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Yugoslavia: IMF Deal Boosts Hopes For Aid, Debt Write-Off

The International Monetary Fund has approved a $249 million standby loan to support the Yugoslav government's economic program. The stamp of approval from the IMF comes at a critical moment for Belgrade -- less than three weeks before an international donor conference aimed at helping Yugoslavia rebuild its shattered economy. RFE/RL correspondent Ron Synovitz reports that the standby agreement will encourage international aid and investment for Yugoslavia. It also clears the way for the country's crucial debt reduction talks with its foreign creditors.

Prague, 12 June 2001 (RFE/RL) -- The International Monetary Fund's announcement yesterday that it has approved a $249 million standby agreement with Yugoslavia marks a key step in Belgrade's reintegration into the global economy.

The standby agreement allows the immediate disbursement of a $62 million IMF loan to Yugoslavia. The loan program calls for three similar disbursements by the end of next March -- provided the government's economic program continues to pass quarterly reviews by the IMF.

But the decision has implications far beyond this initial financing. The IMF agreement also could help unlock a series of other international aid, loan, and investment programs for Yugoslavia.

Michael Taylor, an expert on Yugoslavia for the London-based Economist Intelligence Unit, tells RFE/RL that the timing of the IMF announcement also was significant because it came less than three weeks before an important international donor's conference in Brussels.

"It's a kind of seal of approval on the authorities [in Belgrade]. The IMF says the authorities are going in the right direction. They've already implemented reforms so far. There are more things they've got to do, but they're not saying that these reforms are impossible. If it had been the other way around -- if [the standby agreement] hadn't been approved -- I think that would have been a major reverse for Yugoslavia."

Taylor says he thinks the agreement will help Yugoslavia win aid and investment pledges from the European Commission and EU member states at the June 29 donor conference in Brussels. But he says it remains to be seen whether the U.S. government will participate.

Authorities in Belgrade hope to raise more than $1 billion in aid pledges. But that goal could be thwarted if Washington carries out its threat not to participate unless Yugoslavia demonstrates greater cooperation with the UN's war crimes tribunal at The Hague.

Secretary of State Colin Powell outlined the conditions for U.S. aid when he met last month in Washington with Yugoslav President Vojislav Kostunica.

"I indicated to [President Kostunica] that the donor's conference and our participation in the donor's conference was part of that conditioning. I look forward to seeing what else Yugoslavia will be doing in the weeks ahead."

Washington is seeking the transfer to The Hague of ousted Yugoslav President Slobodan Milosevic for trial on charges of genocide and crimes against humanity.

Yugoslav authorities arrested Milosevic more than two months ago (April 1), but so far have refused to transfer him to The Hague. They say they first want Milosevic to face a Yugoslav court on charges that he abused his power while in office.

Belgrade has also delayed the transfer of other indicted war crimes suspects while parliament debates a proposed law on cooperation with The Hague tribunal.

Serbian Justice Minister Vladan Batic said yesterday that he expects political talks on the issue to be resolved this week and a final decision on cooperation with the tribunal to be reached soon.

Serbian Prime Minister Zoran Djindjic said his government will accept whatever decision is made by the federal Yugoslav authorities.

But Yugoslav Prime Minister Zoran Zizic said in Prague yesterday that the federation could be destabilized if voters think war crime suspects are being transferred to The Hague. Zizic also complained about Washington's policy of tying economic aid to the issue.

A recently passed U.S. law obliges the U.S. government not to support funding for Yugoslavia unless Belgrade cooperates with the tribunal.

News reports suggest that Washington is not yet satisfied with Belgrade's cooperation. Reuters quotes unnamed IMF officials as saying that the United States -- the IMF's largest shareholder -- refused to support the decision to approve Yugoslavia's standby agreement.

Nevertheless, a U.S. delegate at the IMF reportedly praised the economic progress Belgrade has made since the fall of Milosevic eight months ago. That suggests cooperation with The Hague remains the main stumbling block to U.S. disbursements.

But the IMF's standby agreement does clear the way for other international funds to flow into Belgrade. They include project-specific financing from the World Bank and the European Investment Bank.

The standby agreement also allows Belgrade to move forward in debt restructuring talks, the most critical economic issuing facing Yugoslavia.

Yugoslavia owes some $5 billion to Western governments in the Paris Club and another $7 billion to commercial lenders in the London Club.

The total foreign debt figure of more than $12 billion is larger than the most optimistic forecasts for Yugoslavia's gross domestic product this year -- about $11 billion.

Willem Buiter, chief economist for the European Bank for Reconstruction and Development, says Yugoslavia's enormous debt burden is unbearable.

Buiter said last month that the only way out for Belgrade is to reach a substantial debt reduction deal with both the Paris Club and the London Club. He said he personally thinks that writing off two-thirds of the debt would be appropriate.

"There has to be serious write-downs. If ever anything was obvious, then that is. We're talking debt forgiveness. [Yugoslavia is] a country that is deeply indebted and simply cannot get out of that situation, given the state it finds itself in after 10 years of Milosevic and economic isolation."

Three months ago, the IMF said that it would not approve a standby agreement with Yugoslavia until it received assurances from members of the Paris Club that they were ready to restructure Yugoslavia's debts "on appropriate terms." So yesterday's announcement of the standby agreement suggests that Western governments have signaled that some kind of debt write-off for Yugoslavia is under consideration.