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Balkan Report: March 28, 2000

28 March 2000, Volume 4, Number 22

Setting An Agenda For Kosova's Economic Reconstruction. Kosova remains in flux, even one full year after NATO began to force the Milosevic regime to stop its ethnic cleansing campaign. Much of the current discussion on the province's future has centered on political and security issues (see "RFE/RL Balkan Report," 21 March 2000). But the social and economic tasks remain among the most daunting of all.

To date, most international efforts in the region have focused on rebuilding infrastructure, increasing public security, establishing the rule of law, and preparing for voter registration for local elections this fall. At the same time, Western governments have been increasing their pressure on Kosova Albanian refugees to return to their homes. Some governments have already begun preparing to expel the less-than-welcome guests.

The future of most returnees looks grim. While some Kosovars have quickly rebuilt shops and started up small businesses, the majority have little hope of finding jobs. Many civil servants are grossly underpaid. Production has resumed only very slowly, and unemployment remains massive. Most people try to earn their living in the "gray," or unregistered, economy.

On 17 and 18 March, the German Friedrich-Ebert-Foundation and the Kosovar research institute Riinvest held a joint conference on the economic reconstruction of Kosova. Participants analyzed the problems in transforming the gray economy into an open one amid the virtual absence of the rule of law and of legal security. Participants stressed that a clear legal framework, favorable investment conditions, and public security are central to economic development. They also stressed that a quick and responsible privatization must take place in order to bring local companies back into production. But clarifying the legal status of most companies is difficult, due to the ambiguous legal status of Kosova itself.

When the Belgrade regime abolished the autonomy of Kosova in 1989, all larger enterprises such as mines, telecommunications, power plants, and waterworks were state owned. The ownership of these companies is thus relatively clear. The UN administration can treat these companies as the property of Kosova and sign binding agreements with foreign investors or companies to get these enterprises back to work.

The status of most other companies is much more complex. All enterprises, with the exception of very small businesses, had the Tito-era status of "social property," a concept according to which the companies belonged to their workers and to "society" at the same time. Under that concept, the companies were run according to the nebulous principles of "socialist self-management." That meant that the workers had some say in company affairs, while the League of Communists maintained direct influence over top management appointments.

With the abolition of autonomy, hundreds of thousands of ethnic Albanian workers were sacked from their jobs. In two separate efforts in 1991 and 1997, Yugoslavia and Serbia began the privatization of "social property," but neither effort was particularly serious. In the end, the privatization process was slow and mostly consisted of management-buyouts, in which the directors of the respective companies gained the majority of the shares. Nonetheless, so far only an estimated 20 percent of all investment capital in Serbia and Kosova is in private hands.

The first legislative decision (UNMIK Regulation 1999/1) that UN High Representative Bernard Kouchner took was to decree that all laws applicable in Kosova prior to 24 March 1999--that is, on the eve of the NATO bombing campaign--will apply. (The exception was laws that violate international human rights standards.)

Local lawyers and judges harshly criticized that move, arguing that Serbian legislation was that of an "apartheid" state and that the Albanians should not be forced to return to such a state of affairs. Kouchner then set up a commission to review the laws according to European and international legal standards. On 13 October, Kouchner decided on UNMIK Regulation 1999/10, which repealed two Serbian property laws from 1991 on the grounds that they violated such principles.

Kouchner subsequently acknowledged that it was a "mistake" to reinstate Serbian legislation in the first place (see "RFE/RL Balkan Report," 21 March 2000). On 12 December, he announced another decree (UNMIK Regulation 24/1999). This reversed his initial decision and states that laws applicable in Kosova are the UNMIK Regulations and legislation valid in Kosova prior to 22 March 1989, which was the eve of the abolition of autonomy.

This does not mean, however, that the privatization process after 1989 is invalid. Nonetheless, UNMIK now faces the fewest legal problems with those companies that have not yet been privatized and are working on the basis of 1989 law.

In fact, addressing the issue of property rights in those companies that have been privatized since 1989 is a sensitive issue. For the immediate future it is unlikely that the owners, who are mostly Serbs, will return to invest in their companies. Therefore, it will be difficult to overcome the general economic stagnation and create jobs through those firms.

In charge of real estate issues is the Housing and Property Directorate (HPD), which was created by UNMIK Regulation 1999/23. The HPD has taken the view that all previous privatization is to be considered legal, unless the HPD decides otherwise. Disputed issues include, for example, company housing that was privatized among employees, but excluding ethnic Albanians who were previously sacked from these companies.

Considering that the international community has so far avoided clarifying the political future of Kosova, the UN administration is unlikely to launch a privatization campaign on its own. According to OSCE legal expert Winston Krone, UNMIK can exercise control over state property but not necessarily dispose of it. Thus the launching of privatization will almost certainly be left to an elected government at a later date.

Many Kosovar Albanians have already reclaimed the companies where they once worked. Their legal interpretation is that they are owners of that "social property," but it has been difficult for them to get most companies back into production. In the long run, the companies will need investment--and therefore a clear ownership status, or at least guaranteed investment security.

