Doc. 8905

13 December 2000

Implementation of the economic aspects of the Stability Pact for South-eastern Europe

Report

Committee on Economic Affairs and Development

Rapporteur: Mr Evgueni Kirilov, Bulgaria, Socialist Group

Summary

The report examines the progress of the Stability Pact for south-eastern Europe in the economic field since its launch in mid-1999 and the Assembly’s first Recommendation 1423 (1999) on the subject. It sees the Pact as continuing to be of vital importance for much needed but still elusive economic recovery in the region, as well as for peace and stability. However, the report argues, the Stability Pact needs administrative streamlining, a lasting and fully honoured commitment by donors, closer cooperation among recipient countries and more rapid implementation of projects, especially within the so-called ‘Quick Start Package’.

The report emphasises the intimate link between economic development on the one hand and democracy, the rule of law and human rights on the other. It reiterates the resolve of the Assembly, and more particularly its Committee on Economic Affairs and Development, to press the region’s case within such fora as the European Bank for Reconstruction and Development, the OECD, the World Bank and the International Monetary Fund. “Europe”, the report concludes, “cannot be considered complete until its south-eastern part is fully integrated into it.”

I.        Draft recommendation

1.        The Assembly, assessing the first year of the Stability Pact in conformity with Order No. 554 (1999), and its Recommendation 1423 (1999), reaffirms that the overall strategic direction of the Stability Pact should be to secure lasting peace and increased prosperity for the peoples of south-eastern Europe; foster effective regional co- operation; and provide the region with a firm European anchorage. Success will depend crucially on the "human dimension", that is, the respect of minority rights and the building of the rule of law, ‘civil society’, free media, tolerance and pluralism.

2.        The Assembly believes that a deeper and more consistent implementation of domestic reform, stronger governance and institutions, sound environmental management and a more developed and integrated infrastructure are all necessary components for sustainable growth and poverty reduction. Policies to foster social inclusion and cohesion within the sadly fragmented region are vital and provide the only road to lasting peace and stability.

General principles

3.        The Assembly recommends to the Committee of Ministers to ensure that the economic renewal efforts are built on the following principles:

i.       moving rapidly towards the region’s trade integration with – and eventual membership of - the European Union and within the south-eastern European region itself, taking into account each country’s individual progress; and creating a stable, transparent and non-discriminatory environment for private sector development;

ii.        fostering social inclusion and social change within the region to reduce tensions and create the right conditions for peace and stability;

iii.        improving institutional capacity and governance structures, and strengthening anti-corruption efforts;

iv.        investing in regional infrastructure to integrate the region physically with the rest of Europe and internally, including initiatives to safeguard the environment.

The countries in south-eastern Europe

4.        The Assembly calls on the south-east European countries participating in the Stability Pact:

i.        to liberalise their overall trade regimes, including with each other, and to strengthen trade institutions, including customs;

ii.        to undertake special efforts to include more fully all population groups in the economic development of the region, especially minorities;

iii.        to ratify, wherever this has not been done, the Council of Europe’s Criminal Law Convention on Corruption and its Civil Law Convention on Corruption

Federal Republic of Yugoslavia

5.        The Assembly warmly welcomes the recent breakthrough toward a peaceful transition in the Federal Republic of Yugoslavia (FRY) and calls for the strongest possible involvement by the Council of Europe in support of this long-awaited development. Council of Europe member states must do their utmost contribute to the country’s opening up to Europe and to the world, to its reconciliation with all its neighbours, to the secure establishment of democracy and the rule of law, and to the implementation of the major political, economic and social reforms now necessary.

6.        It is vital that Yugoslavia should benefit fully from the current international effort on behalf of south-east European development, without calling into question commitments to other countries in the region. The Assembly welcomes Yugoslavia’s recent accession as a full member to the Stability Pact, including its ‘Investment Compact’ and Anti-Corruption Initiative’. International financial institutions, and especially the International Monetary Fund and the World Bank, should identify the speediest way of reintegrating the FRY into the international financial community. The Assembly supports Yugoslavia’s early participation in the activities of the European Bank for Reconstruction and Development, especially the programmes on behalf of small and medium-sized companies and for the promotion of private investment. It also supports Yugoslavia’s early involvement in the Regional Funding Conference for South-Eastern Europe, including the ‘Quick Start Package’.

