This document is also available in a printer-friendly PDF format (4 pages, 22 KB).

Chairmen's Conclusions

High level officials from 38 countries and 19 international organizations met in Brussels on March 12, 2002, for a Donors' Meeting for the former Yugoslav Republic of Macedonia.¹ The meeting was convened at the request of the parties to the Framework Agreement, the signing of which ended the armed conflict in the former Yugoslav Republic of Macedonia in August 2001. Consistent with the provisions of the Framework Agreement, the objective of the meeting was to mobilize donor support for macro-financial assistance; for rehabilitation and reconstruction in areas affected by the conflict, and for financing of measures to be undertaken as part of the implementation of the Framework Agreement. The meeting was convened by the European Commission and the World Bank in the context of their overall donor coordination responsibilities for Southeast Europe.

The meeting was co-chaired by Messrs. Reinhard Priebe, Director, Western Balkans, European Commission and Christiaan Poortman, Country Director and Regional Coordinator for Southeast Europe, the World Bank. The delegation from the former Yugoslav Republic of Macedonia was led by H.E. Ljubco Georgievski, Prime Minister; and included Messrs. Zoran Krstevski, Deputy Prime Minister, Nikola Gruevski, Minster of Finance, Bedredin Ibraimi, Minister of Labor and Social Policy, Faik Arslani, Minister of Local Self-Government, and Ljube Trpeski, Governor of the National Bank of Macedonia. The meeting was also attended by the Special Coordinator of the Stability Pact, Dr. Erhard Busek.

Donor funding of about €307/US$274 million was pledged at the meeting for macro-financial assistance, for support of reconstruction, and implementation of the Framework Agreement, exceeding the base financing requirement of €256/US$228 million for 2002, estimated prior to the meeting. In addition, donors indicated another €271/US$241 million of donor assistance for general economic development purposes in 2002, and noted the substantial support provided for humanitarian purposes.

The meeting heard presentations by the authorities from the former Yugoslav Republic of Macedonia on the political and economic situation and challenges. Prime Minister Georgievski reaffirmed the Government's commitment to the full implementation of the Framework Agreement. He emphasized that the strategic goal of the country remained its integration in the European Union, on the basis of the Stabilization and Association Agreement. Minister Gruevski noted that the conflict not only resulted in loss of human lives, displacement and destroyed houses but it also caused significant damage to the economy as a whole. It led to the decline in output and collapse of exports, and to the weakening of business confidence and investors' interest. He expressed the authorities' hope that this trend would be turned around in 2002 based on sound economic policies and with the help of donor support. He reassured participants that the Government would adhere to the targets agreed with the International Monetary Fund (IMF) under the Staff Monitored Program, and that the authorities would negotiate an upper credit tranche arrangement with the IMF, as soon as possible, to succeed the current program. He also stressed that the implementation of the Framework Agreement entailed significant one-time as well as recurrent costs in 2002 and beyond, and called upon donors to provide both technical and financial assistance to the Government to help meet the challenge of implementing the provisions of the Agreement. Minister Ibraimi described the social impact of the crisis.

Participants welcomed the parliamentary adoption of the constitutional amendments and the new Law on Local Government, as envisaged under the Framework Agreement. These legislative acts, together with the agreement with the IMF on a Staff Monitored Program, provided the basis for convening the Donors' Meeting. Participants encouraged the parties in the former Yugoslav Republic of Macedonia to work together on the implementation of the Framework Agreement, and offered assistance to help in this process. Participants also emphasized that the country's future rested in its integration with Europe in the context of the Stabilization and Association Agreement and through intra-regional cooperation supported by the Stability Pact structures.

Needs for Macro-financial Assistance

The meeting heard a presentation by the IMF on the recent economic situation and challenges for 2002. The IMF representative explained that 2001 represented a major economic downturn, mostly due to the conflict, resulting in a decline of real GDP estimated at about 4.6 percent and a reduction in exports by more than 10 percent. The current account deficit reached an estimated 11 percent of GDP, and the reserve loss during February-December, 2001 amounted to about US$160 million. In part, due to significantly increased military expenditures, the fiscal deficit reached an estimated 6 percent of GDP. The IMF representative also summarized the main macroeconomic assumptions for 2002 that underlie the Staff Monitored Program. For 2002, the authorities forecast 4 percent GDP growth, 2.5 percent inflation and a fiscal deficit of 3.5 percent, without taking into account the cost of implementation of the Framework Agreement.² In order to enable the former Yugoslav Republic of Macedonia to strengthen its foreign exchange reserves, about €185 million (US$165 million) of balance of payments support would be needed from donors during 2002.³

Participants pledged €173 million in macro-financial assistance. A significant portion of this donor support would be provided on the basis of an upper credit tranche arrangement to be agreed with the IMF later this year that would also contribute towards meeting the balance of payments needs. In this context, the participants urged the authorities to adhere to the agreed Staff Monitored Program, and work closely with the IMF on a successor arrangement that would quickly follow this program. Participants also stressed the need for the Government to redouble its efforts in pursuing fiscal discipline and economic reforms that suffered a temporary setback due to the conflict. Continued reforms in the enterprise sector, public administration and governance to ensure transparency and combat corruption are required for generating the necessary supply response, regaining foreign investors' confidence and maintaining donor support.

