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Another EFSAL loan barrier falls as MoF begins IMF talks

The government moved a step nearer to securing vital finance for the banking and corporate sector September 13 when Finance Minister Brigita Schmögnerová and World Bank (WB) Vice-President for External Relations Mats Karlsson met for talks on the provision of a $400 million EFSAL (Enterprise and Financial Sector Adjustment Loan) credit to Slovakia.
The meeting came only a day after cabinet gave the final go-ahead to begin talks with the International Monetary Fund (IMF) on a controversial part of the WB's loan conditions - Slovakia's taking a staff-monitoring programme from the IMF. The IMF mission currently monitors Slovakia's economic results only bi-annually, but the implementation of the programme would mean at least two extra monitoring sessions per year.

The government moved a step nearer to securing vital finance for the banking and corporate sector September 13 when Finance Minister Brigita Schmögnerová and World Bank (WB) Vice-President for External Relations Mats Karlsson met for talks on the provision of a $400 million EFSAL (Enterprise and Financial Sector Adjustment Loan) credit to Slovakia.

The meeting came only a day after cabinet gave the final go-ahead to begin talks with the International Monetary Fund (IMF) on a controversial part of the WB's loan conditions - Slovakia's taking a staff-monitoring programme from the IMF. The IMF mission currently monitors Slovakia's economic results only bi-annually, but the implementation of the programme would mean at least two extra monitoring sessions per year.

Finance Minister Schmögnerová had been initially reluctant to take the special programme, claiming that it was offered only to countries with huge political instability and economic shortcomings. Rejecting the advice of Deputy Prime Minister for the Economy Ivan Mikloš, she argued that by agreeing to the programme, the economy's international image would be harmed and that international ratings agencies would take a dim view of the move.

However, Schmögnerová later agreed to the programme, paving the way for the cabinet agreement.

Under the monitoring programme, a detailed quarterly macroeconomic framework for the budget, monetary aggregates and balance of payments will be prepared for the duration of the programme, a term yet to be decided.

The loan from the World Bank, which the state could start to draw early next year, will be used to help finance part of the 100 billion crown ($2 billion) cost of banking sector restructuring.

World Bank officials have welcomed the government's acceptance of the programme, claiming that the EFSAL loan is vital to the health of the Slovak economy, particularly the corporate and banking sectors.

In reports both the IMF and World Bank have praised Slovakia's progress with reforms, but warned that this must be continued, with particular attention needed for the business and banking sectors.

"We are extremely happy with this outcome," said Anton Marcinčin, consultant for the World Bank in Slovakia. "But the whole loan is not just about the money, there is a wider package here.

"It is of course important that the money will help the state bear the cost of bank restructuring, but the preparatory work and technical help that can now be given in the banking and corporate spheres is also important."

Marcinčin said that at this point it seemed likely that the EFSAL loan to Slovakia would come in three installments, each of which would have specific conditions attached that effectively kept pressure on the government to continue with economic restructuring.

He added: "It is n secret that the World Bank is, to a large extent, very happy with the progress that Slovakia is making with reforms We hope this can continue."

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