Since its establishment eighteen months ago, UNMIK adopted as its priority objectives the creation of a budget that would support a sustainable level of essential public services, the establishment of economic policies that would lay the foundations of a private market led economy, and the development of a social safety net for the needy. In all these spheres, UNMIK has a substantial body of achievements to its credit. My colleague from the IMF has already spoken of fiscal policy; I would only note that, thanks to the careful stewardship of the Central Fiscal Agency, local financing of budget expenditures has risen impressively over this 18-month period from one-third in the final four months of 1999 to one-half in 2000 and is projected at two-thirds in 2001. Donor contributions to the budget in 2001 will be important but they will represent a fall in absolute amounts in relation to 2000 and a sharp fall in relation to overall expenditures.

The Central Fiscal Agency is also an instrument that provides assurance for the prudent and transparent use of funds. Further institutional work is currently under way: the establishment of internal audit capability, moves towards a full integration of the current and capital budgets, and strengthening of sector policy analysis capability In 2001, the donors will look to UNMIK to carry out the reduction in the bloated workforce in the education and health sectors and in the electricity company as well as raise significantly cost recovery in utility payments. The introduction of a modified VAT system, of a wage tax and a sustainable scheme for social assistance payments are also important policy commitments for 2001.

Two other areas of major progress in economic policies are reforms in the trade regime and the establishment of a framework for private sector development. Kosovo today enjoys a liberal trade regime that is also one of administrative simplicity. Imports financed by donors and by the diaspora have fuelled the recovery seen since the end of the conflict. Kosovo's nascent exports would be assisted by the fostering of liberal trade arrangements in the Balkans area and with the EU as well as by recognition of its certificates of origin for its goods. Steps in these directions are being taken or are planned; both donor countries and neighbouring countries can do much to assist Kosovo's exports. UNMIK's intention to abolish the external tariff (upon the introduction of the VAT expected to take place in mid-2001), with a revenue-neutral change in the VAT rate, will help to create a neutral trade and fiscal regime and remove some large loopholes in revenue collection.

The recent passage of laws on enterprises, contracts, pledges and foreign investment provided the essential basis for encouraging the formation and growth of private enterprises. At the same time, UNMIK has taken steps to award concessions in certain public enterprises and to develop a framework for increased private participation in viable enterprises and liquidation of bankrupt ones. Impressive progress has been made in registering enterprises under the new legal regime. It will now be important to focus on the implementation of these laws and on developing an effective, fair regulatory regime as well as on devising the next generation of legislative changes, such as on competition and bankruptcy laws. The functioning of an efficient financial intermediation system still appears some way off, though the supervision framework and the banking law (enforced by the UNMIK-created Banking and Payments Agency) are in place, and one internationally-backed bank has completed nearly a year of operations. This Agency will also face the task of making available euro banknotes and coins in a year's time

The agenda for the year ahead will include the reforms mentioned earlier, but they will be dominated by three policy measures of considerable importance. First, the transparent and efficient working of the newly-elected municipalities place several demands on UNMIK: certification of the municipalities as to their administrative and financial capacity; a clarification of the revenue-raising powers as well as the expenditure responsibilities of the municipalities and the relation to the Kosovo level; and policies to deal with the wide disparities in municipal income levels.

Second, UNMIK intends to adopt a strategy to fight or to prevent corruption, by embedding within public administrative structures appropriate safeguards, by creating simple, fair, transparent laws and regulations on commercial activity, by creating a permanent capacity in civil society to monitor public sector performance and to set up partnerships to these ends If successful, such a strategy will distinguish Kosovo from its neighbours and provide further assurances to donors on the probity of use of public funds.

Third, the termination of the emergency phase of humanitarian assistance to Kosovo and the existing level of poverty and social need now require the formulation of a sustainable social protection net. UNMIK has begun work to define assistance policies and target them and to build up institutional capabilities. The challenges lie in fitting the needs of single-headed families and children to resources, to introduce a pension system and to cater to war invalids and veterans.