YUGOSLAVIA WINS TIME IN PARIS CLUB REFINANCING
Yugoslavia has won breathing space from
its major official creditors through yesterday's Paris Club
refinancing agreement but it will take time for it to resolve
its economic crisis, economists at western embassies said.
    Yugoslav delegation chief Finance Minister Svetozar
Rikanovic said a refinancing was agreed for 475 mln dlrs of
debt falling due between May 16 this year and May 31, 1988.
    The agreement was the second multi-year Yugoslav debt
refinancing, based on a protocol signed last May which ushered
in "enhanced monitoring" of Yugoslavia's economy by the IMF.
    Western economists who follow Yugoslav financial affairs
said a similar deal would probably emerge from talks with
commercial creditors at the end of this month. But they said
the refinancings would only provide a breathing space, because
Yugoslavia has to repay 5.5 billion dlrs in 1987.
    And the country is still struggling to reverse a dramatic
decline in export earnings, which have fallen 12.5 pct so far
this year, continuing a downward spiral of the past 18 months.
    The Yugoslav hard currency debt has grown from 1.2 billion
dlrs in 1965 to stand at 19.7 billion dlrs at the end of 1986
and is one of the country's most dire economic problems.
    The debt began to snowball in the 1960s and 1970s due to an
excessive investment rate exceeding the growth of the Gross
Social Product and necessitating additional foreign borrowing.
    Rising international oil prices in the 1970s proved to be a
serious blow to the country's balance of payments.
    Deputy Prime Minister Milos Milosavljevic said this month
that Yugoslavia had repaid 640 mln dlrs of principal and 325
mln dlrs of interest so far this year.
    According to official Yugoslav figures, Yugoslavia repaid a
record 5.97 billion dlrs in capital and interest in 1986,
reducing overall indebtedness by 996 mln dlrs.
    Mikulic is trying to rein in rampant retail inflation of
almost 100 pct a year through price and incomes controls.
    Janez Zemljaric, also a Deputy Prime Minister, said
recently Yugoslavia expected a "definite measure of
understanding" from its 16 major western creditor nations.
    Western economists said Yugoslavia has had its way with the
Paris Club creditors but that not all creditors were satisfied
with its economic performance last year. They said the Paris
discussions were heated and emotional.
    "Economic factors were balanced by political realities," an
economist at one of the main embassies here said, but added
that creditors had no complaints regarding Yugoslavia's
repayment record because it had so far always repaid debts on
time.
    Yugoslavia has refinanced its debt regularly since 1983.
    In December 1985, it signed a deal with the International
Coordinating Committee of 600 commercial banks to refinance
maturities arising between January 1, 1985 and end-1988.
    It had signed bilateral refinancing agreements in March of
that year for maturities arising from January 1, 1985 to March
25, 1986, following an agreement in Paris on March 25, 1985.
    Government ministers told Reuters this month that
Yugoslavia had made too great an effort to repay its debts in
1986, at great cost to the economy, and that this was
regretted.
    Mikulic has said Yugoslavia is unlikely to follow Brazil's
lead and suspend its debt repayments "but we have understanding
for what that country did."
    Western economists said, however, that Mikulic's remarks,
taken with those of his ministers, could be a signal that some
problems were seen ahead in refinancing debt repayments.
    Before the Paris talks, some Yugoslav officials had hinted
that Yugoslavia could start to look to the Soviet Bloc for
financial support if Belgrade failed to secure the necessary
refinancing from western creditors.
    Sources close to the western creditors, however, said they
did not view the threat as serious.
 REUTER
