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Balkan Diplomats Assess Economic Impact of Kosovo Crisis
The Washington Diplomat / July 1999

By Larry Luxner

As NATO peacekeeping troops fan out across Kosovo and ethnic Albanian refugees return home by the tens of thousands following the devastation of war and unspeakable atrocities, diplomats in Washington are debating how to make the Balkans safe for democracy and foreign investment.

On June 15, nearly 150 people gathered at the Balkan Assistance & Reconstruction Conference at Washington's Omni Shoreham Hotel. Among the speakers were nine Balkan ambassadors and representatives of Kosovo's provisional government. Among the listeners were executives of multinationals such as Caterpillar, Agco Corp., Fluor Corp., J.A. Jones Construction, Bank of America, Salomon Smith Barney, Harz Engineering and CH2M Hill -- all of which stand to make hundreds of millions of dollars in what amounts to Europe's biggest reconstruction project since World War II.

"The time for our region has come," Romanian Ambassador Mircea Geoana told conference participants. "What happened in Central Europe in the early 1990s will now come to Southeastern Europe. Unfortunately, we needed a couple of Balkan wars to make this happen."

Added Geza Jeszenszky, Hungary's ambassador in Washington: "This is the first time there's a wide awareness that if you want to succeed, you must look at the whole region. Even for countries where there was no war, you can still see the remnants of communism. It is not simply a task of rebuilding, but of large-scale reconstruction."

The conference, the first of its kind in the wake of the peace agreement signed between NATO and Yugoslav President Slobodan Milosevic, focused on economic rehabilitation for the entire Balkans -- a vast undertaking whose price tag has been estimated at anywhere from $20 billion to $100 billion.

Timed to coincide with announcement of a new "Marshall Plan" for Europe by the G-8 powers, the Washington meeting was organized by Equity International Inc. and co-sponsored by the Center for Strategic & International Studies, the Romanian-American Chamber of Commerce, the U.S. Business Council for Southeastern Europe, Space Imaging and other private and non-profit entities.

The ambassadors of every Balkan nation showed up at the event -- except for Serbia itself, which has no diplomatic relations with the United States. In fact, the only Serbs in attendance were two officials of the Washington-based United Serbs of America.

Nowhere else in the Balkans is economic assistance more badly needed than in Kosovo itself, where damages are estimated in the tens of billions of dollars.

Dino Asanaj, the New York representative of Kosovo's "provisional government" in exile, told conference participants in a keynote speech that his people's economy is not impoverished and in ruins only due to the past three months of conflict.

"Since 1989, when Serbia forcefully abolished Kosovo's autonomy, our economy has witnessed a shocking decline in output," he said. "Between 1989 and 1995, industrial production declined over 70%, construction declined over 80%, general economic output was reduced by nearly 50%, and per-capita production was halved. The changed introduced in Kosovo's economy were politically motivated. The goals were to use its main resources and production facilities as a tool for financing the Milosevic regime and rewarding cronies, to destroy the basis of employment in order to render the Kosovar Albanians unemployed and desolate, and thus, apply economic pressure to force them to leave the region."

Another Kosovar speaker, Avin Mustafaj -- director of the Kosovo Relief Fund in New York -- says "our primary goal is to provide funding for local NGOs that are directly involved in repatriating refugees. The first order of business will be to establish a rule of law. These people will seek retribution by their own means. There will need to be great investment in the court system. Unless this is done, companies investing there won't feel secure."

Once homes are rebuilt in the estimated 1,000 villages that were rendered virtually unlivable as a result of Serbian aggression and destruction, heavy industry will have to be revived, says Asanaj.

"The Trepça mines and processing facilities have enormous economic potential," he said. "Coal reserves, estimated at 12 billion tons, combined with the potential of existing thermal plants, have provided and can provide in the future energy not only for Kosova, but even for parts of neighboring countries. Agriculture remains another pillar for Kosova's economic development. It is estimated that pre-conflict levels of agricultural output were sufficient to feed the entire Kosovar population. With investment and modernization, agricultural production will increase."

Asanaj added that "construction will become a booming business in order to fulfill the needs of large-scale projects for the development and improvement of infrastructure, and the needs of a rapidly expanding population."

