Spain threatens EU loan

Date: 07/03/1996

By Tim Jones

THE Spanish government is threatening to block a loan to a small former Soviet republic unless the rest of the EU agrees to boost lending in Latin America.

In his last stand at next week's meeting of EU finance ministers, outgoing Socialist Minister Pedro Solbes will push for a rise in the annual loan guarantee ceiling for the European Investment Bank in Asia and Latin America from 250 million to 410 million ecu.

Unless this is done, his officials have intimated, a 15-million-ecu balance of payments loan to Moldova will be under threat.

This is the latest in a bout of disagreements over the EIB's increasing role in lending to countries outside the EU as a collection of loan 'envelopes' come up for renewal at the beginning of 1997.

Finance ministers will have to decide then whether to renew or increase guaranteed lending to strategic areas such as North Africa, the Middle East and Eastern Europe.

For Asia and Latin America, the decision must be taken earlier as the lending package agreed in February 1993, which allows the EIB to finance capital investment in these regions up to a ceiling of 750 million ecu over a period of three years, expired last month.

“I think there is a very good chance it will be resolved because it is urgent,” said a diplomat.

“Ministers will have to take a genuine decision at this meeting, but the two sides are still far apart.”

In its proposal for renewing the Asian and Latin American envelope, the Commission has suggested that the ceiling should be raised to 410 million ecu, but only starting next year.

This will mean that all the renewals, including the big ticket items such as the 3-billion-ecu loan guarantee arrangement for Eastern Europe, will be carried out at the same time.

“Everyone agrees with bunching them together but raising the ceiling by what amounts to 64&percent; at this stage is not popular, except with the Spanish and the Portuguese,” said a diplomat.

These two countries, with their historic links with South America, want the EU to follow up on a commitment made at December's Madrid summit to encourage the EIB to “step up its activity in Latin America in line with its financing procedures and criteria”.

While staying carefully neutral in the debate, the EIB itself has made it clear that it would be perfectly capable of investing more than 250 million ecu every year in an area as vast as Asia and Latin America.

Last year, EIB lending in those regions totalled 288 million ecu. Ironically, more than half of this went to Asia rather than Latin America, where 93 million ecu was invested in developing waste-water systems in Buenos Aires and Asunción, and 27 million ecu in upgrading a section of the pan-American highway in Peru.

The other 13 finance ministers are opposed to any agreement now to raise the ceiling, since they feel this would pre-empt the decisions that need to be taken on the other envelopes in the autumn.

“The trouble is that this preliminary decision would start to look permanent and the delegations taking a conservative approach on this question obviously don't want that,” said a diplomat.

Outgunned by 13 to two, Spanish officials have warned that the loan to Moldova could suffer if they fail to win agreement.

As a country lacking in natural raw material reserves, Moldova needs to build up foreign currency reserves to import coal, crude oil and refined products, mostly from Russia, and to stabilise its currency, the lei.

“We would not have asked for the money if we didn't need it,” said a Moldovian official.