Opening Remarks by Mr. Christiaan Poortman, Country Director and Regional Coordinator for Southeast Europe, The World Bank

At the beginning of 2001, FYR Macedonia was a country with stable macroeconomic conditions, implementing comprehensive structural reforms, and receiving increasing inflows of private investment. Economic growth was projected at 5-6 percent for 2001, and external financing needs from official sources were expected to be small.

The recent conflict brought losses of lives, massive displacement of the population at the height of the crisis, and imposed a significant economic setback, as described in detail in the background documents prepared for this meeting. Instead of growing dynamically, as projected at the beginning of last year, GDP fell by almost 5 percent in 2001. We are here today to discuss how the international community could best support the authorities with exceptional assistance to overcome the effects of the conflict and put the country back on the path to economic recovery and social development.

We will be seeking close to €260 million from donors to help the authorities build up the country's international reserves to enhance macroeconomic stability, repair conflict-related damages, and embark on the full implementation of the Framework Agreement. At the same time, we will be also seeking commitment from the authorities to pursue sound macroeconomic policies, and reinvigorate economic reforms.

We welcome the authorities' agreement with the IMF, at the end of last year, on a Staff Monitored Program. I am sure that all of us in this room will follow closely the implementation of this program as an indication of the government's commitment to sound macroeconomic management, and look forward to an upper credit tranche arrangement during the course of the year.

While focusing on macroeconomic stability is absolutely necessary, it is not enough. FYR Macedonia needs to continue with the economic reforms that lead to sustainable economic growth and increasing living standards, so important for a society that went through the shocks of the recent conflict. Indeed, long term economic recovery and growth will be an important element in the process of national reconciliation and integration. I see three major areas of priority for the years to come:

• Private sector growth and job creation;
• Enhancing the efficiency of the state; and
• Alleviation of poverty and development of human capital

Let me briefly make a few comments on each of these priorities.

There is no question that the private sector will remain the engine of growth and the major provider of jobs in FYR Macedonia. During the past few years, the authorities have made progress in banking reforms but much less has been achieved in the enterprise sector, partly as a result of the conflict. Under the current circumstances, the government will need to re-double its efforts to encourage the development of the private sector, attract direct foreign investment, and resolve, with appropriate social sensitivity, the many loss-making enterprises that represent a drain on the budget. Clear "rules of the game" and full transparency are essential in all this.

During the last 12-18 months, the authorities have been working (with the World Bank) on a comprehensive program of public sector management reforms. Despite the conflict, there have been several areas where advances were made. But this is a multi-year effort, and the implementation of the Framework Agreement will represent new challenges. In particular, the devolution of responsibilities to local authorities will change in many ways how the public sector operates in FYR Macedonia. Designing an appropriate framework for this to happen in an orderly fashion, and building capacity at the local level will be a formidable task. We will need to assist the parties in finding the most effective and least costly path of implementation.

As we have learned from experience throughout Central and Eastern Europe, transition reforms could lead to income disparities and at least temporarily growing level of poverty in some parts of society. The conflict in FYR Macedonia has created additional vulnerable groups, including many of those who remain displaced. The authorities will need to continue to pay special attention to the issue of poverty, and we are encouraged that the work on defining a poverty alleviation strategy has continued even during the conflict. Finally, education, and more broadly, the development of human capital, will need to remain a high priority given its role in economic development and reduction of poverty.

Let me conclude by saying that we are here to help the authorities to overcome what we all hope is a temporary economic setback. By doing so, we are not only assisting FYR Macedonia-we are also providing an important element in our commonly-shared strategy to bring economic and social prosperity to Southeast Europe. As such, the commitments made at this Meeting-on the side of FYR Macedonia as well as the side of the international community-fit into the broader framework for regional peace and stability.