Yugoslavia's debt 'barrier to aid'

PARIS, France -- Yugoslavia's massive debt stands in the way of desperately needed aid, new President Vojislav Kostunica has been warned.

Officials from the Group of Seven richest nations and organisations including the European Bank for Reconstruction and Development (EBRD), the World Bank, the European Investment Bank (EIB) and European Union Commission were meeting on Tuesday for talks following the end of the regime of former Yugoslav President Slobodan Milosevic.

The brief gathering was not expected to bring about pledges of fresh aid for the country, but to encourage Kostunica as he attempts to end Yugoslavia's international isolation.

The meeting was also convened to reassure Yugoslavia's neighbours that improved relations with Belgrade would not deprive them of international funding.

Kostunica, who took office a month ago, has moved swiftly to restore international ties and Yugoslavia has since been admitted to the United Nations, the European Union-backed Stability Pact for the Balkans and the Organization for Security and Co-operation in Europe (OSCE.)

The EU has already promised an emergency package of 200 million euros ($166 million) to help Serbia through the coming winter.

But delegates arriving in Paris for Tuesday's meeting warned that Yugoslavia's huge debt arrears represented a hurdle to releasing desperately needed funds for the republic.

Belgrade owes the World Bank alone some $1.7 billion and senior officials from the organisation said this week that they would not issue new credit lines until they had reached a restructuring agreement with the new Yugoslav authorities.

But Yugoslavia is not in debt to the EBRD, and the organisation's president, Jean Lemierre, said he expected Belgrade to join by the end of the year, opening the way to the rapid implementation of funding projects.

One of the earliest programmes will be direct assistance to small and medium-sized companies, said Lemierre, who declined to speculate how much cash would be made available.

"All we can say is that we won't have problems funding projects," he said.

After years of regional conflict and international isolation and sanctions the Yugoslavia's fuel and food reserves are exhausted and basic infrastructure in a bad state of repair.

The country is in default on virtually all its external debt -- estimated at between $12-14 billion -- while its foreign reserves in October stood at a paltry $385 million.

The Paris meeting was being held under the auspices of the so-called High Level Steering Group, set up during the Kosovo war to oversee the work of the European Commission and World Bank in coordinating aid to the Balkans.

Finance officials said international aid donors would meet in Brussels on December 12 to discuss specific Belgrade requests for assistance.

Reuters contributed to this report.

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Federal Republic of Yugoslavia
European Union
European Bank for Reconstruction and Development
The World Bank
European Investment Bank

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