European Commission / World Bank

Chairmen’s Conclusions

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High level officials from 42 donor countries and 25 international organizations met in Brussels June 29, 2001, for a first Donors’ Conference for the Federal Republic of Yugoslavia (FRY).  Participants announced funding commitments of US$1.28/€1.50 billion to support the economic recovery and transition needs of FRY.  The needs of Kosovo have been treated separately.  This meeting was convened by the European Commission and the World Bank in the context of their overall donor coordination responsibilities for Southeast Europe.

The meeting was co-chaired by Ms. Catherine Day, Deputy Director General, European Commission, and Mr. Johannes Linn, Vice President, Europe and Central Asia Region, the World Bank.  Presentations were made, on behalf of the FRY delegation, by Mr. Miroljub Labus, FRY Deputy Prime Minister, Mr. Bozidar Djelic, Minister of Finance and Mr. Goran Pitic, Minister for Foreign Economic Relations of the Republic of Serbia, and Mr. Miroslav Ivanisevic, Minister of Finance, Mr. Darko Uskokovic, Minister of Economy Designate, and Mr. Ljubisa Krgovic, President of the Council of the Central Bank of the Republic of Montenegro.

Participants welcomed this first full-fledged Donors’ Pledging Conference for FRY.  They recognized the strong progress that has been made toward establishing and implementing an ambitious economic reform agenda by the authorities over the last six months.  They also noted important progress in implementing the program of urgent needs pledged by donors at the Donor Coordination Meeting in December.  They noted that a close partnership between FRY and the international community – involving decisive implementation of the reform agenda by the authorities and financial and technical assistance from donors – will be required to address FRY’s substantial economic challenges.

A number of speakers noted the substantial progress that had been made by FRY since December, including membership in international financial institutions.  Others stressed the importance of increased integration with European institutions, and in particular the Stabilization and Association Process.  The good cooperation between the Federal Government, Serbia and Montenegro in preparing for this conference was also noted, with the hope that this pragmatic and constructive cooperation continue in the context of a well functioning single economic space.

Most participants welcomed the government’s recent courageous actions regarding increased cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY).  Many donors also expressed their conviction that cooperation with the ICTY will continue.

Economic Policy Framework

The meeting heard presentations by the FRY, Serbian and Montenegrin authorities on the economic and political situation and challenges the country faces as it emerges from ten years of regional conflict, poor economic management and international isolation.  The authorities thanked the international community for the support provided thus far.  They noted that initial liberalization and stabilization measures taken earlier this year had been followed by development of a more substantial reform agenda.  The focus of the reform agenda is the establishment of prudent macroeconomic policies, transition to a market economy, and intensive efforts to regularize relations with international creditors and to mobilize external assistance.  More specifically, the reform agenda includes a strong emphasis on tax policy, price deregulation and increases in administered prices, rapid steps toward privatization of enterprises, bank restructuring and reform, and restructuring of the social safety net.  The authorities also flagged the importance of building institutions and strengthening the rule of law.  They noted, however, that even with a strong, rigorously pursued policy agenda, substantial support from donors and generous debt relief, the economic outlook would continue to remain difficult over the medium term.  They also noted the critical need for tangible support between now and year-end.

The meeting heard a presentation by the International Monetary Fund (IMF) on the economic situation.  The IMF representative confirmed that agreement had been reached with the authorities on a reform program that is being supported by a Stand-by Arrangement, approved by the IMF’s Board of Directors on June 11, 2001.  The IMF expressed concurrence with the financing needs presented to the Conference and indicated that this financing would be critical to successful implementation of the program.  Several participants noted that operations to meet these financing needs through resolving external arrears and providing balance of payments assistance have been finalized or are under preparation.  In addition, a number of participants spoke of the expectation of appropriate debt relief and restructuring, which would provide an essential share of additional financing.  They also stressed the crucial role of successful reforms in attracting the private capital inflows which should meet an increasing proportion of FRY’s financing requirements in the coming years.

Financing for Reconstruction and Recovery

The meeting heard presentations of the external financing needs under the Economic Recovery and Transition Program (ERTP) for 2001, which total US$1.25 billion.  It was further noted that for the medium-term it was expected that about US$3.9 billion would be needed to secure FRY’s recovery and transition.  These needs were set out in the background document for the Conference entitled “Breaking with the Past: The Path to Stability and Growth,” distributed in advance to conference participants (and placed on the joint EC/WB website www.seerecon.org). 

The authorities presented sectoral strategies and specific projects that complement and supplement the ERTP prepared by the World Bank and the European Commission. The FRY, Serbian and Montenegrin authorities stressed the need for substantial investments in infrastructure and more comprehensive social protection programs.  Speakers welcomed these reports, and noted their consistency with the broad Economic Recovery and Transition Program.  Participants expressed their appreciation for the clear and comprehensive statements of priorities presented by the FRY delegation and reiterated a firm commitment to support the reform agenda.

Participants endorsed the three key priorities of the ERTP – sustained fiscal management; private sector development; and a fiscally sound and equitable social safety net. Participants strongly endorsed the governments’ efforts to move quickly with enterprise privatisation in an open and transparent manner.  Speakers noted the importance of banking sector reform and restructuring but cautioned that decisions on rehabilitation of any banks should be taken on the basis of both technical feasibility but also FRY’s severe fiscal and financial constraints.  Several speakers noted the importance of structural reforms in social assistance programs to ensure the safety net covers those must vulnerable to the effects of the coming transition reforms.   Finally, a number of speakers endorsed the focus the government placed on improving transparency and the rule of law and emphasized the need, in this context, to build institutions and procedures in the judicial, fiscal and regulatory areas that would help to eradicate corruption and improve transparency.  Both the authorities and donors noted the evolution of their programs from emergency aid to development assistance.

In pledging support for the ERTP, most participants commended the authorities for rapid progress on the economic and structural reform agenda over the last several months.  A total of US$1.28/€1.50 billion was pledged.  Of this total, a significant portion was indicatively committed to quick-disbursing budget support.  Several donors also pledged additional sums for humanitarian assistance, some of which will likely be applicable to the ERTP upon further analysis.  While information on the planned division of pledged financial and technical support between the Republics was not yet provided, many participants stressed that this should be done in an equitable manner.  Several participants stated their intention to mobilize further assistance toward meeting FRY’s needs in the coming months.  The European Commission and the World Bank will continue to work with the FRY authorities to match needs and donor contributions.