Rebuilding Kosovo from the Ground Up: The UN in Successful Partnership with the EU
By Andy Bearpark
Financial Times, Economic Editorial, 12 July 2001

Two years ago things were very different in Kosovo. On June 10 1999 following the end of 78 long days of NATO bombing, the United Nations Security Council passed resolution 1244 authorising the United Nations Interim Mission in Kosovo (UNMIK) to administer the shattered province. Kosovo was half-destroyed. It was the responsibility of the international community to begin the long process of building peace and democracy, and preparing Kosovo for self-government. In the European Union's unique partnership role within the UN mission, it took on the responsibility for Kosovo's economic reconstruction and development, an area of fundamental importance if lasting stability was to be found.

Last month UNMIK celebrated its second anniversary: in only two years, the Mission has overseen the rebuilding of much of the destruction caused by the war. Despite the many obstacles along the way, the reconstruction of Kosovo has been a success story: over 28,000 homes rebuilt, public utilities restored, industrial and rural sectors regenerated, roads and bridges repaired, hundreds of schools, clinics, primary health centres, and other public buildings rehabilitated.

With this major reconstruction complete, an important stage in Kosovo's development has now been reached. The EU, as UNMIK's economic pillar, is venturing to create genuine economic growth. For Kosovo's 2.2 mn population unemployment remains a major problem. In the coming months, the creation of a true market economy, where business can prosper and private sector development will generate employment, is our priority.

Building a European future

Kosovo is, and always has been, a part of Europe. The people of Kosovo are now looking to the European Union for their future. It may seem some time off, and there will be a lot of hard work ahead, but this is where Kosovo's future belongs. UNMIK's aim has been to lay the foundations of a modern, European-based civil society encompassing democracy, the rule of law, and a market economy.

The first democratic Kosovo-wide elections will be held next November following the enactment last May of the Constitutional Framework for Self-Government by UNMIK's head, the Special Representative of the Secretary General, Hans Haekkerup. The establishment of the rule of law, led by UNMIK's institution-building pillar, the Organization for Security and Peace in Europe (OSCE), is moving ahead.

In terms of the EU's role in the creation of a market economy; economic development through commercialisation of socially owned enterprises and the establishment of an environment to support the private sector as the main employer, marks the initial stage of this effort. However, one cannot claim that a modern society has yet been created. This requires that certain values become intrinsic and that people believe in the changes that are taking place. This is happening but it takes time. We are in the process of laying solid foundations upon which all Kosovars can build a modern, democratic, European way of life.

Creating an environment for integration

The European Union has focused its efforts in South Eastern Europe on a regional approach. Kosovo, as part of Southeastern Europe, plays an important role in the EU's overall strategy here, the aim is to eventually integrate the whole of South Eastern Europe into the EU. Kosovo's ties with Europe are ever strengthening: not only will Kosovo have the Euro next year, but the new laws and legislation that the EU is helping to introduce, such as the new Value Added Tax, are all in line with current EU legislation.

In building a market economy a strong, stable financial and economic environment is being developed. Kosovo's public sector budget is this year expected to be three quarters funded by locally-generated revenue, up from around half in 2000. Private sector development is being underpinned with a near-completed regulatory framework, a workable body of law to enable the economy to function according to market economy principles, including laws on contracts and foreign investment.

However, Kosovo's general backwardness compared to the rest of Europe remains a major challenge. The expected decline in donor funding could halt progress. Although in 2001 DM1.35 bn was committed, such funding will not be available indefinitely. Donors are treating Kosovo like a normal Eastern European transitional economy, and from next year they will begin shifting their role to an advisory one. But despite the reconstruction achieved to date the region, the poorest area of Yugoslavia even before the war, will be left lagging far behind. To bring Kosovo up to European standards in terms of infrastructure, education and health, and legal norms requires ongoing donor commitments in the years ahead.

Rising economic trends

The EU, as UNMIK's economic pillar, has been responsible for raising general economic trends, the funneling of investments into businesses, the opening of more banks. A burgeoning banking sector means new lines of credit are becoming available to medium and small businesses - the mainstay of Kosovo's economy today.

The role of socially-owned enterprises (SOEs) is increasingly recognized as a relic of history. Commercialisation, or the leasing of companies' assets, is being successfully undertaken. To date eight companies have been commercialised which will create 1,725 guaranteed jobs over the next five years, and a commitment totalling DM61 mn. A successful example of commercialisation is the Sharr Cement Factory at Blace. Five foreign investors vied for the tender and in June 2000 Holderbank Financiere Glaris of Switzerland, which subsequently invested DM20 mn in the plant, won the lease agreement. The growing presence of European companies advances our aim of introducing transparency and accountability.

Once privatisation begins, the first steps of which are expected by the end of 2001, thousands more jobs will be secured. However, many obstacles still have to be tackled. Although a foreign investment regulation was put in place aimed at providing guarantees for investors, there are legal questions, such as ownership, that still need answering. The Eastern European experience regarding privatisation shows that the process of laying the foundations for a market economy takes time, but once in place does lead to economic expansion, as was the case with Poland and Czechoslovakia.

This regulatory environment is expected to be in place in the next 18 months to two years at which point foreign investors, secure in the knowledge that domestic laws safeguard their capital, will be ready to invest in newly-privatised factories and plants and in new technologies and equipment.

Looking ahead

As the people of Kosovo prepare to vote in November , Kosovo is taking its biggest step towards self-government so far. UNMIK can avow itself to be an architect, not only of peace, but of prosperity: for Kosovo's economic house has been rebuilt from the ground up, brick by brick. The international community has provided a bedrock upon which a democracy can emerge that, with the right will and effort, can eventually be integrated within mainstream Europe.