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Yugoslavia: OECD Says Kosovo Starting To Hurt Balkan Economies

Prague, 19 May 1999 (RFE/RL) -- The Organization for Economic Cooperation and Development (OECD) says the entire Balkan region is beginning to feel the economic impact of the Yugoslav conflict.

In a report just issued (May 18), the Paris-based OECD describes the Kosovo crisis as a humanitarian disaster with economic and social spillovers radiating outward from the conflict zone.

It says that for a million displaced Kosovars the situation is already catastrophic, and that Albania and Macedonia are under enormous strain through absorbing the influx of refugees. In Yugoslavia itself, people are likely to suffer substantial economic hardships because of the disruptions of the war, and in Bosnia, the fragile peace structure is holding for the moment but the risks of destabilization are clear.

As to Bulgaria, Romania, and Croatia, the OECD says the direct costs to them so far have been less dramatic, but indirect costs are becoming significant and could undermine stabilization and economic reform programs. The report says that in other countries like Slovenia, Hungary, Greece, Turkey, and Italy, small costs are already evident.

OECD economic expert Paul Atkinson told RFE/RL that the longer the conflict lasts, the greater are the dangers for the region. He spoke by telephone today from Paris.

"It's obviously uncertain as to what is going to happen, but the more serious the conflict becomes the possibilities for countries like Macedonia, Bulgaria, Romania to be increasingly affected is obviously there."

The report says that unless the conflict ends quickly, the region is going to need substantial extra assistance, not only to help the refugees, but also to cushion the impact of the crisis on national budgets and external accounts, and to avoid the risk of a breakdown in government structures. The challenge, it says, will be to deliver this assistance in an effective way.

Atkinson noted that even before the Kosovo fighting, many Balkan countries were in economic trouble:

"There was a very tenuous budgetary position and external financial position in many countries of the region and this can only make it worse. It will affect certainly their trade relations with neighboring countries, it will affect external income; tourism is for instance an important industry in a number of countries in the region."

He says that with summer approaching, Croatia is likely to be one of the worst hit of the tourist destinations. The OECD report says half of all holiday bookings in Croatia have been cancelled since the outbreak of hostilities, and if the conflict becomes drawn out, tourism in parts of Greece, Bulgaria and even in Italy could suffer.

The impact goes far beyond tourism, of course. The report says that because the way trade patterns have grown up in the region, export markets are now being lost. For instance, Federal Yugoslavia is an important destination for exports from Bosnia-Herzegovina and Macedonia. Croatia's exports too could be damaged, because although its links with Yugoslavia are not so strong, it does have major trade contacts with Bosnia.

For their part, Bulgaria and Romania are not so directly affected in this context. The report says that Yugoslavia and its immediate neighbors are not important export markets for them. However, things are more serious when it comes to transport links. Yugoslavia has always been a major transit zone for shipments between west and southeast Europe. For instance about 60 percent of Bulgaria's exports normally transit though Federal Yugoslavia. The higher transport costs Bulgaria and other countries now face because of diversions will reduce their external competitiveness.

The OECD says that even if re-routing through Romania remains a possibility for the Bulgarians, the blocking of the Danube and difficulties with ground transport have added significant extra costs to Bulgaria's transport bill -- more than a million dollars a day, according to official estimates. To a lesser extent the same is true of Greece and Turkey.

Atkinson points out another significant difficulty:

"Also for countries like Bulgaria which have a privatization program in mind, this is affecting the attitude of international investors and could set back some of the privatization programs in the region."

The report says the rise in risk premiums on outstanding Bulgarian and Croatian bonds since the crisis began is another indication of flagging foreign investor confidence. A rise has also been seen in the risk premium for Hungary.

Romania, so far, has been less affected than Bulgaria by the spillover of the conflict. Nevertheless, it may face a serious setback in its efforts to pursue essential reforms. Both there and elsewhere in the region, there are very small margins for maneuver, and any further difficulties in revenue collection and extra crisis-spending would put budgets under pressure.

What's needed now, says Atkinson, is for the international community to look beyond the present conflict, and to ponder a long-term reconstruction plan for the Balkans. Firstly, physical reconstruction will be necessary. A new social infrastructure will also be needed in terms of helping the countries towards a strengthened rule of law and democratic institutions. Atkinson adds to the list:

"Most importantly reconciliation among the various peoples in the region [is needed], and then you need to develop general policies which will be conducive to economic growth and improving economic conditions."

The report says the costs of such a program will be high, and will involve a number of players, including the international financial institutions, the European countries, bilateral donors and not least, the efforts of the Balkan states themselves.