Rehabilitation and Reconstruction in Areas Affected by the Conflict

Following an update on the humanitarian situation provided by UNHCR, as UN Coordinator for Humanitarian Assistance, the meeting heard a presentation by the European Commission on the rapid damage assessment carried out by the International Management Group (IMG). This assessment has been prepared in close cooperation with the authorities, focusing on the cost of urgent repairs to houses and related infrastructure necessary to enable refugees and displaced persons to return to their homes. The assessment has covered all fifteen municipalities affected by the crisis, which are mostly in the northern and western parts of the country. Most of the conflict-related damage affected housing, and to a lesser extent electricity transmission and distribution. Damage was less significant in other sectors. The total reconstruction cost amounts to about €45-€73 million of which housing reconstruction represents €29-56 million, depending on the level of housing reconstruction.⁴ Reconstruction of electricity transmission and distribution costs over €12 million, and has been fully financed by the European Commission, while the remaining amount of about €4 million would be required for reconstruction of schools, health facilities, water supply, roads and some religious buildings.

The European Commission's representative explained that an agreement was reached with UNHCR, according to which UNHCR would implement, through NGOs, reconstruction of the least damaged (Category I and II) houses, while European Commission funding would be used for the reconstruction of some of the more damaged (Category III and IV) dwellings. Reconstruction activities started immediately after the conflict, and have made significant progress since then. All the least damaged Category I houses and about another 2,000 housing units with more significant damage (Category II-IV) have been or being repaired, although not necessarily restoring their original condition, leaving less than 900 houses yet to be reconstructed to an acceptable level.⁵

Participants announced commitments and new pledges on the order of €85 million in support of rehabilitation and reconstruction, including commitments made during the second part of 2001 for the financing of reconstruction needs identified in the IMG damage assessment.

Status and Cost of Implementation of the Framework Agreement

The meeting heard a presentation by the EU Special Representative on the status of the implementation of the Framework Agreement and the latest political developments, notably the recent commitment of the four parties, signatories of the Framework Agreement, to quickly adopt the remaining main laws and legislative modifications foreseen in this agreement. The European Commission then presented a report on the costing of the implementation of the Framework Agreement. Several provisions of the Framework Agreement related to the development of decentralized government, non-discrimination and equitable representation in the public administration, education and use of languages, implementation of the census, police reform, and demining, will result in incremental one-time and recurrent cost in 2002 and beyond. The representative of the European Commission explained that there had been significant efforts, in close collaboration with the authorities, to quantify these incremental costs. However, given the fact that some major policy decisions, particularly in the area of decentralization, are yet to be taken, some of the cost estimates are tentative and will need to be refined as the necessary policy decisions are taken and on the basis of further technical work. Nevertheless, it is important to gauge the level of donor assistance now so that those activities that are ready to start can proceed without delay. As for 2002, the cost of implementation of the Framework Agreement is estimated at about €25 million.⁶ In 2003 and 2004, the estimated cost is about €29 million and €22 million, respectively, with an increasing proportion of recurrent cost.

Participants pledged €49 million to support the implementation of the Framework Agreement in 2002 and beyond. They also indicated €32 million in donor assistance already committed in 2001, in areas covered by the Framework Agreement. Participants emphasized the need for strong coordination by the authorities in the implementation of the Framework Agreement, and also the need for close coordination among donors, under the leadership of the European Commission, to maximize the efficiency and avoid duplication of donor support in this area.

Assistance for Economic Development

Finally, participants also indicated another €271 million of donor assistance for economic development in 2002. Participants emphasized that support for economic development will contribute to peace and stability, and will accelerate the country's integration into European structures, in line with the objectives of the Stabilization and Association Process.

For further information, please go to the Joint EC/WB website at:
http://www.seerecon.org/mdm

¹ The background documents for the meeting have been posted on the http://www.seerecon.org website.

² The salary expenditures of additional policemen (some €2 million), as envisaged under the Framework Agreement, have been included in the 2002 budget.

³ The amount of €185 million includes about €2.2 million budget support disbursed at end-2001.

⁴ The higher amount represents the reconstruction of the full size of damaged houses, whereas the lower amount corresponds to the reconstruction of 100 square meters of habitable space in each house.

⁵ The number of Category I houses has been increased from 2,538 to 3,241 since the original damage assessment, based on reports by the agencies implementing housing reconstruction. 238 of the remaining 885 houses have already received basic shelter assistance but require further funding to complete reconstruction even to the minimum IMG standard.

⁶ This amount excludes about €2 million of recurrent cost that has already been included in the 2002 budget.