Representatives of 47 countries and 34 international organizations met in Brussels to discuss the economic policy framework and priorities for reconstruction and economic recovery in Kosovo.¹ New pledges of just over US$ 1 billion for financial assistance in support of a medium-term Reconstruction and Recovery Program were announced.

The Second Donors’ Conference for Kosovo was co-chaired by European Commission Director Fabrizio Barbaso and World Bank Director Christiaan Poortman. The United Nations Mission in Kosovo (UNMIK) was represented by the Special Representative of the Secretary General of the United Nations, Bernard Kouchner and Deputy Special Representatives Joly Dixon, Dennis McNamara and Daan Everts. Representatives from Kosovo – Messrs. Ajri Begu, Rame Buja, Isa Mustafa, and Muhamed Mustafa, members of the Economic Policy Advisory Board – were unfortunately unable to attend the Conference due to poor weather conditions in Pristina which prevented their departure by plane. Their absence was regretted by participants.

Participants at the Conference expressed deep regret for the tragic plane crash on November 12, 1999, near Pristina, and paid tribute to the UN staff and aid workers who lost their lives in the accident.

A message from Commissioner Patten was heard, stressing that the immediate crisis was past, but that the hard work of rebuilding a community was now beginning; and that the all of the peoples of Kosovo have been promised that we would join hands with them in this task and they look to us to live up to the promises made.

The Conference heard a statement from Mr. Kouchner who described both successes and difficulties encountered by UNMIK on the ground in Kosovo. Mr. Kouchner urged the international community to provide the necessary means to fulfill its commitment made through Resolution 1244 to administer Kosovo temporarily and bring it to peace, stability and democracy. He stressed the need for exceptional financial assistance for 1999 and 2000 to support the budget of Kosovo in order to build a stable local administration which can provide the basis for a sustainable market economy and curtail further development of a parallel economy in Kosovo. He also emphasized the need for actions not only for the budget and reconstruction and recovery, but also to support peace-building and peace implementation activities that will facilitate co-existence amongst the Kosovars.

Participants heard an update by Mr. Dennis McNamara on the humanitarian situation. While much progress has been made by many agencies and NGOs, he noted that damage is great. Winterization through distribution of shelter repair kits is well underway. However, the full housing reconstruction program will not begin until spring. Expectations are high, and while efforts made so far should ensure the avoidance of any humanitarian crisis, many Kosovars will face a very difficult winter. Donors were urged to continue supporting urgent winterization works in the next few months, including in key areas of logistics and utilities, fuel and other supplies for heating supply systems. The protection/security, free movement and other needs of minorities remain a major concern as does the humanitarian situation in Serbia.

UNMIK described significant progress made and actions taken on the economic policy and institutional agenda since the last meeting of donors in July 1999. Mr. Joly Dixon began by reading excerpts of a statement by Mr. Begu to the conference that emphasized that Kosovars did not want to cause disturbances for others, but wanted to solve their problems themselves. The international community was their hope.

Mr. Dixon then noted the establishment of the Central Fiscal Authority, and announced the establishment of an offshore bank account for the Kosovo budget. Funding requirements for the 1999 budget were confirmed (a total gap of DM86 million), and its was noted that a gap of some DM4-6 million remains after taking account of about DM80 million in donor pledges and commitments. Those donors who have pledged budget support but not yet disbursed it were urged to make payments to the new account immediately. In terms of the 2000 budget, UNMIK presented revised budget figures. These are based on the same revenue projections as the September estimates set out in the document distributed to donors. However, UNMIK’s current estimates of expenditures have increased by some DM50 million, to account for inclusion of the Kosovo Protection Corps, and other factors, leaving a larger gap than previous estimates. The establishment of the Banking and Payments Authority of Kosovo and the approval of banking regulation was also announced and welcomed.

Participants welcomed the significant progress, and complimented UNMIK on their hard and courageous work in difficult circumstances. In terms of the economic program, they agreed that policy priorities lie in stabilizing macroeconomic conditions, setting the stage for private sector led recovery and long-term growth, making provision for essential public services, and in establishing effective institutions. Throughout, it was clear that involvement of Kosovars was essential to success. Many also noted the need to ensure that Kosovo does not become an aid-dependent economy, and the importance of a coherent strategy for a quick and strong private sector response.

Participants stressed that a macroeconomic framework conducive to growth should be further developed and implemented. Key aspects include: (i) executing the 1999 budget and finalizing a budget for 2000; (ii) levying taxes to cover Kosovo’s financing needs and rapidly substitute donor funding of operating costs – and designing these taxes so as to provide incentives for the restart of economic activities, in particular broadening the domestic tax base and extending the coverage of tax administration; (iii) establishing a functioning payment system as soon as practicable; and (iv) developing a responsive banking supervision framework, to enable the financial sector to play its role in the economic recovery.

Participants welcomed UNMIK’s recent decision on the establishment of the Central Fiscal Authority and approval of the budget for 1999, and commended the establishment of fiscal control mechanisms to ensure full transparency. They urged rapid progress on the cash delivery system. Participants encouraged UNMIK to finalize Kosovo’s budget for 2000, taking into account Kosovo’s revenue generation capacity and the imperative of medium-term sustainability. Several participants also asked about the likely needs for budget support beyond the year 2000. It was confirmed that there were likely to be needs, and UNMIK was working on estimates, however, these would continue the trend of lower monthly budget gaps over time. These estimates are not included in the overall financing requirement presented. Some participants also noted concern about the existence of parallel budgets and sought more information on their magnitude, impact and uses, which at this point is not available.

