No. 365 - Extending the Social Development Fund's operations to countries of central and eastern Europe

Extending the Social Development Fund's operations to countries of central and eastern Europe

Doc. 7479
2 February 1996

WRITTEN QUESTION N� 365
by Mr. WIELOWIEYSKI

            Mr. WIELOWIEYSKI,

1.         On the basis of Rule 54 of the Rules of Procedure of the Assembly of the Council of Europe

            To ask the Committee of Ministers what steps have been or are going to be taken to implement Recommendation 1273 (1995) on the Social Development Fund of the Council of Europe;

2.         In particular, he is concerned about the recommendation to the Committee of Ministers contained in item 7, paragraph iv, sub-paragraphs a. and c. as follows:

"iv invite the Governing Body of the Fund;

a.         to renew its efforts to extend the membership of the Fund to the countries of Central and Eastern Europe ... ", and,

"c.        to reconsider, in the context of the "trust account", the possibility of raising the Fund's present level of commitment for projects, especially social housing projects, limited at present to 40%, and to apply the lowest possible interest rates with due regard to the statutory provisions;"

            As far as he knows, no such steps have been taken so far.

Signed:
Wielowieyski, Poland, LDR

Explanatory Note

            Significantly, for several years now the Assembly has been adopting recommendations on extending the Fund's operations to include the countries of Central and Eastern Europe but without result. Admittedly, two countries (Slovenia and Bulgaria) have recently joined the Fund but no credits have been earmarked for the countries of the region even though the Fund's own assets have grown (in both 1993 and 1994 the profits stood at around 70 million dollars).

            Given the current credit conditions on the one hand, and on the other, the poor condition of public finances facing the region's states, for most of these countries it is difficult, if not quite impossible, to use the Fund's lending facilities, even though there is a 4 or 5-year grace period. This is why Recommendation 1273 (1995) was adopted.

            In Poland, for example, under existing laws, annual rents in social housing may not exceed 4% of the building costs, making it possible to pay back, within 20 years, loans covering only one half of the building cost of social housing, at a 1% interest rate. The other half of the construction cost will be met from the municipal budgets; Given the very bad state of those budgets at present, this will mean making a very considerable effort. Higher interest rates are, therefore, out of the question.

            State subsidies are also ruled out in view of the heavy external debt burden and the fight to reduce the budget deficit. In 3 or 4 years' time, Poland will be making its largest ever external debt servicing payments.

            At the same time, social housing needs continue to be great and are still growing.

            In the present circumstances it is urgent to find resources for lowering interest rates applied to social housing construction loans.

            Resources from the Fund might be earmarked for this purpose, at a rate of 20-25% of the net profit for 1993 and 1995, i.e. between 14 and 17.5 million dollars. This would make it possible to subsidise the annual interest rate on the total of 233-290 million dollar loans granted annually for social housing in Central and Eastern Europe.

            It should also be emphasised that the amount of 14-17 million dollars would only partially reduce the Fund's resources because at the same time, the Fund might be receiving contributions over four years from other countries of Central and Eastern (excluding Russia). The total of such contributions could well exceed 20-25 million ECU, or more than 26 million dollars. Therefore, over 4 years the Fund might see a net increase of 6.5 million dollars in its funds. Net expenditure would thus amount to 7.5 - 11 million dollars per annum, or a maximum 0.3-0.5% of the Fund's overall assets.

            At the end of 1994 the Fund's capital, reserves included, amounted to 1,700 million dollars. The matter is worth considering since the resources involved would be small while the economic and political benefits would be obvious.

            The Fund will doubtlessly also have other tasks in the context of the "trust account", notably help for Bosnia. In the light of the figures given above, there is no reason why both tasks could not be carried out simultaneously.