7.        The international community must give immediate priority to the restoration of navigation on the Danube and assist in the modernisation of Yugoslavia's infrastructure following a decade of economic mismanagement and war.

Implementation and Monitoring of the Stability Pact

8.        The Assembly deplores the difficulties and delays occasioned by the non-honouring of commitments by certain countries within the framework of the Stability Pact as well as by the Pact’s cumbersome procedures.

9.       The Assembly recommends that the Stability Pact partners focus on the following elements of reform: the business and investment environment, the reduction of trade barriers, the fight against organised crime and corruption, and the protection of human rights and minorities. The Assembly in consequence appeals to the 29 countries and the international organisations forming the Stability Pact:

i.        to improve coordination between the various organisations and programmes involved as to the use of currently widely dispersed and inefficiently employed resources. This implies a more stream-lined decision-making process, clearer responsibility for the various tasks assigned and the subordination of any competing claims as between organisations and programmes to the Pact’s overall objectives. Implementing countries and agencies should prepare regular reports on the state of implementation.

ii.        to implement the ‘Quick Start Package’ in a timely manner, as agreed during the Regional Funding Conference for South Eastern Europe held in Brussels in March 2000.

10.        The Assembly believes it essential that the high expectations placed by the peoples and the governments in the region in the Stability Pact not be betrayed and urges that particular efforts be devoted to priority areas such as the development of transport infrastructure, communications, energy supply and waterways (in particular the Danube), the creation of a favourable investment climate and a more open regional trading system.

11.        The Assembly recalls that achievements in the economic field are incomplete without similar progress reached in building a society based on democratic values, the rule of law, the respect for human rights (including those of members of national minorities), cultural diversity and tolerance. Education and cultural co-operation constitute powerful means to create a climate of tolerance and understanding. National parliaments should impress on their respective governments the need to intensify efforts towards reform, and the need to build open democracies, viable market economies and social stability within the region.

12.        Finally, the Assembly reiterates its resolve to use its unique position as a parliamentary forum for international organisations such as the OECD, the EBRD, the World Bank, the IMF, the United Nations Economic Commission for Europe and the WTO for the purpose of monitoring their efforts on behalf of south-eastern Europe.

II. Explanatory Memorandum by the Rapporteur

Contents

I. INTRODUCTION

II.       GUIDING PRINCIPLES: THE WAY AHEAD

d.        Fostering social inclusion and social change

e.        Strengthening of institutions and ‘good governance’

f.        Regional co-operation

g.        Investing in regional infrastructure

h.        Creating a vibrant private sector

i.        The need for a coherent approach

j.        Implementation and monitoring

III.        A NEW BEGINNING FOR THE FEDERAL REPUBLIC OF YUGOSLAVIA

IV.        CONCLUDING REMARKS

I. INTRODUCTION

1. The Committee on Economic Affairs and Development has made it one of its top priorities to assist in the economic reconstruction and renewal of south-eastern Europe following the Kosovo conflict. Considering the urgency, complexity and long-term character of this international effort and the resulting need for parliamentary Europe closely to monitor the progress made and the difficulties encountered, the Assembly, against the background of its Recommendation 1423 (1999), instructed the Committee to “report on the subject at regular intervals” (Order 554 (1999)).

2. Following an invitation by the Croatian parliament, the Committee on Economic Affairs and Development held a Colloquy in Dubrovnik from 22 to 24 May 2000 on the subject "One Year of Stability Pact for South-Eastern Europe: the Way Forward" - together with representatives from the Council of Europe's Development Bank, the OECD, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank, the World Bank as well as UNMIK (the United Nations Interim Administration Mission in Kosovo). The main themes of the Colloquy were:

3. This report draws to a great extent on the very rich Dubrovnik Colloquy. The Rapporteur also had the opportunity to represent the Committee at several workshops, seminars and colloquies devoted to the progress of and challenges facing the Stability Pact. The Rapporteur’s conclusions from all these events form the basis of the present report.

4. The concept of the ‘South East European region’, as employed in this report, refers to Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Federal Republic of Yugoslavia, the “former Yugoslav Republic of Macedonia” and Romania. It is a diverse region of 56 million people, with an average per capita income of about US$2,200 per capita – or roughly half the income level of the five central European countries. The past decade of transition and conflict has left the region with a legacy of inadequate growth and declining living standards. Indeed, seen as a region, these economies have recovered only 75 percent of their pre-transition income levels. In the past several years, growth has declined in the aggregate, increasing the gap between these economies and the rest of Europe. Even more alarming is a deterioration in living standards, as evidenced by higher poverty, inequality and unemployment.

