be forthcoming today.
I would be reasonably hopeful that we will be getting financing of this order of magnitude.
MR. LINN: Let me maybe just add, also, one of the pieces of feedback we got yesterday was that there is a general sense, which we also share, that these are probably low estimates, and as we refine them, as we are now doing country by country, that these estimates may well become higher.
But perhaps more importantly, it is also becoming clearer that the economic impact in the countries concerned is potentially quite severe in terms of the impact on private business. If a business loses 20 percent of its exports and trade opportunities, that may be the difference between staying in business or going out of business, and then, of course, the impact on employment, on the economy as a whole can be much larger than just the 20 percent of trade, which we have initially focused on.
So there are dynamic effects and threshold effects which can make, as this works through the economies, the impact on the economies, on employment, ultimately then on the budget, and balance-of-payments also more severe.
We are now, country by country, looking at this in greater detail, particularly as we prepare for the country-specific donors meetings, and we will update our estimates as we go along. I just wanted to indicate that that is the nature of the data, indicative and preliminary, as I think the paper makes very clear.
QUESTION: I do notice from the numbers in here that $800-and-something million. will be needed for this year if the crisis finishes soon. Well, we are already beyond that, if we add up the numbers that you were just giving us, with $750 million for Bulgaria, plus, plus.
Is there a concern that even with all of these donor meetings going on that the money is going to run out faster than the problem can be resolved, and is this going to be a bottomless pit? I know no money was pledged yesterday, but is there a sense that people will be willing to step up with huge sums, if this gets to be the size of Bosnia or worse?
MR. LINN: Let me just clarify the number I gave you before. It was the total amount pledged not specifically for dealing with the Kosovo impact, but the total amount pledged in support by all donors for Bulgaria. So there is a total number, not the specific Kosovo response.
I think, in terms of a bottomless pit, the needs are clearly large. In particular, once you include the reconstruction needs of Yugoslavia and also of Kosovo, they will be very large, and the countries themselves in the first instance and the donor community will have to deal with the challenge that we face.
In the immediate future, the needs are the needs of the refugees, which on the financial perspective at least seem to be doing reasonably well. But beyond this, we have to keep an eye on the economic and balance-of-payments and budgetary impacts, and between country-specific adjustment and our own support have to do the best we can.
MR. DEPPLER: You have to realize that there are very different issues between refugee costs and economic impact costs and reconstruction. The really huge bills are going to be in reconstruction, but this is down the road. We have to have peace before we can think of reconstruction.
In terms of the refugee costs, my sense is the support there is tremendous, and I have no concerns.
One of the purposes of our analysis was to bring out that the economic disruption is costly. These numbers may seem low, but I point you to the last paragraph on page 8, which says that the effect on output in the countries affected is 5 percent of GDP. Now, that is not a trivial economic impact. So these indirect effects of the crisis are quite severe, and one of our purposes behind this work has been to alert the community to these costs and the need to generate the financing required to cover it.
I would be reasonably optimistic from the soundings yesterday, at any rate, that this will be forthcoming, and I still take Johannes' point that these are scenarios based on certain assumptions.
Developments over the past 2 weeks make Scenario B pretty irrelevant. Scenario A is much more of the central case, and it was not originally designed as such.
QUESTION: The Europeans this week have been talking about an estimate for all costs, including reconstruction of something along the lines of $30 billion. Do you have an idea of how accurate that number is or how reasonable?
MR. DEPPLER: I do not. I do not.
MR. LINN: I think it is premature, frankly, and we have not done the homework. We have concentrated on the limited exercise that we have in front of us and on the immediate support for the countries by designing some of the programs that I mentioned before.
I think now that we have a mandate to work closely with our European partners, especially the EU on the broader and longer-term perspective, we will start doing so.
Let me maybe also say, of course, that infrastructure, as Michael said, is where a lot of the long-term costs will be, but at the same time, some of that cost can probably also be borne by long-term credit. So it is not that these kind of investments will require, say, concessional funding up front, like grant-based funding, like refugee support and so on.
So the budgetary impact on the taxpayers that was mentioned before in the donor countries will also be different, depending on the financing modalities. So I would hope that also will be an option that we can then draw on to facilitate the financing.
