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Federal Republic of Yugoslavia
>> Regional Overview >> Federal Republic of Yugoslavia Overview Activity Data Sheet
PROGRAM: Federal Republic of Yugoslavia (Republics of Serbia and Montenegro)
TITLE & NUMBER: Accelerated Development and Growth of Private Enterprise, 169-013 and 170-013
STATUS: Continuing
PROPOSED FY 2001 OBLIGATION AND FUNDING SOURCE:
Montenegro: $17,000,000 AEEB
Serbia: $13,500,000
PROPOSED FY 2002 OBLIGATION AND FUNDING SOURCE: $50,000,000
INITIAL OBLIGATION: FY 1997 ESTIMATED COMPLETION DATE: FY 2004Summary: This Strategic Objective promotes broad economic policy reform measures and private sector development that will lay the foundation for sustainable future development and support the nascent private sector necessary to make representational democracy work. Until the implications of the Republic of Montenegro's April 22 parliamentary elections and a possible future referendum on complete independence are clear, activities in this area in that republic and in the Republic of Serbia will continue to be implemented in parallel.
Ongoing USAID economic restructuring assistance to Montenegro, complemented by balance of payments support provided under the Special Initiatives objective (SO 4.1), will continue to focus on macroeconomic and structural adjustment measures, privatization, and private sector development that will encourage investment and support a more democratic form of governance.
Assistance initiated in FY 2001 on an emergency and urgent basis under Special Initiatives will be continued and expanded under this Strategic Objective with FY 2002 funds. That assistance consists of support to the National Bank of Yugoslavia (NBY) and, through the Department of Treasury, advice in financial crimes investigation training, budget and tax reform and bank restructuring. Similarly, assistance will continue in FY 2002 to restructure the external debt of the former Socialist Federal Republic of Yugoslavia, to implement a market-oriented commercial law framework and international accounting standards (IAS), and to implement measures required to prepare for accession to the World Trade Organization (WTO). USAID support to the Governments of the FRY and the Republic of Serbia under this Strategic Objective will begin in FY 2001. That support will focus on small and medium enterprise credit and business support, and, through the U.S. Department of Agriculture (USDA), agricultural policy and regulatory assistance that will be continued and expanded with FY 2002 AEEB resources. A microenterprise credit facility also is scheduled to receive FY 2001 funds.
Program Categories include fiscal, banking, commercial law, and accounting reform, trade and investment regimes, and small and medium enterprise credit and support. Once the World Bank Economic Report is completed in April 2001, USAID will utilize the report to define the long-term scope of its policy reform efforts and to coordinate with other donors.
Key Results: The principal anticipated near-term results are: (1) a well defined roadmap for the FRY which details the measures that must be taken to stabilize monetary and fiscal imbalances and to join the WTO; (2) improved capacity to compete in international markets demonstrated by increasing exports; (3) a functioning bank supervision system as indicated by the number of bank audits and banks which do not have a liquidity crisis; and (4) a stronger basis for private sector development and employment creation as indicated by financial and support mechanisms for small and medium enterprises.
Performance and Prospects: The economy is in crisis. In Serbia, inflation increased by over 100 percent over the last year. The FRY's hard currency reserves are minimal. The largest and most urgent economic challenge faced by the new government is revitalizing the economy and creating new job opportunities. Unemployment is estimated at 50 percent, with high underemployment. Wages average about $39 per month. Serious fiscal imbalances have led to growing payments arrears. The banking system is insolvent, all six large banks suffer liquidity problems, and bank supervision is underdeveloped and weak. Anti-money-laundering legislation does not exist. The commercial law and accounting frameworks are not consistent with a market economy and impede private sector development and foreign investment. Interventionist and market-distorting policies inhibit producers and processors. A comprehensive economic reform package is required to help develop the basic building blocks of a market economy. Budget imbalances and criminal activity in the economy must be reduced. Fiscal discipline, commercially based banking, foreign direct investment and incentives for a more vibrant, competitive private sector must be promoted.
Dependent for decades on large external subsidies, Montenegro's dependence on the United States and the European Union for budget support and basic food commodities increased with the Serbian trade blockade early last year. Yet, the economy seemed to stabilize by mid-summer of 2000 and even began showing signs of modest growth after steep declines in productivity during the first part of the year. Montenegro's inflation decreased to less than 2% per month by mid-summer.
Montenegro's gains in economic activity were, however, achieved in part at the cost of a fiscal deterioration and a widening external trade deficit. The Montenegrin leadership's decision, in part to shore up the coalition's popular support, to increase the minimum wage early in 2000 had the effect of reducing the republic's competitiveness and increasing salary and pension obligations. Montenegro now faces a fiscal crisis in the form of a rapidly escalating deficit at a time when revenues are only 40% of planned levels.
The transition to a Deutsche Mark (DM) based economy was nearly completed during the year as Montenegro made important strides in separating its economy and macroeconomic policy from those of the Governments of Serbia and the FRY. The adoption of the legal and institutional framework in support of the Montenegrin banking system occurred in early November 2000. The major challenge remaining is to develop the capacity of the institutions in charge of macroeconomic and financial policy and management to effectively carry out the functions entrusted to them.
The microenterprise sector is an important source of income and employment generation, and a safety net for the unemployed and disadvantaged. In the face of massive unemployment and increasing poverty in Serbia, USAID will increase the amount of credit available to the smallest enterprises to help those hardest hit by the current economic malaise through the establishment of a microenterprise finance facility similar to that in Montenegro with $2.0 million in FY 2001 funding. Eligible borrowers will consist of private micro-entrepreneurs whose loan needs average $2,000. The credit facility will use sound credit practices to ensure sustainability.
