official statement on the Yugoslav economy, prior to
abduction of Milosevic.
[Posted 14 March 2003]
[ www.tenc.net ]
Copyright 2000 M2 Communications Ltd. *
Posted for educational use only
December 21, 2000
"IMF approves membership of Federal Republic of
Yugoslavia and US$ 151 in emergency post-conflict
The Executive Board of the
International Monetary Fund (IMF) today determined that
the Federal Republic of Yugoslavia (FRY) has fulfilled
the necessary conditions to succeed to the membership of
the former Socialist Federal Republic of Yugoslavia (SFRY)
in the IMF. The FRY's quota in the IMF will amount to SDR
467.7 million (about $604 million). With the succession
of the FRY, effective December 14, 1992,1 IMF membership
now totals 183 countries.
***The Board also approved a loan equivalent to SDR
116.9 million (about US$ 151 million) under the IMF's
policy on emergency post-conflict assistance in support
of a program to stabilize the FRY's economy and help
rebuild administrative capacities.
Of this amount, the authorities will draw SDR101.1
million (about US$ 130 million) to repay the bridge loans
they received to eliminate arrears with the IMF.*** [Emphasized
section is quoted in http://emperors-clothes.com/docs/fools.htm ]
Following the Executive Board discussion, Stanley
Fischer, First Deputy Managing Director and Acting
"Executive Directors welcomed FRY's succession to
membership in the Fund as an important step in its
reintegration into the world economy and the
international community, which will be of considerable
help to the country in addressing its difficult problems.
"The FRY authorities face the complicated task of
stabilizing and reviving a devastated economy after years
of regional conflicts, international isolation, and
economic mismanagement. Against the background of a sharp
acceleration of inflation in recent months, the
authorities have appropriately focused on the need to
prevent financial instability from adding to the
difficulty of this task.
Accordingly, the short-term macroeconomic strategy aims,
through limiting the growth of credit, to bring inflation
"Directors welcomed recent measures to streamline
the exchange system as well as the authorities' intention
to introduce a managed float with current account
convertibility by January 1, 2001, so as to allow the
exchange rate to better reflect market conditions.
"Strengthening the underlying fiscal position and
preventing a further accumulation of expenditure arrears
will be critical in attaining and preserving financial
stability. This will require prioritization of
expenditures, improvements in tax administration, and a
widening of the tax base by eliminating tax exemptions,
as well as bringing the gray economy into the tax net.
"Directors welcomed the authorities' intention to
adopt a comprehensive program of stabilization and reform
that could be supported by the Fund under an upper credit
tranche program. This will need to be preceded by
progress in stabilizing the economy and in strengthening
the institutional and administrative capacities, under
the current program.
Technical assistance is expected to make a significant
contribution to this process.
"Achievement of a viable balance of payments
position will be a challenging task. In addition to
prudent macroeconomic policies and bold structural
reforms, it will require a restructuring of FRY's
external debt on appropriate terms, including early
resolution of arrears to the World Bank, and substantial
support, following the regularization of arrears, from
external donors and creditors," Mr. Fischer said.
Ten years of regional conflicts, international isolation,
and economic mismanagement have left a dire legacy in the
Federal Republic of Yugoslavia. Output, which has only
partly recovered from the economic devastation caused by
the Kosovo war, stands at about 40 percent of its 1989
Unemployment amounts to one half of the labor force. The
country's infrastructure is in disrepair following years
of inadequate investment and the damage inflicted during
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, and with declining output, the ratio of
external debt to GDP has risen to about 140 percent in
the absence of debt servicing.
The year 2000 has seen only modest output recovery and
high inflation. GDP is projected to expand by 10 percent
in 2000, thus only partly recovering from the economic
effects of the Kosovo war. Agricultural output is
expected to decline by 17 percent owing to a severe
drought. Following the liberalization of prices by the
outgoing Serbia government this October, retail prices
rose by a cumulative 48 percent in October-November,
bringing the 12-month retail price inflation in November
to 110 percent. This has severely eroded real wages and
pensions which presently average the equivalent of DM 90
per month converted at parallel market rates.
The key source of inflationary pressures has been the
monetary financing of quasi-fiscal deficits of state-owned
Cash fiscal deficits have been kept at low levels through
a compression of real spending and accumulation of
General government revenue has declined in real terms
over the past two years by a cumulative 40 percent. In
recent months, the sharp acceleration of inflation has
resulted in a further decline in real revenue, and thus,
in real expenditure. The fiscal deficit on an accrual
basis has been higher-at least 3 percent of GDP, even
excluding the servicing of government debt of over 100
percent of GDP.
The short-term stabilization program, which will focus on
the period through end-March 2001, will pave the way for
a comprehensive economic program to be formulated in
The stabilization program calls for tight fiscal and
monetary policies and the introduction of a managed float
with current account convertibility. 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.
There is an urgent need to implement wide-ranging fiscal
reforms and undertake comprehensive restructuring of the
enterprise and banking sectors. Both these sectors
continue to be affected by former Yugoslavia's heritage
of "social ownership", under which firms were
owned collectively by their workers and governance was
weak and highly politicized.
Several privatization initiatives since 1992 have
accomplished very little as they have failed to challenge
the authority of managements and employees in social
enterprises, and the banking system is insolvent and
unable to perform its intermediation functions.
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