QUESTION: My question may be directed to Mr. Deppler or Mr. Linn. We particularly welcome the regional perspective that you are developing, and in terms of our own work within the trade union movement, we are encouraged by the fact that Montenegro has distanced itself from the conflict and has from our point of view a good track record in terms of governance, in terms of civil society, participation, and attempts to build up a democratic institution. Yet, it is suffering economic hardship and political pressure because of its precisely distancing itself from the conflict.
I note that it is included in the table on the last page. Our question would be: What is the sort of treatment for that particular subregion, let's say, and in terms of the figures, an assessment of the economic hardship, and how does it fit into a sort of short-term treatment in terms of support, in terms of economic support?
MR. DEPPLER: I heard you refer to Montenegro, and I should be clear.
First of all, we do not cover Montenegro in this table. There is a footnote, but it is not part of the analysis.
Montenegro is part of Yugoslavia and, hence, is not a member of the Bretton Woods institutions. So it is not part of our analysis.
It is a somewhat independent part of Yugoslavia, and we have had sort of informal contacts with some of their people over the years, but there is no formal relationship. Both of our institutions cannot really operate in these countries until some regularization is undertaken with respect to these countries.
MR. LINN: I would like to just add that yesterday's discussion did not specifically refer to the case of Montenegro. But we were asked, as part of the medium-term perspective, to look at what will be the reconstruction and refugee return needs for Kosovo and to have the longer-term regional perspective for reconstruction and development of the region.
My expectation would be that as one looks at this, one would also look in terms of the impact assessment and in terms of reconstruction and assistance needs. And ultimately, to an extent, one will, of course, include also consideration of Montenegro in an assessment of the overall situation in the region. That would be in the initial part, I expect, of our contribution. That does not, of course, prevent bilateral donors from providing assistance. As I understand, some donors have been at least contemplating providing direct assistance to Montenegro. But as Michael said, we at the Bretton Woods institutions are not able at this juncture to operate in or directly support Montenegro.
QUESTION: Thank you. Who is nominally organizing the donors meetings, and broadly speaking, who will lead the coordination process? Is it the European Union or the World Bank or who?
MR. LINN: The country-specific donors meetings are currently co-hosted and co-organized by the European Union and the World Bank under the umbrella that Michael explained, the G-24 process.
MR. DEPPLER: Could I explain? Let us be clear. This is the Brussels G-24, not the IMF's G-24.
MR. LINN: The regional meetings, the regional information meetings that are currently associated, as in the case of the Bulgaria country meeting and then the forthcoming Macedonia country meeting, those regional information meetings will also be organized by the EU and the World Bank.
The meeting that we mentioned that is planned for May 27 in Bonn, I believe, will be organized by the EU presidency, Germany, under the EU umbrella, but the international financial institutions will be invited, as I indicated at yesterday's meeting.
The EU and we and the Bank will be discussing starting today how we can in preparation for the May 27 meeting and beyond respond to the effective mandate that we received yesterday to jointly organize the assessment and donor coordination efforts on a region-wide basis. We have not yet gotten specific plans, but we will develop those quickly, and we will, of course, use these country-specific meetings, as I mentioned earlier, as a vehicle to move the region-wide process also forward.
So we see those two tracks moving in tandem, with the World Bank/EU, EU/World Bank in the lead role.
QUESTION: I guess these figures are just for 1999. Did you put together any sort of guesstimate as to how many years you are going to need to give assistance for humanitarian and economic impacts and what the total number might be? Maybe the previous crisis in Bosnia would give you an idea of how long you have to have and what the total might be.
MR. DEPPLER: Let me go back to that previous question about the very different economic implications of the refugee costs, economic impacts and reconstruction.
The refugee costs. I would emphasize that refugee costs are going to escalate sharply if we get into the business of trying to house refugees through the winter. Starting in October, you can no longer live in Northern Albania and Macedonia in tents. So these things will evolve over time as well.
Coming to the economic disruption, it depends very much on what happens to the peace process over the next few months. We are seeing a large negative effect right now, but if the war is over soon, you could see a substantial reversal of these negative effects. Indeed, for a country like Romania, depending on what happens to Yugoslavia, there will be significant positive effects because the reconstruction will be a boon to Romania in the next phase.
So it is a very dynamic process, what the needs are, and at this juncture, it is just too early to conjecture about what happens on the politics to be thinking these things through in any detail.
