Chairman, thank you very much indeed. UNMIK is represented by both Dennis McNamara and myself. Dennis and I are together two of the four pillars; the head of UNMIK is in Kosovo but he asked us to come here, as he himself was not able to come, for which he apologises.

The first message that I want to give today is that UNMIK is up and running, it is working hard and I would like to try and give you some idea of what it is doing. But first I would like to say that what UNMIK is doing would be impossible without the good work that KFOR has done and continues to do. As Colonel Brown said, UNMIK needs a secure environment in which to work, and remarkable progress has been made in achieving that, but the military has done much more. It has also been instrumental in restarting the economy.

The second point I wanted to make is that the situation in Kosovo is changing incredibly fast. It is not what we expected at all and it won't be what we expected at all as time goes on. First and foremost of course is the fact that so many refugees came back so quickly. Nobody expected this; three quarters of a million people have returned, largely under their own steam, though also helped to some extent. That they have come back so quickly confronts us with a different situation from the one that we were expecting. So we have all got to be flexible in our thinking. We have to realise that the situation is not what we expected and so it is probably time to throw away any preconceptions and rethink things.

A second aspect of Kosovo that is changing very fast is that the economy is restarting at an incredible speed. For the moment, however, this is an economy which is totally without rules and regulations of the market, and without a civil administration. But the economy is not just sitting there, it is happening. Out in the street you see lively market places, you see buying and selling, and it is buying and selling not only of foodstuffs but of building materials and so on. So an economy is up and running in Kosovo, and if we want that economy to be a normal market economy, we have to be up and running too because the rules of the market need to be put in place. The market is there, but the rules are not. This is a potentially very dangerous situation and we have to work on it fast, because the situation on the ground is evolving very fast.

The next point to make is that the situation is very complex. You'll hear much more about the damage assessments, of which there have been several. Colonel Brown told us what the military has done, UNHCR has done a lot, there is evidence from satellite surveys, and the European Union has financed a very extensive survey by IMG. All of these assessments show that the damage to the housing stock is very extensive. But other types of damage, to the bridges, the roads and so on, is less than expected and so a lot of people are now saying that the damage in Kosovo is less than expected. What matters are the needs, and these are enormous and probably greater than expected. The needs come from 10 wasted years of under-investment, the needs come from having a power station, the one that is working now, where the equipment is 35 years old. The town buses are back on the road and you can take a town bus in Pristina: you pay your 5 Dinar and you go, but it's a miracle that you do, because this bus is really old. It cranks along, and again is another example of the lack of investment over a very long time. But the needs are also related to what Johannes Linn said in the beginning: these are human needs. The people are very brave indeed and are building their economy, but what they have suffered over the past months and years is enormous, and we should focus much more on the needs than on just assessing the past damage. When you come to Pristina you will see that the idea of just putting the thing back as it was before is not very attractive. We must have a higher aspiration than that.

A further aspect of the complexity of the situation is that the needs are very different in different parts of the country. Some villages are totally and utterly destroyed, some villages are virtually unscathed, some towns have much more damage than others. If you only see Pristina you get a false impression, because Pristina itself is relatively untouched. Other parts are very seriously affected. So it is no good thinking that there is one solution for all, there isn't, it's a very complicated situation indeed.

So against those two basic background elements – that the situation is changing incredibly fast and that the situation is complicated – UNMIK now needs to be working simultaneously on three main areas. The first area is humanitarian, which should logically come first, but Dennis McNamara will deal with this later on.

The second and third areas are rehabilitation and reconstruction, and the normalisation of the civil administration in the economy.

Let me therefore turn to rehabilitation and reconstruction. The priorities are shelter, agriculture and basic utilities. For shelter you'll hear more of the assessments that have been made, but at least 50,000 houses are totally destroyed; maybe more than half a million people have not got adequate housing. These people are either sleeping in tents provided by the humanitarian community or sleeping in tiny spaces, the only remaining space that still offers some cover over their heads. This is not a way of living for long, it is not a way of living in the Kosovo winter. But as they are living, surviving, that way they have started to rebuild their houses and their lives. That activity must be encouraged, we have to give them the wherewithal for helping themselves – the amount of help that they are giving themselves is enormous. The industry of these people is quite dramatic, and if we encourage that it will start one of the first basic industries, the construction sector. That is already beginning. Local production must be encouraged, local work must be encouraged, and so I would urge people to think about how, in this first vital sector of shelter, we ensure that assistance is not only efficient in delivering the shelter, but also in encouraging the beginnings of the construction industry and the distribution of local products.

The same is true of course for agriculture. Kosovo is an agricultural society and will remain so. A lot of this year's harvest has been lost, but there is also a lot left of this year in agricultural terms. Again, we must make sure that people have enough to eat, but we must also make sure that the delivery mechanisms are such that agriculture starts up again and is encouraged; there is a large job to be done there.

In basic utilities the electricity system is at best fragile, so there is very urgent work to be done. Without electricity the water supply doesn't work properly, without water construction is very difficult, and so on. So these are absolute necessities which we need to get going extremely quickly.

For the moment, in all of these major sectors the needs assessment is not yet finalised. We hope to establish an investment framework, sector by sector, very soon, with the World Bank’s help. That will be ready for the next Donors' Conference, when we will have firmer ideas and firmer figures for what the needs are. But I urge that we follow that approach of having an investment framework based on an in-depth study sector by sector. It can't be done instantly; it will take a little bit longer than we have had so far.

So those are the immediate priorities in rehabilitation and reconstruction. I emphasize that while dealing with the humanitarian needs, we need to make sure that the humanitarian side feeds into an economy which is self-sustaining and which relies on its own forces.

