European Affairs

Winter 2000

 

Ten Principles for Balkan Recovery
by Christiaan J. Poortman

As the international community seeks to reestablish peace and stability in the Balkans, the World Bank is working closely with the European Union to give some real impetus to what we call the regional dimension. We are concentrating on the economic elements of the process, where five key principles need to be observed.

First, reconstruction and economic recovery are the key to peace and stability in the region. An environment must be created in which people can have a better life, think long-term, save money and start new businesses.

Second, the international community should stand ready to improve conditions for trade, encourage foreign investment, and provide assistance to help reduce the development gap of these countries. Since it is the private sector that will eventually be the engine of economic growth, it is important that the countries of the region pursue market-oriented policies.

Third, integration of the region into the rest of Europe, especially the European Union, will be a key, if not a critical, aspect for long-term recovery and regional stability. Meanwhile, there are important opportunities for regional cooperation, for instance, in transportation, energy, and trade facilitation.

Fourth, helping the region catch up with the rest of Europe requires a concerted and sustained international effort. It will be a long process with many ups and downs.

Fifth, without the development and the integration of the Federal Republic of Yugoslavia, the rest of Southeast Europe will likely not develop and integrate, as shown by the experience of the last ten years.

The six countries around Yugoslavia – Albania, Bosnia-Herzegovina, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia and Romania – have been the hardest hit by the economic and social fallout of the Kosovo crisis. Budgets and current account deficits have widened and average growth in the region is estimated at minus one percent in 1999, significantly lower than originally predicted.

Fortunately, donor support has been quick. Significant incremental resources have been raised for Albania, Bosnia, Bulgaria and Macedonia and financial gaps that were originally estimated to be around $1 billion have been filled. The World Bank made available more than $200 million in additional and incremental assistance in 1999 – bringing our total assistance to the six countries close to $1 billion in 1999. We expect a similar amount for the year 2000.

In Kosovo, we also face five main challenges. First, it is imperative to address the human challenge. It is not only the burned houses and the destroyed schools that have to be fixed, but people's psychological wounds will also have to heal. And that will take a long time.

Second, UNMIK (UN Interim Administration in Kosovo) needs the full support of the international community to establish an efficient interim administration in Kosovo and lay the foundation for a future local administration. The provision of external budgetary support to cover the gap between revenues and expenditures in 1999 and 2000 is essential.

Third, efforts to rebuild Kosovo must be comprehensive and not limited to the reconstruction of damaged economic assets. Much of the challenge will be rebuilding an economy that had already fallen into substantial decline, and ensuring a sustainable economic recovery based on the transition from a socialist to a market-oriented economy.

Fourth, international assistance to Kosovo needs to be quick, generous and sufficient to allow Kosovo's economy to get on a sustainable growth path. It should be additional to previously decided efforts, in order to avoid the diversion of aid from other countries in the region.

Fifth, effective coordination of international assistance will be critical to the success of this very complex undertaking, as we have also seen in the case of Bosnia.

The World Bank's financial contribution to Kosovo, however, is going to be limited, since Kosovo is a province of a country that is not a member of the Bank. The total amount that we have available for our program in Kosovo is only going to be, at least initially in the next 12 to 18 months, somewhere around $60 million, which is very small in comparison to the type of program we mounted in Bosnia-Herzegovina. Nevertheless, we are making a contribution in terms of providing assistance in designing policies and setting up various institutions in close collaboration with UNMIK.

The reconstruction and development of Southeast Europe presents major opportunities: For the countries of the region, prospects of growth and economic prosperity, economic reform and integration with each other and with the rest of Europe; for the international community, prospects of peace and stability in a historically unstable region of Europe. If we are to realize these great opportunities, special efforts and a flexible response by all concerned will be required.