The Bosnian example has shown that the post-war reconstruction was hampered by a slow privatization process, which started only in 1999, or four years after the end of the Bosnian war. Furthermore, the Bosnian government since the war has been charging prohibitive taxes and customs fees. Corruption is rampant, while the public administration is bureaucratic and slow. Most investors have therefore turned their back on the country. The large amount of foreign aid in the immediate post-war era, in fact, encouraged the Bosnian government to pursue mercantilist policies. While focusing on post-war reconstruction, Bosnian officials failed to address the question of post-communist transformation. Thus Bosnia has become largely dependent on foreign aid, and there are few signs of sustainable development.

In order to avoid similar developments in Kosova, the UN administration must create a liberal investment climate as soon as possible, preferably before the general elections. It must install transparent financial institutions and establish rule of law. It must also find an answer to the question of privatization. Since the UN cannot launch a new privatization process itself, it has only the option of holding general elections as early as possible in the year 2001 and then leaving it to an elected legislature and government to start the privatization.

For now, the UN can try to find investors for particular companies and sign binding, long-term lease contracts, but it is unlikely that it will find many daring takers. OSCE legal experts are currently drawing up a set of guiding principles that are expected to be finalized by the end of April. This will be crucial to break the vicious circle of economic decline, political radicalization, dependency on foreign aid, and unemployment. (Fabian Schmidt)

The Specter Of Presevo, Medvedja, And Bujanovac. Members of the Liberation Army of Presevo, Medvedja, and Bujanovac (UCPMB) continue to wear uniforms and carry out training exercises, despite a recent pledge by their political leaders that they will conduct their struggle by political means (see "RFE/RL Newsline," 24 March 2000). Members of the UCPMB also continue to cross the border between Kosova and Serbia, as well as to use the "neutral zone" between KFOR and Serbian forces for their own military purposes, "The Washington Post" reported on 28 March.

Political representatives of the UCPMB told journalists that it will take time before they can persuade militants to respect the political leaders' pledge to U.S. diplomats to end the armed struggle. Some militants published a letter in "Koha Ditore" in which they said they will not give up their fight, the Washington daily continued. An unnamed U.S. official stressed that his government is determined to see that the UCPMB lives up to the agreement.

The concern is obvious because of the widespread view that Albanian extremists want to provoke Serbian forces into staging an atrocity, in response to which NATO would then supposedly intervene on the Albanians' behalf. Washington has patiently been trying to explain to local Albanian leaders that NATO intends to do nothing of the kind. The U.S. has also been keeping up the pressure on former UCK leader Hashim Thaci to make it clear to local hotheads that the Albanians cannot afford a conflict with their principal benefactor.

Meanwhile, the region remains yet one more source of potential instability. Along with Montenegro and Sandzak, Milosevic could choose to make trouble there at any time.

Unlike Kosova, the region never had autonomy in Tito's Yugoslavia. But also unlike Kosova, the ethnic Albanians never set up a shadow-state, continuing instead to participate in Serbian political life. Many Albanians now grumble openly about the recent introduction of ethnically-based tensions into their region by displaced Kosova Serbs and by Albanian militants.

The local Albanians' position is probably the best in Presevo, where the overwhelming majority of the population is Albanian, as is the mayor. But even there, Serbs from Kosova have increasingly replaced Albanians in the police force and in the economy, according to a recent report in the "Frankfurter Allgemeine Zeitung."

The situation in Bujanovac is less favorable to the Albanians, even though they still form the majority of the inhabitants. The mayor is Serbian, and inscriptions are in Cyrillic. Tensions are palpable there, according to the German daily. In Medvedja, the pressures have been greatest for Albanians to flee to Kosova--as perhaps some 30 percent of the population has done. This is where most acts of violence reminiscent of those in Kosova just over one year ago have been reported. (Patrick Moore)

Racan's First Test? Istrian political leader Ivan Jakovcic said that his Istrian Democratic League (IDS) may leave the governing coalition if the government lets Istarska Banka go under, AP reported on 27 March. National Bank Governor Marko Skreb recently decided to appoint a "temporary administrator" for prosperous Istria's leading bank, citing "significant irregularities" in its activities. Skreb's move led depositors to stage a run on the Istarska Banka's offices, in which they withdrew $6 million. Skreb is under pressure from the IDS and its supporters to resign, but he refuses to do so, "Novi List" reported on 28 March.

The IDS wants the government to support the bank. Before they came to power in January, Prime Minister Ivica Racan and most of the governing parties often criticized the government of the late President Franjo Tudjman for its "political meddling" in the banking sector. "Slobodna Dalmacija" wrote on 28 March that Racan may have to "show Jakovcic the door" if he wants to appear true to his principles. (Patrick Moore)

Quotations Of The Week. "A Balkan Havel." Sarajevo's "Oslobodjenje," commenting on visiting Croatian President Stipe Mesic on 25 March.

"Croatia should now take a leading role in helping to sort out the rest of the region." -- Former Finnish President Martti Ahtisaari, in London on 23 March. Quoted by Reuters.

"You can't expect Switzerland in eight months." -- Ahtisaari to the BBC, referring to Kosova.

Ethnic hatred "is a dangerous virus for the entire Balkans....Yugoslavia is a fantastic breeding ground for the growth of different kinds of crime--from smuggling to illegal trafficking in people and drugs." -- Bulgarian President Petar Stoyanov, quoted in Sofia by dpa on 23 March.