System of Financing for Short- Term Fluctuations in Export Earnings (FLEX) Dakar, November 2005

FLEX - Outline Introduction of FLEX Basic Principles Criteria applied Results Revision of FLEX Remaining considerations

The Introduction of FLEX Lomé Convention: STABEX and SYSMIN  Mixed results at best (slow; difficult to implement; not reaching target groups)  Desire by EC to abolish systems Cotonou Agreement Ø Compromise EC-ACP group reached Ø System to address short-term fluctuations in export earnings that is faster and more flexible than in the past Ø Purpose: safeguard macroeconomic and sectoral reforms and policies that are at risk as a result of a drop in revenue Ø See article 68 of Cotonou Agreement

FLEX – Basic Principles Additional support triggered on the basis of aggregate data: Ø Total export earnings Ø Agricultural exports Ø Mining exports Second eligibility criteria: Ø Worsening of public deficit Funds from B-envelope (reserve envelope) Use in budget or for sector Agreements reached in year after application year Advances possible (based on provisional statistics) Review after 2 years of operation Limit to entitlement: 4 consecutive years

FLEX – Eligibility Criteria 1. Loss of Export Earnings Ø 10% loss of export earnings from goods (2% for LDCs); compared to average of first three of four years preceding application year Ø 10% loss of export earnings from total agricultural or mineral products (2% for LDCs) compared to average of first three of four years preceding application year FOR COUNTRIES WHERE THE AGRICULTURAL OR MINERAL EXPORT REVENUES REPRESENT MORE THAN 40% OF TOTAL EXPORT REVENUES FOR GOODS 2. Worsening of Public Deficit Ø 10% worsening in the programmed public deficit programmed for the year in question or forecast for the following year Ø [value export losses x average ratio revenues/GDP] compared to deficit

FLEX – Results For 2000, 2001 and 2002: - 93 requests received from 51 countries - 51 requests were in accordancxe with elgibility criteria 1 (loss of export earnings) - 11 requests (6 countries) fulfilled both criteria - € million in B-envelope resources triggered  Only small proportion of countries suffering export losses qualified for FLEX  Small amount triggered

FLEX - Revision Two lines of revision: 1. Criterion 1 (loss of export earnings): special clause of 2% loss for LDCs extended to landlocked and island ACP States 2. Criterion 2 (worsening programmed public deficit): application of 2% rather than the original 10% Proposal ACP Working Group – April 2004 Adoption by EU-ACP Council of Ministers on 30 June 2004 Statistics for application year 2003 subjected to new method

FLEX – early results of revision Situation for application year 2003: - 45 requests - 25 showed export losses superior to required level (criterion 1) - 17 requests fulfilled both criteria - € million made available for 13 countries  Accessibility to FLEX increased  Accessibility remains a problem in countries where public deficit is high compared to export values

FLEX – remaining issues Availability of resources under B-envelope Difficulty of application in countries with low ratio exports/deficit (Ethiopia, Niger, Uganda etc.) Exchange rate effects (e.g. €/$) -0 calculations done in Euro! Aggregate – no specific treatment for cotton etc. Speed of implementation