5. This poor economic performance can largely be attributed to four factors. Firstly, initial conditions in the region at the onset of the transition were unfavourable. The several economies had an unbalanced industrial structure, weak public institutions, and fragmented civil societies. Secondly, war, civil strife and ethnic conflict have had a devastating effect on the region. In countries that were directly affected, conflict has fragmented societies and destroyed institutions and infrastructure. In all countries, regional conflicts have disrupted normal economic activities, created an uncertain business climate and put strains on nascent political systems.

6. Thirdly, macroeconomic stabilisation policies have been inconsistent, causing an already uncertain business climate to deteriorate. Finally, structural reform policies have been weak, while progress in trade liberalisation, privatisation, enterprise reform, competition policies and financial sector development have all lagged behind when compared to central Europe.

7. In order to overcome the legacy of conflict and poor economic performance - and achieve success on the fundamental objectives of the Stability Pact - a ‘joint commitment’ by all partners is required. First and foremost, the countries of the region must make a deeper and longer-lasting commitment to reform and intra-regional cooperation than was the case in the past decade. Without such a commitment, no regional strategy can be effective.

8. Additionally, success will hinge critically on establishing a credible and predictable path for all countries in the region to integrate with European and global structures, particularly the European Union. Such a path would provide a focal point for expectations and efforts and provide an incentive for today’s political leaders to reform and cooperate. The international community must also support the implementation of this strategy by providing financial, technical and political support to the countries concerned, to help them advance on the path of reform and integration into the world economy.

II. GUIDING PRINCIPLES: THE WAY AHEAD

a.        General considerations

9. The overall strategic direction of the Stability Pact is to secure lasting peace, prosperity and stability for South Eastern Europe; foster effective regional co- operation; and give a firm European anchorage for the region. In pursuing these objectives, the Stability Pact, as a comprehensive international framework, has identified areas where it provides added value as a catalyst and co-ordination mechanism.

10. The fundamental objectives of this ‘integration strategy’ should be increased prosperity and a reduction in poverty for all the peoples of South Eastern Europe. A deeper and more consistent implementation of domestic reform programs, stronger governance and institutions, sound environmental management, and better developed and integrated infrastructure are all needed to provide a solid foundation for sustainable growth and poverty reduction. Policies to foster social inclusion and cohesion within this sadly fragmented region are also key, as they are the only road to establishing lasting peace and stability.

11. This report suggests four broad thrusts for action designed to support the economic renewal of the region. They are:

i.       moving rapidly towards trade integration with the EU and within the South- Eastern European region itself; and creating a stable, transparent and non-discriminatory environment for private sector development;

ii.        fostering social inclusion and social change within the region to reduce tensions and create the right conditions for peace and stability;

iii.        improving institutional capacity and governance structures, and strengthening anti-corruption efforts in the region; and,

iv.        investing in regional infrastructure to integrate the region physically with the rest of Europe and within itself, including initiatives that safeguard the environment.

b.        Towards full integration into Europe

12. Countries of the region consider full integration into the European Union and Euro-Atlantic structures as their main political objective. All activities contained within the framework of the Stability Pact are meant to bring countries closer to European standards, practices, rules and values. The EU’s Stabilisation and Association process, of which the Stabilisation and Association Agreements are the key part, constitutes the core element of the EU’s policy towards the region. The leading role of the EU in the Stability Pact needs therefore to be fully exercised.

13. The first concrete step for the eventual integration into European and global structures ought to be trade integration. Firm evidence in Europe and elsewhere shows that trade integration is a major factor behind broad, long-term integration. The countries of South-Eastern Europe are small. Thus, their development depends critically on international trade and access to European markets.

14. Trade integration is also essential to reduce the dependence of these countries on aid from the international community. It must be accompanied by the creation of a vibrant and varied private sector. Without an improvement in the climate for investment and private activity in general, the countries of the region will be unable to realise the benefits of trade integration and will not be able to generate the new employment opportunities necessary to raise living standards.

