ECONOMY

Bosnia-IMF loan talks

SARAJEVO – Bosnia and the International Monetary Fund have started negotiating a new 15-month, $50 million standby loan for the impoverished Balkan country, a senior IMF official said yesterday. Bosnian authorities initiated the talks after the IMF put plans for a more ambitious three-year program on hold, the IMF’s Bosnia director, Peter Doyle, told Reuters at the end of a three-week IMF mission to the country. «That’s what we can offer in these circumstances,» Doyle said, adding the talks could be completed by the end of 2004. The previous $100 million standby arrangement was completed in February. With foreign aid declining and the economy struggling to recover from the 1992-95 war, Bosnia is desperate for cash to plug holes in its budget. Bosnia’s complex postwar structure consists of a weak central government and largely autonomous Muslim-Croat and Serb halves. Lack of coordination Doyle said the IMF would consider approving the standby deal once authorities at different levels showed enough progress in developing a coordinated fiscal policy on their own instead waiting for the IMF to set targets. Bosnian authorities have succeeded in reducing the huge fiscal deficit to almost zero in recent years but tortuous negotiations were often required each year. The authorities now need to set the joint 2005 budget balance targets, he said, «instead of us doing it for them.» If, for example, authorities agreed on a balanced budget, they all need to run balanced budgets or to compensate a deficit in one budget with a surplus in another, Doyle said. Bosnia hopes to establish closer ties with the European Union and NATO but political issues, such as a lack of will in the country’s Serb Republic to arrest war crimes suspects, are blocking these ambitions. In addition to fiscal issues, authorities need to address the restructuring of the badly managed and indebted corporate sector, including a stalled privatization program. Three-year program Once the World Bank completed an analysis of the sector and proposed measures to deal with the problems, Bosnia and the IMF could start talking about a new three-year program. Doyle praised the authorities for making a lot of progress already, including on plans to sort out crippling internal debt, which includes unpaid wages and pensions, war damage and frozen hard-currency deposits. Bosnia’s debt stands at more than 200 percent of gross domestic product (GDP) of about 12 billion Bosnia marka ($7.5 billion) but write-offs, rescheduling and issuing of long-term bonds would trim it «to 10 percent on net present value terms.» The GDP should grow by 5 percent in 2004, after a drought kept it to 3.5 percent last year on the back of increased industrial production and livelier exports. The current account deficit has stopped shrinking and stands at 19 percent of GDP.