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Macro-financial assistance: Commission proposes €100 million to Armenia and €46 million for Georgia

European Commission - IP/09/1535   16/10/2009

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IP/09/1535

Brussels, 16 October 2009

Macro-financial assistance: Commission proposes €100 million to Armenia and €46 million for Georgia

The European Commission proposed to the Council to provide macro-financial assistance (MFA) to Armenia in the form of a loan of up to €65 million and a grant of up to €35 million. Separately, it proposed €46 million in grants to Georgia, also under the European Union's MFA programme. The assistance will support the adjustment programme agreed between Armenia and the International Monetary Fund to help the country through the global crisis. In the case of Georgia, the assistance is part of an EU package of up to €500 million to support Georgia's economic recovery in the aftermath of the conflict with Russia, and will support the adjustment programme agreed with the IMF.

Georgia

The Commission has adopted a draft decision recommending to the Council to provide macro-financial assistance (MFA) in the form of a grant of €46 million to Georgia. The assistance supports and is conditional on the respect of the adjustment programme agreed between Georgia and the IMF, and complements the latter's financial assistance to the country. The grant would be provided in two instalments, tentatively in the fourth quarter of 2009 and first half of 2010. This assistance is part of a comprehensive EU package of up to €500 million to support Georgia's economic recovery pledged at the October 2008 Donor Conference in the aftermath of the August 2008 conflict with Russia (see MEMO/08/626 ). The MFA will contribute to covering Georgia's external financing needs in 2009-2010.

The military conflict with Russia and the impact of the global crisis have severely affected the economic situation in Georgia, which had previously enjoyed a strong growth performance. The real GDP is expected to decline by 4% in 2009, about the same as the EU average.

Armenia

Separately, the Commission also recommended to the Council to provide macro-financial assistance in the form of a loan of €65 million and a grant of €35 million to Armenia. The assistance would also be provided in two instalments, tentatively in the first and fourth quarter of 2010. It would also support and be conditional on the respect of the adjustment programme agreed with the IMF. The proposed financing will complement the financial resources provided by the EU, in the form of budget support programmes financed under the European Neighbourhood and Partnership Instrument.

The global economic crisis started affecting Armenia in the last quarter of 2008. As the country's economic activity and external situation deteriorated, Armenia agreed, in March 2009, a USD 540 million Stand-By Arrangement programme with the IMF. In the light of a substantial worsening of the economic conditions, the IMF decided in June 2009 to approve an increase of its resources by about USD 250 million. Armenia's GDP is foreseen to decrease by 15.6% in 2009, the budget deficit to reach 7.5% of GDP and the current account deficit to reach 13.7% of GDP. A slow recovery is expected in 2010.

Other international donors like the World Bank and the Asian Development Bank support Armenia's economic adjustment effort along with other bilateral donors.

Background on MFA

MFA is an exceptional EU crisis response instrument available to EU neighbours. It is conditional and complements assistance by the IMF. The IMF capacity to help countries with financial difficulties is being considerably increased by EU Member States and other IMF members. The EU recently committed to provide €125 billion to the IMF, which is 35% of the increase in the IMF's lending capacity from USD 250 billion to USD 750 billion.

MFA loans are financed through EU borrowings on the market. The money is lent with similar financial terms. MFA grants are financed under the EU's budget. The European Parliament is consulted.

Earlier this month, the Commission also proposed to grant a similar MFA loan of €200 million to Serbia ( IP/09/1475 ).

For more information on past MFA assistance, including annual reports go to:

http://ec.europa.eu/economy_finance/financial_operation_instruments/market_operations398_en.htm


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