Emergency Aid For The Neighbours

International financial institutions have put together emergency aid packages for Macedonia and Albania to help them cope with the economic disruption and enormous refugee influx from the war.

At a meeting in Paris earlier this month jointly chaired by the European Commission and World Bank, 45 countries and institutional donors pledged $252 million for Macedonia. The World Bank itself has approved $30 million of soft loans for Albania.

The World Bank has sited four main affects on the economies in the region: major strains on the social and economic infrastructure of all countries hosting refugees, in particular Macedonia and Albania (with 241,000 and 423,000 refugees, respectively); the disruption of trade, especially Bosnia and Herzegovina and Macedonia, for whom Yugoslavia is a major export market; the collapse of confidence of foreign investors (and tourists), resulting in risk premiums on capital market borrowings; and delays in key structural reforms and thus longer-term development. Some estimates have put the total cost of the war for Yugoslavia's neighbours at $2.4 billion.

The European Union has pledged support of 25 million Euro ($27 million) for Macedonia and will prepare additional macro-economic help. Substantial bilateral assistance has been pledged, and many donors have also promised to increase humanitarian aid.

The World Bank has submitted $50 million of soft loans for Macedonia to its board of directors and is preparing a $10 million Labour Redeployment Fund. The International Monetary Fund (IMF) expects to agree a standby credit of $32.6 million with Macedonia in the near future.

Before the war, Macedonia had been running a balance of payments deficit of about 10 percent of GDP. Since about two-thirds of the country's trade is either with Yugoslavia--with whom it has a free trade agreement--or transits Yugoslavia en route for third countries, this position is likely to deteriorate, especially if the war does not come to an early halt.

The World Bank hopes that further financial help will be forthcoming for Macedonia in the coming weeks to close an overall financing gap greater than $400 million. Donors agreed to meet again in the second half of 1999 to review the situation and assess the financial needs for next year.

The $30 million credit for Albania is designed to help Tirana maintain its economic reform programme and keep financing the country's public institutions, in light of the loss of revenues from the crisis and the increase in unbudgeted costs because of the refugee crisis. The Public Expenditure Support Programme, a special initiative, has been established to monitor public spending during the reform and ensure that the country's structural reform programme stays on course.

The credit has to be repaid in 40 years. Interest at a reduced rate of 0.75 per cent only begins to be levied after 10 years. Since Albania joined the World Bank in 1991, the country has benefited from $395.8 million of soft loans for 30 projects.

The World Bank has also awarded Albania two grants each worth $1 million from its Post-Conflict Fund and is preparing another $1 million grant for Macedonia.

Christopher Bennett is former director of the International Crisis Group in the Balkans and author of the book Yugoslavia's Bloody Collapse (Hurst, 1995).