QUESTION: Just want you to clarify farther the whole concept of using the G-24 process for this coordination. Does that also mean that there would be countries like the United States who would also be making bilateral contributions on their own? I mean, can you just explain about the nitty gritty of the money?
MR. DEPPLER: The G-24 process was something that was launched to deal with the balance-of-payments needs of the transition economies. It goes back to 1990 or 1991. Much of the bilateral aid funneled to all the Eastern European countries was coordinated and put together through the G-24 process, and this is indeed still a vehicle that is in place, chaired jointly by the Bank and the EU Commission. That is working on the CGs right now for Macedonia and Bulgaria and so forth.
This has been a useful vehicle, and the idea is an adaptive G-24 process. You may want to add countries. There will probably be some number other than 24 at the end of the day, and we need to sort of work through the implications of that, but the idea is to use that vehicle which has worked well.
And possibly, I heard the French, for instance, and another Chair yesterday say that the experience on the coordination in Bosnia had worked well also, and countries are looking for some vehicle which is adapted to the situation and will work.
I think the precise modalities clearly need to be worked out in detail, but the general sentiment at the meeting yesterday was to build on this platform, and I heard Mr. Wolfensohn and Mr. de Silguy at the end of the meeting sort of agree that they needed to meet at an early date. So that gives you a sense of movement in this direction.
MR. LINN: Just to clarify, the U.S. and Japan and all other major donors are part of the G-24 process. So it is basically a shorthand for saying the major European, U.S., North American, and Asian donors, mostly Japan, get together to discuss the finance and reconstruction needs of a particular country concerned, make their pledges of support, both balance of payments, but also investment needs, and then that is the base on which each individual bilateral donor, but also we, can operate in assisting the coordination and implementation. We then build on the implementation process to assure that the needs are being met.
QUESTION: Can I ask Mr. Deppler--in the meeting last night and also in this paper, there seems a heavy emphasis on the need for bilateral donors. Is that an indication perhaps of the financial stress that the Bretton Woods institutions are under right now?
And was there any sense out of the meeting last night that there is any sort of discomfort at all from the donor countries about the scope of what they are going to have to pay, in that there is going to be significant impacts on their own budgets?
Also, Mr. Linn, if I could just ask you, does this scenario that has been drawn up take into account the rather sketchy, at this point anyway, plans for an oil embargo or blockade by the NATO countries?
MR. DEPPLER: On your first question, we are dealing with pure external shock on countries who have a relatively low capacity to pay in terms of per-capita incomes and so forth. Therefore, there is widespread agreement that much of this aid has to be on highly concessional terms.
The Fund is not the best institution for that purpose. It is not particularly designed for that purpose. We are going to use the instruments that we have, particularly ESAF, to provide some of the aid, and we have plans afoot for negotiations. We are negotiating with all of the countries currently, but at the same time, there is a recognition that there is a need for bilateral concessional support in this circumstance, and this is why there is that emphasis.
Now, I did not hear any resistance to that notion, but I did also hear fairly clearly that those countries are also looking for the Fund and the Bank to be very much involved in this process.
MR. LINN: I do not think the orders of magnitude that we are talking about are such that they, per se, stress the financial capacity of our institutions or, for that matter, that they should present insurmountable burdens on bilateral donor budgets.
I think the recognition yesterday was that this is a very urgent problem that is of immediate importance to many of the donors in the region, and indeed internationally. Like Michael, I did not sense any reticence about making this a high priority, moving forward.
So I think we can be all hopeful that there will be a strong response among donors. We in the institutions are also responding strongly, as I already indicated. And I am reasonably hopeful that if peace returns then we can see a replication of what I would regard as a very successful experience in Bosnia-Herzegovina. So I think we have a good model on which we can build, and I would hope that the peace process allows that.
On the oil question, I think the simple answer is no, we did not take that into account.
QUESTION: A follow-up to the oil embargo question. Do the neighboring countries bring that up, given that some of them have already turned off the tap? Romania is one. Do they talk about compensation from the European Union countries or even a specific deal at the end of the conflict?
MR. LINN: It did not come up yesterday, and I have not heard it specifically mentioned, at least in conversations with us.
MS. WHITE: If we have no further questions, the embargo will be lifted at exactly 10:00. Thank you for coming.
IMF EXTERNAL RELATIONS DEPARTMENT