I would like to thank Commissioner Patten for hosting us here in Brussels, at the Regional Funding Conference for South Eastern Europe. I would also like to join him in welcoming all delegations to the Conference, and reaffirm our commitment to the goals of the Stability Pact – to achieve peace, stability and prosperity for all in South Eastern Europe.

Recent Developments

Since the outbreak of the Kosovo crisis, the international community has come a long way in assisting South Eastern Europe in dealing with the impact of the conflict: first, through short-term financial support to the most seriously affected neighboring countries - including refugee support - which fully covered their external financing gaps; and second, by organizing two successful donor conferences for Kosovo, raising funding both for short term humanitarian assistance and for longer term reconstruction and development. The High Level Steering Group for South Eastern Europe – co-chaired by the European Commission and the World Bank – has played a strong coordinating role in mobilizing this funding.

Long-Term Challenge

It is now time to look forward and focus on the longer term development challenges and financial needs of the Region. You have before you a Regional Strategy Paper for South Eastern Europe which was prepared by the World Bank on behalf of the High Level Steering Group and the Stability Pact. The paper emphasizes that success in consolidating peace and prosperity will depend not just on individual efforts by countries but most importantly on a joint commitment, on the part of the countries of the region to a stronger and sustained effort to reform their societies and economies, and on the part of the international community to the establishment of a credible and predictable path to integration in European and global structures, particularly the European Union.

It is in fact unlikely that increased prosperity and security can be established solely on the basis of national reform programs and intra-regional cooperation. As the Kosovo crisis has shown, neighboring countries bear significant economic and political costs, even if they are not directly involved in conflict. Small, closed economies do not generate sufficient demand to sustain growth; and small economies that are surrounded by instability and conflict will also be unattractive for investment. On the other hand, a clear path to integration with European and global structures will anchor expectations and provide a strong incentive for cooperation. In addition, embarking on such a path will require sustained commitments that will facilitate political and social change, discipline economic management, and provide incentives to improve governance and undertake reforms.

The Regional Strategy identifies four broad areas where progress is required that is common to all the countries of South Eastern Europe. These are:

• moving rapidly towards trade integration with the European Union and within the South East European region itself, and creating a stable, transparent and non-discriminatory environment for private sector development;
• fostering social inclusion and social change within the region to reduce tensions and create the conditions for peace and stability;
• improving institutional capacity and governance structures, and strengthening anti-corruption efforts in the region; and,
• investing in regional infrastructure to integrate the region physically with the rest of Europe and within itself, which must include initiatives that safeguard the environment.

I would like to stress that, while action on all these fronts will be needed, achieving our goals of peace, stability and prosperity in South Eastern Europe requires – perhaps more than anything else – overcoming the underlying causes of instability and conflict. This, in turn, means establishing stronger cohesion among the countries of the region, and within them. The situation of war-displaced persons is the most significant issue to be addressed to consolidate stability. The exclusion of minorities, the frustration of the unemployed, and the aspirations of the youth in the region also need to be addressed, through institutions that bring together ethnically, socially, economically diverse groupings, and provide possibility for participation, representation and dispute resolution. Only with greater tolerance and willingness of the people of the region to live side-by-side, can we hope to create a virtuous circle in which economic growth is widely shared, economic and social disparities are reduced, and larger stakes to cooperate are created for all.

A start has been made in identifying some of the projects and initiatives that would translate the regional strategy into concrete action. An ambitious "quick start" package of infrastructure projects has been prepared by the European Investment Bank; a comprehensive package of private sector development initiatives has been prepared by the European Bank for Reconstruction and Development; and the Working Tables of the Stability Pact have identified a list of regional initiatives in important areas associated with democratization, human rights, anti-corruption and security.

Realizing these projects and initiatives will require both the determined support – financial, technical and political – of the international community, and also - and perhaps more importantly - the sustained implementation of the necessary structural and institutional reforms by the countries of South Eastern Europe. It should be noted that financing for these projects and initiatives will need to be at appropriate terms and conditions. Many countries in the region have low levels of income and/or high debt burdens, requiring high concessionality in order to maintain sustainable external balances over the medium term. The regional programs would continue to be in addition to country-specific programs to be financed at country level, on the basis of national priorities and in support of national programs of reform.

The complexity of the task ahead re-affirms the importance of true partnership. This Conference – and its preparation – could only take place on the basis of close and productive cooperation between donors, international financial institutions, other international organizations and the countries of the region. The implementation of the programs and initiatives in front of us can only be successful if this partnership continues.

World Bank Group Program

I would like to reaffirm the commitment of the World Bank to work in true partnership, with all of you, for our common cause in South Eastern Europe. The World Bank Group has made a considerable effort to provide both policy advice and financial support to the countries of the region, especially in the aftermath of the Kosovo conflict. In the past two fiscal years, the World Bank's overall lending commitments to the countries in the region reached $1.4 billion, of which $490 million on concessional terms. For the current fiscal year and the next, we plan to commit $1.9 billion, which constitutes a considerable increase. Similarly, the IFC has undertaken $590 million in investments in the region during the past two fiscal years, and plans investments for an additional $500 million during the next two. Part of this assistance will be directed to financing of regional projects presented to this Conference, including an ambitious Transport and Trade Facilitation Program and an SME Facility, both covering all countries of the region.

We have just heard Commissioner Patten outline the commitment of the European Union to work in partnership with the countries of the region towards integration. I welcome the development of a new instrument – the Stabilization and Association Agreement – to map the path for integration of South Eastern Europe with the European Union. We, in the World Bank, intend to assist the countries of the region embark on this path, as we are doing with the countries of Central Europe and as we have begun to do with Bulgaria and Romania. We will also continue to assist the countries of the region in deepening their economic reform efforts and completing their transition to full-fledged market economies.