15. We consider that the
following raises questions of political importance, but make no
recommendation for its further consideration:-
H M TREASURY
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(17900)
5761/97
COM(97)24
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Proposal for a Council Decision to provide exceptional financial assistance to Georgia, Armenia and, if appropriate, Tajikistan.
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Legal base:
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Article 235; unanimity.
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Background
15.1 In 1991, the EU
extended a 1250 million ECU loan (£926.96 million)[36]
to the USSR for humanitarian purposes. On the break-up of the
USSR, the loan was divided among all the successor states. This
proposal arises from the fact that three of them (Georgia, Armenia
and Tajikistan) have been unable to make repayments of their share
by the due date. In July 1995[37],
we considered an unnumbered Explanatory Memorandum on the possibility
that the Commission might bring forward a proposal to convert
these loans into grants. We took the view that in these unique
circumstances a debate would serve no useful purpose. The Commission
has now put forward this proposal.
15.2 In his Explanatory
Memorandum dated 5 March 1997, the Chancellor of the Exchequer
(Mr Clarke) gives details of the arrears, which amount to a total
of 256 million ECU (£189.84 million: 128 million ECU for
Georgia, 61 million ECU for Armenia, and 68 million ECU for Tajikistan).
He explains that when the situation was discussed at the ECOFIN
Council in November 1995 it was agreed that
"... since it
would have been better to have given these countries grants in
the first place, the Commission should pursue a grant solution
so long as the money for this could be found from within existing
resources."
15.3 He tells us that
the Commission has found it very difficult to meet this remit.
Its suggestion in 1996 for a grant proposal requiring an increase
in the financial perspectives was not acceptable to Member States,
who "pressed [the Commission] repeatedly to find an alternative
solution".
The proposal
15.4 The proposal now
put forward would offer assistance, which the Commission says
is consistent with the present financial perspective, in the form
of:
"- long-term
loans for a maximum amount of 170 million ECU with a maximum maturity
of fifteen years;
-- straight
grants of up to 50 million ECU to be financed by the general budget."
The Commission proposes
that:
"The loan component
of this assistance would be funded through Community market borrowing
with a guarantee by the general budget. The beneficiary countries
would subsequently borrow from the Community. The borrowing and
lending operations would be perfectly matched and without any
commercial risk for the Community."
As for the grant component,
the Commission states that it cannot be financed within the present
financial constraints. It therefore proposes making the grants
in five equal instalments, by redeploying resources within the
existing limits.
15.5 Funds would initially
be made available only to Georgia and Armenia. Tajikistan would
become eligible (within the total limits quoted above) once an
IMF programme was in place: the Chancellor tells us that this
is not likely to happen during 1997.
The Government's view
15.6 The Chancellor says:
"The UK, along
with other Member States, does not think that this Commission
proposal has been fully thought through. Following a preliminary
discussion at ECOFIN on 17 February, the Presidency, supported
by Member States, proposed amendments which would increase the
grant element of the package to at least 128 million ECU. Ministers
have also asked for further work to be done by the Commission
and COREPER ... to identify resources from category 4 which will
enable Georgia and Armenia to substantially pay off their outstanding
obligations more quickly. The proposed 128 million ECU would
be disbursed in two 64 million ECU tranches, the first of which
could be disbursed immediately after the proposal had been approved
and all conditions met. The second tranche of 64 million ECU
could be disbursed about one year later using 1998 resources.
"The proposal
will be discussed in more detail at official level and once agreement
is reached the matter will be returned to the Council for approval.
The proposal is also under consideration by the European Parliament.
"The UK will
be pressing for the grant assistance to be increased to as close
to the full amount of the arrears as is possible within existing
budgetary ceilings. We believe this is the most acceptable solution
to the problem given the circumstances under which the loan was
originally agreed. At this stage in their transition, it would
be imprudent to burden these countries with further debts which
they are unlikely to be able to repay in the foreseeable future.
"If sufficient
grant financing could be identified to offer Georgia and Armenia
at least 128 million ECU over the next five years, the UK would
support that proposal and would press for a review at that stage
to see whether the countries were in a better position to service
their debts. However, if the Commission is unable to identify
sufficient grant resources, the UK will argue that the remaining
defaults should remain on the Loan Guarantee Fund."
Conclusion
15.7 The objective
of this proposal is clear: to find a way within the existing budgetary
ceilings of providing assistance to these three States. Although
we think that the proposal raises matters of political importance
we do not consider that the issues call for a debate, and clear
the document.
36 Converted at 31 January 1997 rate of £1 = 1.3485 ECU. Back
37 (16255) - ; see HC 70-xxiii (1994-95), paragraph 11 (12 July 1995). Back
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