A $1.0 million Inter-Agency (632b) Agreement will be entered into with USDA in FY 2001 for policy and regulatory assistance focused on policy reform in the agriculture sector. That assistance will help agriculture policy makers in redefining the government's role in supporting agricultural markets; in developing and harmonizing regulatory frameworks for food safety, grades and standards; in improving veterinary and plant health inspection and border control; and in improving policies and programs to facilitate integration into international markets. A $2.0 million 632(a) transfer to USDA in FY 2002 will continue that support.
USAID intends to obligate $12.0 million in FY 2001 and $15.0 million in FY 2002 for business support to assist the establishment and growth of small and medium enterprises. Businesses will be assisted to improve marketing, financial management and operational capabilities, to develop new trade and investment linkages, and to undertake turnaround and recovery activities. A mechanism for quick disbursing loans will be developed that operates under commercial criteria of sound risk assessment and internal control management procedures.
Advancement of broad policy reform for sustainable economic growth and the emergence of a viable private sector will be supported with $35.0 million in FY 2002 funding. Support will be continued for policy and banking sector reform and audits, and accession to the World Trade Organization including commercial law and competitiveness. Policy reform assistance to the Governments of the FRY and Serbia will expand to other areas as determined by needs defined in the World Bank Economic Report and will be initiated with emergency FY 2001 funding under the Special Initiatives objective. In Montenegro, policy reform assistance will be supported with $17.0 million in FY 2001 funding under this objective and complemented with balance of payments support provided under the Special Initiatives objective. USAID managed banking and policy reform efforts with the Governments of the FRY and Serbia will be complemented by $7.0 million in FY 2002 funding transferred to Treasury for technical assistance to increase the financial crime investigation capability of government institutions, and to implement tax and budget reforms.
Beneficiaries: The entire population of the FRY will benefit directly from macroeconmic stability, a better-managed and more transparent budget and tax system, a sound banking system and more competitive private enterprise. Unemployed, underemployed and economically vulnerable people especially will benefit from the growth of small and medium enterprises. The greater economic stability and economic growth in the FRY also will contribute to easing economic and social tensions in the region.
Possible Adjustments to Plans: None anticipated.
Other Donor Programs: The International Monetary Fund and World Bank are providing policy and advisory support. The European Union, European Bank for Reconstruction and Development, and bilateral donors will provide support in key areas such as investigating the advisability of a Value Added Tax and support for small business development and credit. Germany's central bank, the Bundesbank, plans to provide assistance in certain aspects of bank supervision and problem bank resolution.
Principal Contractors, Grantees, or Agencies: Price Waterhouse, Opportunity International, Land O'Lakes, Firm Level Assistance Group, and the Center for International Private Enterprise are important partners for activities in Montenegro. Competitive procedures will be followed in selecting partners for activities in the FRY and Serbia.
Selected Performance Measures: Appropriate indicators are being developed.
U.S. Financing
(In thousands of dollars)
Accelerated Development and Growth of Private Enterprise, 170-013
Obligations Expenditures Unliquidated Through September 30, 1999 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 500 SEED 0 SEED 500 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Fiscal Year 2000 0 DA 0 DA 0 CSD 0 CSD 3,000 ESF 0 ESF 0 SEED 200 SEED 0 FSA 0 FSA 0 DFA 0 DFA Through September 30, 2000 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 3,000 ESF 0 ESF 3,000 ESF 500 SEED 200 SEED 300 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Prior Year Unobligated Funds 0 DA 0 CSD 0 ESF 0 SEED 0 FSA 0 DFA Planned Fiscal Year 2001 NOA 0 DA 0 CSD 0 ESF 17,000 SEED 0 FSA 0 DFA Total Planned Fiscal Year 2001 0 DA 0 CSD 0 ESF 17,000 SEED 0 FSA 0 DFA Future Obligations Est. Total Cost Proposed Fiscal Year 2002 NOA 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 3,000 ESF 50,000 SEED 1/ 0 SEED 67,500 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA 1/ Total Budget breakout for Serbia and Montenegro to be determined.
Accelerated Development and Growth of Private Enterprise, 169-013
Obligations Expenditures Unliquidated Through September 30, 1999 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 410 SEED 410 SEED 0 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Fiscal Year 2000 0 DA 0 DA 0 CSD 0 CSD 0 ESF 0 ESF 0 SEED 0 SEED 0 FSA 0 FSA 0 DFA 0 DFA Through September 30, 2000 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 410 SEED 410 SEED 0 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Prior Year Unobligated Funds 0 DA 0 CSD 0 ESF 0 SEED 0 FSA 0 DFA Planned Fiscal Year 2001 NOA 0 DA 0 CSD 0 ESF 13,500 SEED 0 FSA 0 DFA Total Planned Fiscal Year 2001 0 DA 0 CSD 0 ESF 13,500 SEED 0 FSA 0 DFA Future Obligations Est. Total Cost Proposed Fiscal Year 2002 NOA 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 0 ESF 50,000 SEED 1/ 0 SEED 63,910 SEED 0 FSA 0 FSA 50,000 FSA 0 DFA 0 DFA 0 DFA 1/ Total Budget breakout for Serbia and Montenegro to be determined.
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Last Updated on: May 29, 2002 |
