UNMIK/PR718
Thursday, April 18, 2002

SRSG Michael Steiner Addresses University of Pristina on Privatization

SRSG Michael Steiner delivered the following address today at the University of Pristina titled “A New Generation, A New Economy,” on UNMIK’s plans for privatization and revitalizing the Kosovo economy.

“Good morning,

It’s good to see youth here today.

Still some of you might remember Bill Clinton’s campaign slogan from 1992: “It’s the economy, stupid”. Here in Kosovo, too, the economy is key. People worry about their future. This means their economic well-being.

It is clear that Kosovo needs a functioning economy. To get a functioning economy Kosovo needs investment. And to get investment Kosovo needs to privatise.

There has already been a lot of talk about privatisation, I know. You may have already decided that it is not going to happen. But please be patient. A house cannot be built on sand. It needs a solid foundation. Yesterday, I submitted to your government for consultation a Regulation to establish the Kosovo Trust Agency. This will be the Agency that will make privatisation a reality. And the Regulation will be the solid foundation that we need.

Although the immediate effects of privatisation might be less visible than you might expect, the positive impact: will become very clear over the next years. Privatisation will support the emergence of a new economy, an economy that will be built by a new generation – by you!
Consider the old economy
When UNMIK arrived in Kosovo three years ago, the economy was utterly destroyed. Public and socially owned enterprises had been seriously neglected. Economic reforms in Yugoslavia had been side-stepped. Their head was in the sand. There was hyperinflation, war and confusion. There was no capital investment in anything.
Let me be frank. These enterprises were never the goldmines that some people make them to be. Some were even loss-makers from the very start.
Even in the 1990s, many socially owned enterprises in Kosovo were in reality already dead. Very few were real businesses or producers. Instead, the management was stripping assets or renting out land and business premises to the emerging Kosovo private sector. This has been continued by the post-war managers, many of whom have illegally taken over the enterprises.

Although some of these enterprises have managed to revive at least part of their production, many exist only on paper. Workers have returned, but the reality is that ‘the workers pretend to work and the managers pretend to pay’.

Elsewhere in the region – in Slovenia, Croatia, Bosnia, Albania, Macedonia, Bulgaria and Romania – the restructuring of enterprises and the development of new markets had already started during the 1990s. In all of these countries, the process of privatisation has been slow and painful. The experience has differed, but in all cases only parts of the public sector could be privatised and modernised. Many companies had to be closed down.

We need to face reality and call a spade a spade. Most of Kosovo’s socially owned enterprises are dinosaurs. Even if we had the capital needed to rebuild them – and we don’t have it – we could not make viable enterprises out of them. It is time to acknowledge that the old economic approach has failed.
Creating the basis for a new economy

So what do we do about these dinosaurs? There are two ways of dealing with them. Some of them are viable. But in any case these need restructuring and fresh capital. The others are bankrupt and have no future prospect. Nevertheless, they do have assets. These include land, infrastructure and premises. But these assets are idle, or being used illegally: - We call this asset stripping! They need to be rejuvenated and legalised. They now need to be turned into liquid capital, the kind of capital that generates wealth. They need to be mobilised for the private sector.

It is the private sector – a sector that had already begun to emerge during the 90s – that is presently the most important motor for development in Kosovo. It is the only sector that will invest.

But at the moment, even the private sector is not investing in the old enterprises. The problem is that no one knows who owns these enterprises. Some think it’s the workers. Others think it’s the municipalities. There are claims from Kosovars, from managers now in Serbia and from other enterprises. In many cases, these enterprises have been illegally taken over and their assets are being over-exploited, rented out or simply sold for personal gain.

Therefore, the most urgent goal is establishing clear ownership. Clear legal property title is the basis for both economic development and for the rule of law. The process of privatisation must serve to facilitate, encourage and protect new investment.

Ladies and Gentlemen,
Economies are about enterprise and energy. You must do it for yourself. The construction boom after the war has been impressive. There are new houses all over the place. Many Kosovars have opened shops and created small businesses. You have shown to the world that you are a hard working people, that you are the constructors and the traders of the Balkans.
But what has been achieved so far will not provide the jobs for the future. Now we must lay the foundations for your generation, so that the energy and the dynamism seen here are targeted to Kosovo’s long term development. Privatisation is a cornerstone for that economic future.
What we need to do is to make a break between the past and the future, to work for a new economy in Kosovo built on private property. Privatisation is the key. But there are no quick fixes.
The privatisation concept
So how do we want to tackle privatisation? We have consulted extensively with key players here in Kosovo and in the UN in New York. Based on these consultations, a Kosovo Trust Agency will be established to manage the process of privatisation.
The Kosovo Trust Agency will take on the authority to administer public and socially owned enterprises. The authority for this remains with me. It is one of my reserved powers.
However, UNMIK is not going to run the Agency alone. On the Board of Directors, supervising the Agency’s work, there will be three Kosovar representatives sitting side by side with three of my representatives. At least two of them will be from the Government, and at least one of them will be a representative of the Serb community.
The Agency will deal with all the socially owned enterprises. It will liquidate enterprises with idle assets. And it will carry out privatisation through a spin-off procedure in the case of viable enterprises.
· In the case of voluntary liquidations, these enterprises will cease to exist, and their assets will be auctioned off to the private sector. Thus they will be freed up for productive use.
· Spin-offs will only happen when there is a credible investor available. What are “spin offs” it’s simple : The assets of the socially owned enterprise will be transferred to a new subsidiary company. Shares in this new company can then be sold to investors. Whilst the socially owned enterprise will continue to exist, it will only be a shareholder in the new company.
The special feature of the Kosovo Trust Agency is its trusteeship. Because of the legal chaos after 1989, we don’t know for sure who has legitimate claims to the enterprises. We do not want privatisation to be blocked until this question can be solved, and it cannot be solved today. Thus, the proceeds resulting from privatisation will be held in trusteeship by the Agency until owners’ and creditors’ claims can be resolved.
I believe that this is a fair process for all involved. And it allows us to move ahead. The final step will be to resolve the question of land ownership. This will require another regulation. With this in place, we will be able to start privatisations in the autumn.
Expectations
Finally, let me say a few words on expectations. We must not expect too much too soon.
We are all concerned about jobs. But let me be absolutely clear: jobs will be lost first and it may take time to create more. As they say: no pain, no gain. Jobs in non-profitable enterprises will be lost. But in reality they already have. For example, many workers don’t receive wages.
Privatisation will finally destroy the myth that these companies can be restarted. At the same time privatisation will secure the jobs in those enterprises that are viable. These jobs will be secure. In the longer run, new jobs will be created by the private companies that will emerge from the ashes of the old.
I also know that some of you think that the workers should get shares. The experience from other countries is that this is not good for the economy. Our prime task has to be to build a secure future for you. For the new generation in Kosovo. This should be the reward for your parents’ sacrifices. You are Kosovo’s most valuable resource.
At the begining I said that this new Regulation would be a solid foundation for the process of privatisation. Privatisation is essential for a real, dynamic and sustainable economy; an economy that moves Kosovo towards Europe.
This process will take Kosovo out of the straight jacket that it has been bound in for so long. It will creat the conditions for the private investor and as the market begins to function new jobs will emerge. These will be your jobs.
Kosovo needs a new economy for a new generation. To misquote Bill Clinton’s words, “It’s about privatisation, stupid!”
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