European Commission / World Bank

Chairs' Conclusions

Representatives from 37 countries and 14 international organisations met in Brussels November 18, 2003 for a Donor Co-ordination meeting for the State Union of Serbia and Montenegro. This meeting was convened by the European Commission and the World Bank in the context of their overall donor co-ordination responsibilities for South East Europe.

The meeting was co-chaired by Mr. Reinhard Priebe, Director, Western Balkans, European Commission and Ms. Orsalia Kalantzopoulos, Country Director and Regional Co-ordinator for Southeast Europe, the World Bank. The delegation from Serbia and Montenegro was led by Mr. Branko Lukovac, Minister for External Economic Relations, and included for the Republic of Serbia Mr. Goran Pitic, Minister of International Economic Relations, Mr. Bozidar Djelic, Minister of Finance and Economy, Ms. Gordana Matkovic, Minister for Social Affairs and Mr. Ozren Tosic, Commissioner for Refugees and Displaced Persons of Serbia; for the Republic of Montenegro Ms. Slavica Milacic, Minister of Foreign Economic Relations and European Integration, Mr. Slavoljub Stjepovic, Minister of Labour and Social Affairs, Mr. Slobodan Backovic, Minister of Science and Education.

The meeting heard and discussed presentations by Serbia and Montenegro, the European Commission, the World Bank and the International Monetary Fund on the progress achieved in stabilising the political and economic situation and on the challenges ahead in sustaining a viable reform path towards EU integration.

Participants congratulated the authorities on the significant progress achieved to date and their commitment to continue with the implementation of the reform agenda. While noting that some momentum has been lost during the past 18 months, they urged the authorities to stay on track. Donors reaffirmed their readiness to strongly support Serbia and Montenegro on the path of democratic and economic reform and EU integration. They recalled that a stable institutional framework is the key to enhancing economic development and to attracting investments. They encouraged all political parties to demonstrate a high degree of responsibility to ensure that the current political situation does not become an obstacle to the acceleration of the reform process.

The political framework

Since the launch of the Economic Recovery and Transition Program (ERTP) at the donor conference of June 2001, the constitutional framework of Serbia and Montenegro has changed. Following the adoption of the Constitutional Charter, the Federal Republic of Yugoslavia became the State Union of Serbia and Montenegro. The authorities confirmed that the relations of Serbia and Montenegro with the European Union are a high priority on their political and economic agenda.

The European Commission is assessing the readiness of Serbia and Montenegro to negotiate a Stabilisation and Association Agreement with the European Union. This will include a review of the full and continued respect for political conditions - democratic standards and institutions, the rule of law and fight against corruption and organised crime, respect of human rights, full respect of international obligations and co-operation with the International Crime Tribunal for Yugoslavia (ICTY), and the need for further market economy reforms, including the implementation of the Internal Market and Trade Action Plan, necessary to create a single economic space. It was also recalled that a contractual relationship requires the State Union to be an efficient and credible international interlocutor.

The authorities reaffirmed their commitment to enhancing institutions at all levels of the new State Union so as to make further progress on democratisation and rule of law and in sustainable economic and social reforms.

Economic stabilisation and reform

Major progress has been achieved in recovering growth and stabilising the economy, thus providing a solid basis for social and economic development. Since 2000, GDP has grown by a cumulative 13%. Inflation has been reduced from 115% to 8 %. External debt was cut from 130% of annual GDP to 75%. A recent IMF staff mission found that the end-September fiscal, credit and external targets have been observed. It also reached preliminary agreement on most aspects of a program for 2004. However, early elections in Serbia will delay completion of the next review, under the 2002-05 Extended Arrangement.

Despite those substantial improvements, Serbia and Montenegro's external financing needs will remain large over the medium term. Privatisation proceeds in 2004 are expected to be sharply lower than in 2003, and financing needs - to be met by external grants and loans from official creditors, excluding purchases from the Fund - are estimated at about US$ 1.0 billion, of which US$ 0.3 billion would be in the form of balance of payments/budgetary support. The authorities should continue their efforts to reach agreement with remaining creditors on terms comparable to those granted by the Paris Club.

Progress in almost all areas of the ERTP has been substantial while proceeding at a different pace in each of the two Republics. Key steps were taken towards establishing a market oriented economy with commendable speed; these included price and trade liberalisation, tax reform, higher utility tariffs, an improved business climate, and improved labour laws. Physical infrastructure is being upgraded and the management of the energy, transport and telecom sector is being strengthened. The banking sector successfully underwent major restructuring and there is improved Central Bank supervision. On the social side, new education laws have been passed in both Republics and Serbia is also moving ahead with decentralising the delivery of education services. Both Republics have also adopted important new laws that work to restore the sustainability of the current state pension systems.

Looking ahead, reform efforts need to be intensified to ensure achievement of the far reaching institutional and economic reform agenda related to the Stabilisation and Association Process and to promote growth and reduce poverty. Accelerated reform of the public sector and judicial reform are among the most urgent priorities. The Poverty Reduction Strategy provides a comprehensive approach to reduce poverty, increase the well being of the people of Serbia and Montenegro and promote economic growth. Reforms of the country's health, education and social safety net systems were also identified among the key challenges of the near future necessary to tackle poverty, unemployment, and exclusion and refugee issues directly while also strengthening the country's economic base to generate more and better paid opportunities for the future.

Donor assistance and co-ordination issues

The meeting heard presentations on the implementation of international assistance, on achievements and remaining challenges. The needs estimated under the 2001-2004 ERTP amounted to € 4.6 billion. It was noted with satisfaction that some € 3.5 billion will have been committed by the end of 2003 and that it is expected that during 2004 the overall donor commitments in support of Serbia and Montenegro could reach an additional € 1.1 billion.

Several donors underlined the need for better donor co-ordination and harmonisation to assure that funds being allocated were used in the best possible way. They referred to the useful technical meetings that had been organised by the governments prior to this meeting. Donors urged the governments to continue to arrange technical meetings covering the various sectors possibly on a quarterly basis.