News Brief No. 01/46

News Brief: IMF Completes Final Bosnia and Herzegovina Reviews, Approves US$18 Million Credit Tranche

May 25, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the final-sixth and seventh-reviews of Bosnia and Herzegovina's economic program under the stand-by credit. The Board also approved the disbursement of SDR 14 million (about US$18 million), corresponding to the last two tranches under the credit.

The stand-by credit was originally approved on May 29, 1998, for a total amount of SDR 94.42 million (about US$119 million; see Press Release 98/19). Since then, it has been extended three times and is set to expire on May 28, 2001.

Following the Executive Board discussion on Bosnia and Herzegovina, Stanley Fischer, First Deputy Managing Director and Acting Chairman, said:

"In view of the policies that Bosnia and Herzegovina has implemented under its program with the IMF, the Executive Board has today released the last two tranches under the Stand-By Arrangement, completed the last two reviews, and waived the performance criterion on domestic borrowing. Bosnia and Herzegovina has made considerable progress towards macroeconomic stability. Inflation is low and the convertible marka has gained wide acceptance. Structural reform is proceeding, and the reform of the sales tax and replacement of the payments bureaus with a modern clearing system in early 2001 were important steps toward the establishment of an environment conducive to private sector development. However, despite several years of rapid economic growth since 1996, the level of real output remains approximately half of the prewar level and unemployment is still high.

"Continued macroeconomic stability, underpinned by strict implementation of the currency board arrangement, the establishment of modern treasuries to strengthen budgetary control, strengthened tax collection, and avoidance of arrears, is a prerequisite for sustained growth. To accomplish this, the transition to a market oriented economy and further structural reforms to attract foreign investment are essential. These include privatizing large state owned enterprises including banks, improving bank supervision, and other measures to establish a stable and transparent business environment.

"Looking forward, the Fund stands ready to support continued reform and stabilization in Bosnia and Herzegovina," Mr. Fischer said.