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Banking

Yugoslavia: The long hard road back

Contrasting with the bullish prices of much emerging market debt, Yugoslavia's has dropped from being traded in the high forties a few weeks ago to a low of 35%, following inconclusive talks held at the end of June between the government of the Federal Republic of Yugoslavia (the FRY consists of Serbia and Montenegro) and the relevant London Club committee. Some analysts think the price could go lower still.

The reason for the sudden decline in Yugoslav debt is the very aggressive terms of repayment that the government has put on the table. The committee, headed by Chase, feels that the recent proposals to reschedule the debt are unacceptable.

When the former Yugoslavia split, the newly independent FRY assumed responsibility for the lion's share of the old debts. As the biggest of the former Yugoslavian republics, the FRY's financial situation was, at the time, deemed good enough to merit it taking this on. So the question has to be asked: why is the country now pleading poverty for its terms of repayment?

Ingrid Iverson, a debt strategist at UBS, believes that the Yugoslavs did not make their proposal expecting it to be accepted, but as an opening gambit to try to force the price of the debt down.

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