This paper summarizes recent developments in the relationships between the IMF, member countries, and commercial banks, with specific reference to five European countries. The paper also highlights that Better assessment of trends in the market and of the attitude of commercial banks toward borrowing countries. These would include: a deeper analysis of capital flows, with special attention to interbank transactions; an improvement in the collection of statistical data and additional efforts made by member countries to release adequate information; and a further examination of the usefulness of setting up in the Fund an internal country risk assessment statistical model. The report also suggests that there should be adequate Fund involvement in rescheduling negotiations through discussions with Paris Club members on rescheduling patterns and possibly through an elaboration of guidelines for rescheduling bank claims; appropriate action to cope with liquidity crises; and adequate international cooperation among central banks acting as lenders of last resort.
The rapid increase in the external debt of nonindustrial countries since 1973–74 and the corresponding rapid growth in cross-border claims of commercial banks have led to a vulnerable structure of international debt. The risks inherent in the system had been pointed out by observers for several years. These risks materialized in 1982, when the persistence of high positive real interest rates, the deepening recession in industrial countries, and political tensions in several regional areas combined to induce a series of adverse developments:
During the 20 years from 1960 to 1980, gross external claims of banks in the BIS reporting area4 (including cross-border interbank claims) grew at an average annual rate of about 25 percent. As of December 31, 1983, they amounted to $2,024 billion ($1,085 billion excluding redepositing among reporting banks). Banks located in the United States, the United Kingdom, and offshore centers play a leading role in the expansion of gross external assets, and the U.S. dollar remains the predominant currency, representing almost three fourths of total claims (Table 1).
As a counterpart to the rapid increase in international bank lending, the external debt of borrowing countries, and especially that of non-oil developing countries, has risen dramatically in recent years. At the end of 1982, the total reported external debt of non-oil developing countries was $633 billion (plus about $100 billion of unreported short-term debt, mainly to suppliers and parent companies of subsidiaries), compared with about $130 billion at the end of 1973. To be sure, there has been a rapid growth of exports, and the ratio of total external debt to exports has not increased as rapidly as the ratio of total debt to gross domestic product. Since the origin of borrowed funds has shifted during the period from official sources to private sources31 with market-related variable interest rates and since interest rates have increased sharply, there has been a rapid deterioration in debt service ratios (the ratio of interest plus amortization to exports of goods and services standing at 23 percent in 1982 against 16 percent in 1973) and of the ratio of interest to current account receipts (11 percent in 1981 against 5.5 percent in 1970).32 Repayment obligations will thus represent a growing proportion of gross external financing requirements, amounting to more than one half of the gross external financing requirements of non-oil developing countries in the next five years. These obligations amounted to $200 million during the period 1977–81 (against $280 million in net borrowing requirements) and might reach $400 million during the period 1982–86.
The fifth review of Serbia’s economic performance under the program supported by a Stand-By Arrangement (SBA) is discussed. It helps in addressing the spillovers from the global financial crisis while establishing a moderate economic recovery. An accelerated pace of structural reforms will help to strengthen medium-term growth and employment prospects, supported by the resumption of adequate capital inflows, in particular through foreign direct investment. A strong commitment to the implementation of structural reforms will strengthen medium-term growth and employment prospects.
Serbia’s Second Review under the Stand-By Arrangement and requests for Waiver of Performance Criterion are examined. The contraction in GDP has been limited relative to regional comparators, but absorption and external trade have fallen faster than expected. Foreign parent banks have rolled over their external exposure vis-à-vis Serbia, as agreed under the Bank Coordination Initiative. Rapidly rising nonperforming loans and uncertainty over real sector prospects have crimped new credit, notwithstanding government efforts to support bank lending through interest subsidies and loan guarantees.
The global financial crisis unmasked Serbia’s unsustainable pre-crisis growth model. Looking back, the Stand-By Arrangement (SBA) provided effective insurance against a financial meltdown, initiated the needed re-balancing of the economy, but could not prevent large job losses. Looking ahead, the transition to a more sustainable growth model remains incomplete and fragile. The export-led recovery is expected to continue picking up steam, but labor market conditions will remain difficult. The current account deficit is expected to remain relatively high, requiring significant capital inflows to maintain external balance.
This 2010 Article IV Consultation highlights that the authorities’ adjustment program has contributed to limiting the fallout of the global crisis on Serbia. Although the output slump has been limited relative to regional peers, the decline in domestic demand has been significant, resulting in a strong external adjustment. The outlook for 2010 points to a slow but balanced recovery. The pickup in growth will likely be moderate, reflecting slow trading-partner recovery, protracted corporate deleveraging, nominal freezes in public wages and pensions, and lagging labor market adjustment.
This Technical Note analyzes the insurance sector in Serbia. The Serbian insurance sector remains small and underdeveloped. Over the last three years, the market experienced little growth in real terms mainly owing to weak economic growth, fierce price competition among the growing number of players, and premium payment difficulties in the industrial sector, which forced many corporate policyholders to cancel their insurance. The paper highlights that the Serbian insurance sector is well capitalized relative to its overall net risk exposure.
This Technical Note assesses Corporate and Household Debt Restructuring in Serbia. As of June 2009, nonperforming loans (NPLs) in the banking system constituted 16.5 percent of total loans, owing primarily to the corporate sector. This marks a significant increase over 2008 and, despite a strongly capitalized banking system, underscores a troubling trend. In the current recessionary environment, more businesses are likely to encounter financial distress owing to a decline in demand, shrinking revenues, and untimely payments from their own debtors and customers.