Here's a look at how Washington diplomats from elsewhere in the Balkans assess the war in Kosovo and its long-term impact on their countries' fragile economies:

ALBANIA: The Albanian economy has been devastated by recent events in Kosovo, and Albania's ambassador in Washington, Petrit Bushati, says his country will need lots of help in the months and years to come.

"The atrocities and ethnic cleansing of Serb military troops in Kosovo was aimed at destabilizing Albania and other countries as well, as part of Belgrade's ultra-nationalistic strategy," Bushati told potential investors. "Since the start of the refugee inflow, Albania has faced an exceptional fiscal challenge, which puts at risk its macroeconomic stability, its investment program and the structural reforms invigorated and intensified after the 1997 internal political crisis."

"In order to cope with this unexpected situation, as a first emergency stop the government decided to freeze all domestically financed investments and cut operating expenses by 20%," said the 50-year-old ambassador, a former journalist who later became a diplomat during the last years of Albania's Marxist dictatorship, and presented his credentials in Washington last year. "The government also postponed a prior decision on salary increases for civil servants. These emergency measures amounted to 20% of the budget, but has remained insufficient to make up for the demands on public resources to meet the basic needs of refugees."

Nearly half a million Kosovar refugees have spilled into Albania since the beginning of the crisis three months ago -- representing a 15% jump in Albania's population of 3.3 million. According to the government in Tirana, the crisis will cost Albania around $860 million. Some $650 million of that is in humanitarian aid for the refugees, while another $210 million is for direct charges to the budget.

Supplementary expenses are also needed for health care, education, public order, assistance to families hosting refugees, reduction of customs revenues and infrastructure investments necessary for bringing water, electricity and feeder roads to refugee camps.

All in all, Bushati says Albania -- long regarded as the poorest country in Europe -- needs around $4.4 billion to upgrade its infrastructure. That includes railway transport, highways, water supply, sewage disposal, sea ports, electricity interconnection, telecommunications, postal services and air transportation.

Says Bushati: "The development of regional cooperation and Euro-Atlantic integration is the solid basis for guaranteeing stability, security and progress, but also for a future Balkans without national hatreds, nationalism and prejudices."

BOSNIA & HERZEGOVINA: When it comes to suffering, the Bosnians ought to know. Muhamed Sacirbey, Bosnia's ambassador to the United Nations, has some advice for those hoping to put Kosovo back together politically and economically.

"We don't hear this time, like we did three and a half years ago in Bosnia, about the exit strategy. NATO forces are in Kosovo for the long run," he said, adding that "Milosevic was a critical part of the Dayton peace accords. The West won't make that mistake again."

Sacirbey, 43, is a native of Sarajevo whose family left the country as political refugees in 1963, and lived in Europe and North Africa before settling in the United States in 1967. In 1974, he entered Tulane University on a football scholarship, and went on to graduate with a law degree. Sacirbey was appointed Bosnia's ambassador to the UN in 1992 and has held the post ever since, except for a one-year stint in 1995-96 as foreign minister, during which time he was a key player in the Dayton peace talks.

"Our countries are undergoing two transitions: from war to peace, and even more difficult, from communism to free-market economies," he said. "Regarding privatization, it's not only a matter of valuing companies, but also of social justice. There is a great political demand for social accountability, which complicates the privatization process."

Sacirbey says international aid groups and foreign investors have already spent $2.7 billion in Bosnia, but there's a commitment to spend a total of $8 billion.

"In the old communist system, we suffered from 50 years of malaise. We are now the front-line states against the ugly mixture of old-line communism and new fascism," he said. "The only way to overcome this is through intensive economic rehabilitation."

BULGARIA: Even though it wasn't directly involved in the NATO air campaign against Serbia, Bulgaria nonetheless suffered economically. Ambassador Philip Dimitrov says his country sustained between $700 million and $1 billion in lost income as a result of the fighting in Kosovo.

"Our GDP will grow 2.5% to 3% this year, not 5% as we previously expected," he said. "Inflation will go up from 1% to 3% this year. Privatizations have been delayed. But the good news is that with all the damage, we can still say Bulgaria has a stable economy."

