Macro-financial assistance is combined with other EU assistance and the International Monetary Fund programmes in order to create synergies and to facilitate the implementation of structural reform measures in third countries. As a rule, the funds are paid to the Central Bank of the beneficiary country, but the decision on their final destination (build up of reserves, foreign exchange market interventions or direct support to the budget) is generally left to the authorities in the beneficiary country (this is what is meant by untied and undesignated).

Exceptional assistance

MFA is exceptional in nature and is mobilized on a case-by-case basis with a view to helping the beneficiary countries in dealing with serious, but generally short-term, balance-of-payments or budget difficulties. It is released on the basis of the fulfillment of economic and financial policy conditions set out in the Memorandum of Understanding agreed between the Commission and the authorities of the recipient country.

Unlike other European Commission financial instruments with macroeconomic objectives, (notably direct budget support provided under the Instrument for Pre-accession to candidate or potential candidate countries, under the European Neighbourhood and Partnership Instrument, or the European Development Fund), MFA is not meant to provide a regular financial support framework for structural changes or, more generally, the economic and social development of the beneficiary countries.

A progressively smaller role

Since its inception, the amounts committed to MFA by the EU have fluctuated substantially, in correlation with the volume of financial support provided by the international community. Initially, EU assistance was substantial in comparison with funding provided by international financial institutions. The then European Community played a key role, both as a major provider of these funds and as the coordinator of bilateral assistance to the Central and Eastern European Countries through the G-24 process.

However, as the international financial institutions were progressively able to draw on more resources through new instruments, their share in the financing packages rose substantially. Furthermore, contributions provided by external creditors, both public and private, were generally mobilized in the form of debt-relief and debt-reduction operations.

Graph 1 sets out the status of all MFA disbursements operations by year from 1990 up to the 2010. The highest volumes of MFA operations were decided and disbursed in the years immediately after the changes in the political and economic systems of the countries of Central and Eastern Europe.

Graph 2, showing the distribution of financial assistance by region, reflects the important concentration of assistance in the Central and Eastern European Countries (around 52% of total MFA disbursed in 1990-2010). However, such assistance to these countries was progressively phased out in parallel with their progress in macroeconomic adjustment and reform. More recently, MFA has mainly been provided to the Western Balkans (66% of the disbursements from 2001 to 2010) and some low-income New Independent States (25% of the disbursements from 2001 to 2010). The relatively low amounts for the Mediterranean countries (13% of the overall amounts disbursed) should be considered against the background of other forms of macroeconomic support made available to these countries, notably in the context of the European Neighborhood and Partnership Instrument and of the lack of IMF programmes in the region.

Annual fluctuations in the amounts of MFA reflect decisions taken by the Parliament and Council on a case-by-case basis after an assessment of the macroeconomic situation and residual external financing needs of the potential beneficiary countries. A framework regulation is being proposed by the Commission to replace the current system of ad hoc decisions of assistance.