CONFIDENTIAL
isage a financing gap for the year of around $1.3 bn.
12
Meanwhile, the Yugoslavs
have told the banks that they cannot meet principal repayments of some $245 mn due
betwn 30 June and 15 July and are declaring a 90-day moratorium; a bank team in
Belgrade in mid-July emphasised to the Yugoslavs the need to accept a further SBA.
29 Hungary appears to be moving towards an SBA. A second series of significant
price increases has been introduced, and a four-year stabilisation plan has been
announced. The budget deficit is to be eliminated, largely through depriving
loss-making companies of subsidies and introducing VAT, which is expected to raise
inflation to over 10% next year, together with a reform of prices and wages designed
to increase efficiency. The plan proposes increased foreign borrowing (to a total
stock of $8.5 bn net by end-1987) in the initial stage, but a decline in the debt
stock is envisaged in the early 1990s. The latest National Bank syndicated credit
remains under subscribed, despite being reduced in amount and priced more generously,
apparently because of Japanese resistance. Romania currently has a team in London
to discuss with the commercial banks a cut in interest rate margins, from the 1 3/8%
set in last year's re-rescheduling of the 1982-83 agreement. The banks are
believed to be sympathetic to some reduction, but wish in exchange to reduce the
length of the rescheduling period.
Southern Europe
30 Recent economic developments in Greece suggest that the targets contained in the
second year of the government's stabilisation programme may not be achieved.
Inflation in June rose to 17.1% year-on-year against a 10% end-year target, the
current account deficit for the first five months of the year reached $1.34 bn
against an annual target of $1.25 bn, and there is concern over the deteriorating
financial position of several public utilities. The Bank of Greece announced
measures to reform the banking system with effect from end-June, including the
transition to positive real interest rates and the creation of a single lending rate
for most borrowers. A 10 year Yen 20 bn ($138 mn) loan was raised from a
consortium of Japanese banks in June.
A routine Fund mission which left Turkey in
min-July expressed concern over economic prospects especiallly as regards inflation.
Sub-Saharan Africa
31 The first review of Nigeria's SBA remains uncompleted; the Fund has not
received news that the Nigerians have fulfilled the preliminary set of prior
conditions, and is increasingly concerned over developments. At the beginning of