This year, Bulgaria expects to get just under $3 billion in foreign direct investment (FDI), up from $700 million in 1997. The United States and Germany are the main foreign investors.

"The main attention should be paid to the countries which suffered most," said Dimitrov. "But the approach should be regional. One of the things is that especially as far as Bulgaria is concerned, we very much count on foreign investment. Without FDI, nothing will actually go forward."

Dimitrov, who presented his credentials to President Clinton in August 1998, was formerly Bulgaria's ambassador to the United Nations. In November 1991, he became Bulgaria's first democratically elected prime minister after the end of communism, and oversaw the beginning of democratic political and economic reforms.

"A few things are absolutely obvious. The transportation corridors of southeastern Europe must be expanded. We very much hope there will be funding for this. The same is true for telecommunications and the electricity system. Rebuilding and upgrading the infrastructure is the only way to guarantee economic stability in the future."

Adds the Bulgarian diplomat: "We don't want money. We need commitment. Great projects and international financial institutions are important, but without private business, nothing will be accomplished."

CROATIA: Croatian Ambassador Miomar Zuzul says the crisis in Kosovo has cost his own country $1.5 billion in direct losses, and much more in indirect losses.

"The moment we were looking to privatize big state-owned companies, war broke out in Kosovo," he said. "Now potential investors think they should pay less for these companies."

Zuzul, who was a professor at the University of Zagreb in 1991, when Croatia declared independence and was attacked by Serb forces, says that "thanks to Serbian aggression, the total loss we suffered was over $21 billion, equal to today's annual GDP."

Approximately 140,000 houses were completely destroyed in the bitter fighting, which created 800,000 refugees and displaced persons -- equivalent to 20% of Croatia's population.

"Since the 1995 signing of the Dayton peace accords, our economy has improved," said Zuzul, 44, who was Croatia's permanent representative to the United Nations before coming to Washington in February 1996. "Inflation is now around 3% on an annual basis. Croatia is now in a group of upper-middle-income countries, and we have every reason to believe our economy is improving. Croatia has signed trade agreements with Bosnia, Slovenia and Macedonia. One day we'd like to become a full member of the EU."

Peace in Croatia has brought with it large-scale investment, according to Zuzul. Some 10,000 new houses have been built, and U.S. construction giant Bechtel recently won a $1 billion contract for highway construction. The United States is now the largest single foreign investor in Croatia.

Yet tourism has been severely hurt by the hostilities in Kosovo. The charming port city of Dubrovnik has always been Croatia's main tourist attraction, but revenues from tourism -- which reached $2.5 billion in 1998 -- have fallen by half in the wake of the fighting in Kosovo.

"Because of all our experience [with the Serbs], Kosovo didn't surprise us," says Zuzul. "If anything surprised us at all, it was that the world was once again surprised."

MACEDONIA: Still home to around 270,000 ethnic Albanian refugees from Kosovo, the Republic of Macedonia has borne the brunt of the latest Balkan war through no fault of its own.

Ljubica Z. Acevska, Macedonia's ambassador in Washington, says it will take many years for her landlocked little country of 2 million to recover from this latest tragedy.

"The war in Kosovo has set back our economy by decades. For this year, we were projecting a GDP increase of 6%. That of course will not happen," she said. "We suffered a dramatic loss of trade with Yugoslavia. Many investments that were supposed to come to Macedonia did not come, and many contracts that were agreed upon never materialized because of the instability."

Acevska, who's been her country's ambassador vemberNongton nce from Yugoslavisince November 1995 -- four years after it declared independence from Belgrade -- is the poorest of the six former Yugoslav republics. Its economy has been in trouble since the beginning, following the impositon of two embargoes by Greece, which for nationalistic reasons objected to the new country's name and flag.Because of the strict UN sanctions against Serbia, says Acevska, Macedonia then lost 70% of its export market.

But the war in Kosovo has overshadowed everything else -- not only disrupting exports of Macedonian tobacco, textiles and wines but shattering investor confidence in the entire region.

"My country had to provide for the refugees, which was an added burden on the economy," she said. Of enduring concern is Macedonia's rather large and restless Albanian minority. According to the 1994 census comprises 23% of the population, though local Albanian sources claim the real number is as high as 40%.

