CEOL - YU gets $300 mln from China

BELGRADE, Dec 9, 1999 -- (Reuters) China last week decided to give Yugoslavia a $300 million credit to finance its reconstruction, a government source said on Wednesday, after a dissident Serb economist had revealed the credit.

"A Chinese delegation spent ten days in Yugoslavia. They visited all reconstruction sites and decided to extend the $300 million credit to help finance the works. They've realized we really need the assistance," the source, who asked not to be named, told Reuters.

Mladjan Dinkic, chief coordinator for the G17 group of independent economists, earlier told a news conference that the government of Yugoslav President Slobodan Milosevic had received $300 million as a gift from the Beijing government.

"The Chinese last week gave as a present to Yugoslavia $300 million, part of which is in cash and the rest in credits," Dinkic said.

Dinkic, with contacts in ruling circles, said he could not specify the proportions but that the money would be used to import electricity and finance repairs to infrastructure damaged in NATO air strikes earlier this year.

He also said part of it would be used by the government to finance a pre-election campaign. Local and Yugoslav federal elections are due next year.

"It is interesting that the government did not want to unveil the size of this assistance. I suspect they did it because they do not want anyone to know how they spend the money," Dinkic said.

Another part may be used to defend the dinar currency.

Dinkic sees possible devaluation

"The Chinese injection entirely changes the situation surrounding the dinar. I would not be surprised if the government devalues soon. But they could also spend the money to defend the dinar, just ahead of the elections, to prove they are capable of controlling the black market," Dinkic said.

The dinar is officially fixed at 6.0 to the German mark but on the black market trades at 19.0-20.0 to the mark.

But the government source said the spending plans mentioned by Dinkic did not correspond to reality.

"The Chinese money will entirely finance the reconstruction," said the source.

During a visit to Belgrade last week, Chinese Deputy Foreign Trade Minister Chang Xiang signed a cooperation agreement with his Yugoslav counterpart Borislav Vukovic.

No details were released at the time.

Whatever the government spending plans, Dinkic said the money was a significant financial boost to a country isolated by international sanctions for nearly a decade because of its role in a series of Balkan wars.

Together with $130 million in its own disposable foreign exchange reserves and just as much in gold, Yugoslavia's total hard currency reserves have leapt to $560 million Dinkic said.

Western leaders say most international sanctions will stay until Milosevic leaves power. They have also ruled out reconstruction aid until he goes.

The European Union and the United States have imposed flight and oil embargoes and banned any foreign investments and credits from their countries to finance the Serbian economy.

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