Press Release: IMF Approves Membership of Federal Republic of Yugoslavia and US$151 Million in Emergency Post-Conflict Assistance
IMF News, December 20, 2000
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- Published: December 20, 2000
IMF membership and financing decision
- The Executive Board determined that the Federal Republic of Yugoslavia (FRY) has fulfilled the necessary conditions to succeed to the IMF membership of the former Socialist Federal Republic of Yugoslavia (SFRY). The succession is effective December 14, 1992.
- FRY's quota in the IMF will amount to SDR 467.7 million (about $604 million).
- With the succession of the FRY, IMF membership totals 183 countries.
- The Board approved a loan equivalent to SDR 116.9 million (about US$151 million) under the IMF's policy on emergency post-conflict assistance to support a program to stabilize the FRY's economy and rebuild administrative capacities.
- Of this amount, the authorities will draw SDR 101.1 million (about US$130 million) to repay bridge loans received to eliminate arrears with the IMF.
Key messages from Stanley Fischer (First Deputy Managing Director and Acting Chairman)
- FRY's succession to membership is an important step in reintegration into the world economy and international community and will aid in addressing the country's difficult problems.
- The FRY faces the complex task of stabilizing and reviving a devastated economy after years of regional conflicts, international isolation, and economic mismanagement.
- Recent sharp acceleration of inflation requires preventing financial instability from compounding economic difficulties; the short-term macroeconomic strategy aims to limit the growth of credit to bring inflation under control.
- Directors welcomed measures to streamline the exchange system and the authorities' intention to introduce a managed float with current account convertibility by January 1, 2001, to allow the exchange rate to better reflect market conditions.
- Strengthening the underlying fiscal position and preventing further accumulation of expenditure arrears will be critical for financial stability; this requires:
- Prioritization of expenditures,
- Improvements in tax administration,
- Widening the tax base by eliminating tax exemptions,
- Bringing the gray economy into the tax net.
- Directors supported the authorities' intention to adopt a comprehensive stabilization and reform program that could be supported by the Fund under an upper credit tranche program, contingent on progress in stabilizing the economy and strengthening institutional and administrative capacities under the current program.
- Technical assistance is expected to make a significant contribution.
- Achieving a viable balance of payments position will require prudent macroeconomic policies, bold structural reforms, restructuring of FRY's external debt on appropriate terms (including early resolution of arrears to the World Bank), and substantial support from external donors and creditors following regularization of arrears.
Economic background and challenges
- Ten years of regional conflicts, international isolation, and economic mismanagement have left a dire legacy.
- Output stands at about 40 percent of its 1989 level.
- Unemployment amounts to one half of the labor force.
- Infrastructure is in disrepair after years of inadequate investment and damage from the Kosovo war.
- About 900,000 refugees and internally displaced persons live in FRY under difficult conditions.
- Serious energy shortages are being somewhat alleviated with humanitarian assistance.
- The macroeconomic situation is very fragile; with declining output, the ratio of external debt to GDP has risen to about 140 percent in the absence of debt servicing.
2000 developments and short-term outlook
- 2000 has seen only modest output recovery and high inflation.
- GDP is projected to expand by 10 percent in 2000.
- Agricultural output is expected to decline by 17 percent owing to a severe drought.
- Following liberalization of prices by the outgoing Serbia government in October, retail prices rose by a cumulative 48 percent in October-November, bringing 12-month retail price inflation in November to 110 percent.
- Real wages and pensions presently average the equivalent of DM 90 per month converted at parallel market rates.
- Key source of inflationary pressures: monetary financing of quasi-fiscal deficits of state-owned enterprises.
- Cash fiscal deficits have been kept low through compression of real spending and accumulation of arrears.
- General government revenue has declined in real terms over the past two years by a cumulative 40 percent.
- Recent acceleration of inflation has resulted in a further decline in real revenue and real expenditure.
- Fiscal deficit on an accrual basis has been higher—at least 3 percent of GDP—even excluding servicing of government debt of over 100 percent of GDP.
Short-term stabilization program (through end-March 2001)
- Program focus:
- Tight fiscal and monetary policies.
- Introduction of a managed float with current account convertibility.
- The stabilization program will pave the way for a comprehensive economic program to be formulated in early 2001.
- In Montenegro, bank financing of the budget (except on a very short-term basis) is effectively ruled out by the use of the Deutsche mark as the sole legal tender.
- Urgent needs:
- Wide-ranging fiscal reforms.
- Comprehensive restructuring of the enterprise and banking sectors.
- Structural constraints:
- Legacy of "social ownership" with weak and politicized governance in firms.
- Prior privatization initiatives since 1992 have accomplished very little.
- Banking system is insolvent and unable to perform its intermediation functions.
Selected economic and financial indicators (1996-2000)
- Real economy (change in percent)
- Real GDP: 1996: 7.8; 1997: 10.1; 1998: 1.9; 1999: -19.0; 2000 Jan.-Sep.: 10.7
- Industrial production: 1996: 7.6; 1997: 9.5; 1998: 3.6; 1999: -22.5; 2000 Jan.-Sep.: 15.2
- Retail prices (annual average): 1996: 92.7; 1997: 18.5; 1998: 29.8; 1999: 42.4; 2000 Jan.-Sep.: 71.2
- Retail prices (end of period): 1997: ...; 1998: 49.9; 1999: 109.6
- Unemployment rate (in percent): 1996: 25.8; 1997: 25.1; 1998: 26.5; 1999: 27.3
- General government finances (percent of GDP)
- Revenue: 1996: 27.8
- Expenditure: 1996: 28.2
- Cash balance: 1996: -0.4
- Commitment balance: 1996: -2.7
- Money supply (end-of-period, percent change)
- M1: 1996: 68.8; 1997: 66.5; 1998: 17.1; 1999: 49.8; 2000 Jan.-Sep.: 60.1
- M2 8/: 1996: 15.4; 1997: 23.9; 1998: 69.4; 1999: 20.1; 2000 Jan.-Sep.: 38.2
- Balance of payments (in billions of U.S. dollars)
- Merchandise exports: 1996: 1.8; 1997: 2.4; 1998: 2.9; 1999: 1.5; 2000 Jan.-Sep.: 1.3
- Merchandise imports: 1996: 4.1; 1997: 4.8; 1998: 3.3; 1999: 2.8
- Trade balance: 1996: -2.3; 1997: -2.4; 1998: -2.0; 1999: -1.8; 2000 Jan.-Sep.: -1.5
- Current account balance: 1996: -1.3; 1997: -1.2; 1998: -1.0
- Foreign debt (year-end): 1996: 12.1
- (Includes arrears on unpaid imports of fuel and gas.)
- Gross official reserves: 1996: 0.4 (In months of imports of goods and services)
- Fund position (SDR millions, as of November 30, 2000)
- Quota (Eleventh Review): 467.7
- Overdue obligations: 101.1
Press Release No. 00/75, December 20, 2000 — International Monetary Fund