In order to get the Macedonian economy back on its feet, says Acevska, politicians and international financial institutions should "write off debts to the Paris Club, open up EU markets to Macedonian products, and integrate Macedonia into the EU. Macedonia should become the center for establishing the rehabilitation pact."

"Just as the troops went in immediately after the peace agreement was signed, so must economic assistance," she told conference participants. "This tragedy offers opportunities for everyone to help the refugees and rebuild their lives."

MONTENEGRO: As acting chief of the Montenegro Trade Mission in Washington, Zorica Maric is in a particularly difficult position.

Her tiny republic has loyally remained Serbia's junior partner in the Yugoslav Federation, yet the sentiment for independence is increasing every day, as Montenegrins embrace pro-Western policies and increasingly resent Serbian dictator Slobodan Milosevic for his brutal campaign against ethnic Albanians in Kosovo, and for having destroyed Montenegro's economy.

"The war in Kosovo is over. However, Montenegro is still living under the burden of a state of war order, and the pressure of the Belgrade regime," Maric told delegates at the reconstruction conference. "The tragic Milosevic decade, which resulted in international sanctions, inflation and overall stagnation in economic development, has caused Montenegro to lose around $7 billion in GDP over the last 10 years."

Maric said her republic has taken in 70,000 Kosovo refugees made homeless by a war that also disrupted the Montenegrin economy.

"Numerous potential investments were lost, especially in the tourism sector, and privatization was substantially slowed down," she said. "It is important to understand that at this moment, from the aspect of economic development, the Federal Republic of Yugoslavia consists of three entities: Kosovo, which is the focus of the UN and international reconstruction projects; Serbia, which must democratize in order to become eligible for international assistance, and Montenegro, which was not substantially damaged and needs funds for further economic reforms and development."

Maric says her government's priorities are to step up the selloff of state-owned companies and organize tenders for the five most attractive tourist destinations along the Montenegrin coast; attract investment for strategic infrastructure projects such as expanding the water system and modernizing the Port of Bar; to build highways connecting Montenegro with Albania and other neighboring countries, and to rebuild Podgorica Airport, which was damaged during the NATO air strikes.

"The United States and the European Union have started granting bilateral economic assistance to Montenegro," she said. "Furthermore, Montenegro recently became a beneficiary of the Stability Pact for Southeastern Europe, which has opened the door for regional economic integration. This means that Montenegro has been accepted by the democratic world not only as a political, but also as an economic partner."

SLOVENIA: By far the most prosperous of all the former republics in the Yugoslav Federation, Slovenia has been trying to use its influence to promote peace and investment in the region.

"We are very much affected by whatever goes on southeast of Slovenia, or anywhere in the Balkans," says Slovenia's ambassador to the United States, Dimitrij Rupel. "The Stability Pact for Southeastern Europe is a concept which has been worked out by the most prominent leaders of the world. It's a design for the reconstruction of the Balkan region. We have participated very actively in this."

Rupel, the 53-year-old former mayor of the capital city of Ljubljana, says Slovenia's per-capita GDP is around $12,500 -- putting it ahead of Portugal and Greece. "We have the best-rated economy in Central and Eastern Europe," he said. "Slovenes were the first businessmen in Bosnia and Macedonia, as early as 1991."

That was the year Slovenia declared independence from the Yugoslav Federation -- becoming the first to do so, and the only one to break away with relatively little bloodshed. Since then, says Rupel, Slovenia has invested $228 million in neighboring Croatia, $30 million in Serbia and Montenegro, $28 million in Poland, $21 million in Bosnia, and $19 million in Macedonia.

"Slovenia wants to demonstrate its decisiveness for those countries in the region that need the most help," said Rupel, adding that recently, the Slovenian Investment Society extended a $25 million credit line to the Bosnian Federation of Investment Banking "which should enable Bosnian companies to purchase equipment to start production in factories which were stopped because of war."

Meanwhile, Slovenia -- which has taken in 4,000 war refugees from Kosovo -- has applied for full membership in the European Union. Rupel says he expects his country to gain EU accession by 2003, adding that "we believe it's the responsibility of the EU and everybody in the area to work toward peace."

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