That brings me to the normalisation of the economy and building the civil administration. There are a number of urgent tasks, the first of which is to put in place some basic market institutions. The market is beginning to work, but the basic institutions are not there. There are some very difficult property rights questions that have to be sorted out, there are some basic issues of cash management and payment systems. At the moment there is no safe cash management and no efficient cash payment system. And then we need the framework for things like the natural monopolies, and the beginnings of a financial sector. There are no banks at the moment within Kosovo, but it is extremely urgent to have a basic regulation in place to make sure the banks that do come are properly licensed and regulated. Kosovo is a ground that could be ripe for the sorts of financial scandal that have occurred in some of the neighbouring countries, especially Albania. This must be avoided, and that means regulating the market in an efficient but light way so as to build a sound financial sector.

The second task is to build a basic civil administration. To take a concrete example, Kosovo needs a customs service. At present, while there are no customs or excise duties being collected at all, high value items such as cigarettes enter the country at a very distorted price and distort the market. But to get the customs service in place we need customs officers, who have got to be paid, and we have also got to finance the basic premises and documentation.

It is absolutely essential that the education service starts working again. Kosovo’s population is extremely young: a very large proportion of the population is under sixteen. At the moment these children are selling cigarettes. They are selling cigarettes because the cigarettes come through the borders with no tax and so somebody is capturing that tax and using the children as the workforce to sell them. Even if we get the school system in place, those children will not go back to school until we break that circle. But the schools have got to be put in place so that the children can go back to school. To get the schools in place we need to pay the teachers. Teachers don't come for nothing: teachers have to be paid and teachers have to have basic materials, so we need to have some expenditure on basic school materials and on the teachers.

It’s the same for refuse collection and waste disposal. At the moment the place is literally a rubbish dump. It's a public health problem, all this rubbish around the place, but if the rubbish is to be collected, the people who collect it have to be paid. They have to have the basic materials to collect the rubbish.

And of course the health sector. At the moment health services are being supplied by the humanitarian community, but progressively they have to be provided in a more normal way and that means paying doctors, paying nurses, paying for medicines, and so on.

As Colonel Brown has already told us there were long queues of people filling out forms to join the police force, but when they join the police force they have to be paid, to be provided with uniforms, and so on.

We have established the first ideas of a basic budget which shows how much revenue we expect to be able to get in before the end of the year and how much expenditure we expect on those areas that I have just mentioned.

So let me turn first to the revenue side. With no real administration, the only way of collecting revenue in the short term is at the border, and so what we propose to do is to collect customs and excise revenue at the border on a very small number of goods. We have already identified the customs officers: there are 50, of whom 38 are Kosovar Albanians and 12 are Serbs. They have the necessary skills, because they worked in the customs service before, and they will be deployed during this coming week. They are ready to collect border taxes on petrol, tobacco, alcohol, coffee, soft drinks and luxury items. If we used the existing customs code, at the rates applied under the customs code of the FRY, we would collect something in the order of 70 million DM between now and the end of the year. I think that we can do slightly better than that. We won't use exactly the taxes that are in place now, because they are a mixture of ad valorem taxes and specific duties. In the first instance it is going to be easier to collect just ad valorem taxes. If we set ad valorum taxes at a level that we might be able to justify, we will be able to collect between 80 and 90 million DM before the end of this year.

So that's the revenue side of the budget. What's on the expenditure side? The expenditure side of the budget is the priorities I gave you. It's education, health, law and order, utilities. We estimate that we need about 10 000 workers in the health sector, and about 26 000 workers in the education sector, that's primary teachers and secondary teachers. We need something in the order of 15 000 people in law and order and we need something in the order of 6500 people in the utilities, in the electricity companies, waste collection and so on. That's fewer than 60 000 people, it's well under half of the public sector employees who were there before the war.

If we paid them only what they were previously being paid in the parallel economy, it would cost us something in order of 135 million DM. I think we have to do better than that. UNMIK's basic goal is to be better than what was there as a parallel economy before. UNMIK has to be offering a better future, it has to be offering an alternative to some of the forces that may develop if UNMIK is not working. There are alternatives, there are parallel possibilities, and they are not, frankly, what we want. So UNMIK has to be able to do a bit better. If we therefore pay the public sector a little bit more, then with the purchase of essential goods and a slightly better salary scale, the amount that it is going to cost us between now and the end of the year is in the order of 170 to 180 million DM.

That means that there is a deficit of 80 to 90 million DM. Let's call it 80 million DM that is needed to pay for the recurrent financing. I hope that I have made the point that this recurrent financing has to be paid for by somebody. I hope that I have made the point that it can't be paid immediately from internal resources, that there is just no way of collecting any revenue until we make some salary payments and there is no way of collecting enough to cover the 5-month period. But what I will be able to show you is that the revenue stream will be increasing while the expenditure stream will be constant. So the gap will be closing. I hope to present soon some actual estimates of how fast the gap will close. We are not saying: ‘finance recurrent expenditure forever’; we are saying ‘finance recurrent expenditure for some months’. And leave us some time to show you how quickly that gap will close. I hope that that is a realistic estimate, it's a first try at evaluating the gap, and outside are the detailed tables on which those numbers are based.

Let me finish by saying that your response has to be very rapid indeed. One of my starting points was how fast the situation was changing in Kosovo. If we don't react, and you, the donors, don't react, very quickly, UNMIK won't be able to do its job. We will have a lovely time in Kosovo watching the development of a vibrant economy, but it won' t be what you or I expected.