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IMF delivers warning as WB deal close

The International Monetary Fund (IMF) handed Slovakia a sour Christmas present as it launched a critical attack December 20 on the government's economic policies, just 24 hours after the World bank had said that a deal was close on the provision of a $300 million Enterprise and Financial Sector Adjustment Loan (EFSAL).
The loan itself is conditioned on Bratislava's acceptance of an IMF staff-monitoring programme - something Finance Minister Brigita Schmögnerová had originally dismissed nine months ago as 'only for under-developed countries'.


Finance Minister Brigita Schmögnerová's original reluctance over the IMF monitoring has faded.
photo: Vladimír Hák

The International Monetary Fund (IMF) handed Slovakia a sour Christmas present as it launched a critical attack December 20 on the government's economic policies, just 24 hours after the World bank had said that a deal was close on the provision of a $300 million Enterprise and Financial Sector Adjustment Loan (EFSAL).

The loan itself is conditioned on Bratislava's acceptance of an IMF staff-monitoring programme - something Finance Minister Brigita Schmögnerová had originally dismissed nine months ago as 'only for under-developed countries'.

In its report, carried in national media December 20, the international organisation was heavily critical of the government's budget deficit for 2001, passed December 13 at 37 billion crowns - 3.94% of GDP.

The international organisation said that the deficit should be reduced to 3.5% of GDP and that there were serious concerns that it could actually be pushed to 5% of GDP by year-end, pointing to possible expenditure pressures from highway construction and development programmes. Analysts have said that while these have not been included in the budget proper they could add an extra 9 billion to government expenditures by the end of 2001.

"The government must not consider the use of funds from privatisation on so-called development projects," the IMF said in its report. "It must also consider its plans for financing highways."

The IMF also warned the government that it had to make its plans for the banking sector, especially the privatisation of Investičná a rozvojová banka (IRB) and the role of the newly-created Office for Financial Markets, clearer.

The government has declined to comment on the report, but experts have said that the IMF's analysis has merely underlined the problems embedded in the budget.

"Using privatisation revenues for these [development] projects is not good. It would be much better to use them to repay old debts and start reforms in other areas, such as health care," said Ľudovít Odor, analyst at Československá obchodná banka (ČSOB).

He added that the concerns over expenditures, especially on highways, were well-founded but that increasing economic activity and growing GDP may not necessarily mean that even if expenditures go above the planned level in 2001 the deficit as a percentage of GDP would be hugely overshot.

"The problem really comes not with the expenditures themselves but with the way the statistics for the budget are worked out. All expenditures should have been included," he said.

The Finance Ministry said December 20 that it will prepare a detailed proposal for the staff-monitoring programme containing a set of macroeconomic and microeconomic targets which the government will have to fulfill under the auspices of the IMF monitoring programme, including fiscal and balance of payments deficits and deadlines for the privatisation of banks and natural monopolies. An IMF mission is expected to return to Slovakia in late January to review the proposal.

Speaking at a conference in Bratislava on globalisation December 19, Roger Grawe, regional director of the World Bank for Central and Eastern Europe, said that negoatiations on the EFSAL loan should be finished within the first two months of 2001.

"I see no problems in meeting the set [time] plan," he said.

Analysts had been critical of the Finance Ministry's initial reluctance to agree to the staff-monitored programme, saying that concerns over the effect its acceptance may have on the country's image were unfounded.

"There are unlikely to be any large negative effects to this and in fact there will probably be a lot of positives. If the financial markets and foreign investors know that there is a staff-monitoring programme here it may improve our image," said ČSOB's Odor.

"Knowing that there is this programme behind the [government] economic policy it could give more confidence to investors."

Finance Minister Schmögnerová has said that a combination of bonds, the World Bank loan and a loan from the European Bank for Reconstruction and Development (EBRD) should cover the 100 billion crown ($2 billion) costs for the bank restructuring.

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