There was unanimous support for the critical need to define an adequate framework for private sector development. Three priorities were emphasized: (i) start-up of new private enterprise, which is likely lead post-conflict growth; (ii) capturing into the formal economy currently informal private sector activities; and (iii) developing a framework that allows for re-start under a private-sector structure what are now socially-owned companies. While there is not likely to be a simple legal solution, a framework is needed that sets an overall reliable and predictable environment while allowing space for individual transactions.

Participants expressed strong support of UNMIK’s efforts to include local representatives in the preparation and implementation of economic decisions, and welcomed the establishment of the Economic Policy Advisory Board.

A program of some US$2.3 billion in needs on a commitment basis for the next 4-5 years was presented. It was noted that the Program has been prepared from sectoral analyses done on a collaborative basis by many agencies. It will be further refined on the basis of continued consultations with a broad range of stakeholders in Kosovo and with additional information over time.

Participants endorsed the following main objectives of the medium-term Reconstruction and Recovery Program:

• To develop a thriving, open and transparent market economy, which can quickly provide jobs to a large part of the Kosovar population;
• To support the restart of public administration and to establish transparent, effective and sustainable institutions; and
• To mitigate the impact of the conflict and to start addressing the legacy of the 1990s.

Many speakers noted remaining urgent needs. Others, including UNMIK, reported on progress made to date on urgent repairs and other activities, in particular in restoring reliable electric power service and in repairing roads and bridges. Several noted that the international community now faces the challenge of living up to expectations that the funds already pledged can be quickly translated into results on the ground. For the near to medium term, priority needs in four sectors – in addition to launching private-sector led growth – were highlighted: housing, energy, agriculture and the social sectors.

Participants emphasized that local ownership of the Reconstruction and Recovery Program is critical to the sustainability of its implementation. In this context, they welcomed the comments that were read by Mr. Dixon from the Kosovar representatives, and encouraged UNMIK, the European Commission and the World Bank to hold further consultations with local stakeholders. Participants also noted the need for using local expertise in the design and implementation of donor-funded programs, as much as possible.

Participants noted the urgency of designing detailed sectoral projects and establishing implementation mechanisms so that large-scale reconstruction works can start in the spring construction season. They welcomed UNMIK’s intention to take the lead in this effort with assistance from major donors. Participants also supported UNMIK’s leadership role, in close collaboration with Kosovar representatives, to ensure proper coordination of day-to-day implementation, mainly through a series of Sectoral Working Groups. Participants emphasized that effective donor coordination will be critical to the success of the Reconstruction and Recovery Program.

Concern was expressed to ensure transparency and accountability in the use of donor funds. In this context, they welcomed UNMIK’s intentions to put in place appropriate financial management and control systems as well as procurement capacities that donors can rely on in implementing their assistance programs. The urgency of setting up a cash payment office and ensuring that some basic banking services are available was also emphasized.

It was noted that institution-building requirements were only partially covered in the background document insofar as they were directly linked to economic recovery; yet the conference recognized some urgent needs with regard to political and administrative policies. It recognized the immediate need to complete a civil registry on which future elections depend. Likewise it was recognized that media development needed urgent financing in order to inform and engage the public on UNMIK policies, programs and projects. The need to establish the rule of law and hence the priority of reinforcing law enforcement by strengthening the police and judiciary was also stressed.

Many donors stressed the need for financial support for critical peace implementation needs, such as support for the Kosovo Protection Corps, strengthening public security and the rule of law, and creating the conditions for democratic elections, including support for a free and independent print and electronic media.

Co-chairmen announced and participants noted the external financing requirement of the about US$1.1 billion until the end of the year 2000 (including budget needs for 1999-2000). Mr. Dixon urged donors to pledge generous amounts which shall be sufficient to launch a substantial part of the reconstruction and recovery program in 2000.

Participants recalled that at the First Donors’ Conference on July 28, 1999, about US$2.1 billion was pledged. Some US$1.6 billion of this support is being directed to humanitarian needs, of which a significant portion has been spent both inside and outside of Kosovo. The remaining US$500 million is being targeted to finance urgent repair and rebuilding and activities, to support Kosovo’s budget and civil administration, and to fund peace implementation activities.

The Conference heard new pledges from delegations for assistance in the remaining months of 1999 and the year 2000 reaching just over US$1 billion. Some US$970 million was pledged for the Reconstruction and Recovery Program – including US$88 million for budgetary support for 1999 and 2000, with indications that further amounts are under consideration. In addition, US$47 million was pledged for peace implementation activities, such as support for media, elections etc., and US$18 million for humanitarian activities.

Finally, several participants noted that problems in Kosovo can only be solved in the regional context of the Western Balkans. Kosovo cannot be reconstructed in a vacuum. Actions in Kosovo must be correspondingly matched by similar actions in other parts of the region. The Stability Pact forms a useful framework which will help to ensure that actions taken in part of the region contribute to the stability of the whole region. Intra-regional trade initiatives need to be encouraged both from security and economic perspectives. Bilateral and regional cooperation among the countries of the Western Balkans will also serve the integration perspectives of all nationals involved.

Participants agreed to meet again next year following further consultations on the Reconstruction and Recovery Program with local representatives, to review progress.