15. The main challenges in this field for the SEE countries are the liberalisation of their overall trade regime and the strengthening of trade institutions such as customs. Special attention needs to be given to the elimination of obstacles to intra-regional trade, such as de facto administrative controls over the movement of goods and services. For its part, the European Commission is currently finalising a package of measures to improve trade relations with countries from South Eastern Europe.

c.        The need for decisive structural reforms

16. Promoting and supporting the adoption and implementation of concrete institutional and economic reforms are a priority for the Stability Pact partners. The development of infrastructure and of the private sector in the countries of South Eastern Europe is necessary to reach and sustain economic growth and increase regional trade and investment. However, no significant progress can happen without far-reaching reforms. Indeed, international financial assistance will have no effect unless economies become more market oriented, public administration improves, and civil society further develops democratic practices.

d.        Fostering social inclusion and social change

17. Given existing ethnic tensions in the region, special efforts are required to include more fully and effectively all population groups in the economic development of the region, especially minority groups. Currently, it holds about 1.7 million refugees or ‘internally displaced’ people. These are people who are separated from their ancestral homes and their physical and economic assets. They form a cauldron of instability in the region. Furthermore, continued increases and persistence of poverty among these people and other minority groups serve to exacerbate tensions and could lead to a further fragmentation of the region. Ensuring equal access to public services and employment is critical. There is also a special role for education in creating leadership, changes in values and human capital – all essential not only for national economic development but for regional cooperation. The ultimate goal must be the formation of open, tolerant and cohesive societies that provide the foundations for a stable and prosperous region.

e.        Strengthening institutions and ‘good governance’

18. Much of economic development, social inclusion and regional stability in South Eastern Europe will depend on the strengthening of institutions, governance and a lowering of the level of corruption. Gradual integration with European and global structures will require institutional structures that are significantly more developed. Institutions also play an essential role in poverty reduction, in assuring that public services are delivered to all members of society, including the poor.

19. Cross-country evidence shows that South-Eastern Europe has weak institutions and governance. They constrain economic development and hurt investors’ perceptions of the region. Special attention should be given to combating corruption. The agenda for action in these areas is vast and includes greater transparency and accountability in the functioning of state institutions; better internal controls, including auditing and financial management; a reduction in administrative discretion; and greater participation and oversight on the part of civil society.

f.        Regional co-operation

20. The Stability Pact process has already stimulated ‘regional thinking’ in the countries of South Eastern Europe. It has given rise to and intensified regional co-operation within the wider perspective of European integration. It should continue to support these developments and pursue new bilateral and multilateral agreements in a wide variety of areas. In many fields, leaders and experts of the region have sat down at the same table for the first time to discuss matters of common interest. These activities should be expanded. Moreover, it should be clear that bilateral and regional cooperation among the countries of the region would serve the integration prospects of individual countries. It is vitally important that the countries of the region take on ownership for this process as soon as possible.

21. An important step towards reconciliation in south-eastern Europe was taken in Zagreb, Croatia, on 24 November 2000, when the European Union organised a major summit also involving the five countries of Bosnia and Herzegovina, Croatia, Albania, the “former Yugoslav Republic of Macedonia” and Yugoslavia. The EU agreed to devote €4.65 billion to these countries for the 2000-2006 period, on the understanding that they would pursue democratisation and economic reform, consolidate peace amongst them including diplomatic relations and respect international standards (such as those of the Council of Europe).

22. The European Union is doing much for south-eastern Europe. It is concluding so-called Stabilisation and Association Agreements (SAAs) aimed at boosting trade and strengthening economic and political ties between the countries concerned and with the European Union. It is setting up a European Agency for Reconstruction, which is already proving its value in Kosovo and will now be deployed in Serbia and Montenegro as well. An emergency package of 200 million euros is foreseen to help Serbia get through the winter of 2001. Finally, the European Union has extended its Schools for Democracy programme to the whole of Serbia and is launching a new programme called Towns for Democracy.

g.        Investing in regional infrastructure

23. Economic growth and regional integration will crucially depend on a better and more efficient infrastructure base, and on reversing decades of environmental degradation. Wars and civil conflict have resulted in considerable damage to infrastructure. Financial pressures during the 1990s have contributed to the deterioration of infrastructure, through limiting maintenance expenditure and funds available for critical infrastructure investments. An improved infrastructure base, integrating the countries of South Eastern Europe with the rest of Europe is, therefore, essential to achieving prosperity. War-related damage and years of environmentally unsound development have conspired to threaten the sustainability of economic growth.

24. Within the framework of the Stability Pact, the European Investment Bank has developed - in close co-operation with other IFIs and the European Commission - a comprehensive programme for the improvement of regional infrastructure under the name of the ‘Quick Start Package’. It at present groups over 200 projects costing close to €400 million, of which some €250 million are earmarked for the return of refugees. Donor countries are laying particular emphasis on the implementation of the Stability Pact’s Investment Compact and the Anti Corruption Initiative. Details on each project included in the Quick Start Package can be viewed on the Stability Pact website http://www.stabilitypact.org (look under ‘projects’).

25. However, the Committee on Economic Affairs and Development, in adopting the present report, complained, that ‘Slow Start’ was in many ways a more apt label for the ‘Quick Start Package’, considering that so few projects seem actually to have come off the ground. The impression of inertia is shared by the Rapporteur, even though he also recognises not only the virtue of sometimes ‘hurrying slowly’ but also the possibility that many projects may now be on the verge of going from the drawing board to reality.

26. He feels, however, together with the Committee, that the administrative procedures of the Pact must become less cumbersome and that the non-honouring of commitments by certain donors is to be deplored. All parties to the Pact must stick to their promises to a part of Europe that is undergoing a particularly difficult period.

27. Furthermore, the Committee believes that new commitments to individual countries – however welcome they are, such as those to Yugoslavia – should not jeopardise earlier commitments to other countries in the region. Furthermore, some members voiced concern that too much of the Pact’s resources seems to go to conferences instead of to concrete projects. At a Committee Hearing with a leading representative of the Pact in Brussels in November 2000, we asked to have precise indications in this regard but were told that such a detailed breakdown of the Fund’s budget was not readily available. The concern over spending priorities, the apportionment of funds among projects and countries, and the pace of implementation is, however, real and widely felt among parliamentarians and the public in the region. It must be taken seriously by all concerned.

h.        Creating a vibrant private sector

28. After the long period of relative stagnation that has characterized the region, the stimulus to growth and investment will have to come from the creation of new small businesses and foreign investment, from market expansion and from building an efficient public and private infrastructure. The main objective must be to create a vibrant private sector for the exchange of goods and services, and for investing freely across borders in a region that is in the process of integrating into the larger European and world economy.

29. The EBRD, as the lead agency in this field, has put together a comprehensive programme containing all the initiatives that have been agreed among the IFIs as priorities. Regional Private Sector Initiatives, as proposed by the EBRD, are divided into two types: the promotion of Cross Border Trade; and Investment and regional coverage of SME Support. The first addresses large private projects that promote inter- and intra-regional commercial linkages, while the second addresses the need for broad access by SMEs to the full range of existing and planned support programmes.

i.        The need for a coherent approach

30. Only a coherent approach that takes into account the relationship between the three dimensions of the Stability Pact - democracy, economics, and security-defence – will work. Progress on all fronts should proceed in parallel in order to be effective, as envisaged in the Stability Pact itself. The Regional Table should ensure that activities undertaken within the framework of the three Working Tables form a coherent and balanced approach to the task of transforming and rejuvenating the region.

j.        Implementation and monitoring

31. Improved communication among Stability Pact partners is vital to ensure smooth implementation and monitoring of the Pact. The partners now need to set clear priorities.

32. The Rapporteur recommends that the Stability Pact partners focus on the following elements of reform: the business and investment environment, the reduction of trade barriers, the fight against corruption and organised crime, and the protection of human rights and minorities. Regional return of refugees and displaced people, infrastructure development, regional trade co-operation and liberalisation also deserve attention.

33. Consolidating existing efforts and achieving quick and tangible results in these priority sectors requires a well-focused and co-ordinated approach with clear targets and benchmarks. Good progress in this direction has already been achieved in a number of areas, where co-ordinating mechanisms composed of countries of the region and other Stability Pact partners, NGOs and donors have been set up.

34. However, the Rapporteur wishes to voice some concern about lack of effective coordination among the different agencies active in the region. In this respect, the Rapporteur very much agrees with the following conclusions of the 2000 Economic Survey for Europe, prepared by the UN/ECE:

35. “International efforts to assist the economies of South Eastern Europe are now extensive but is becoming increasingly clear that they suffer from many of the same problems that have beset the assistance efforts to most other transition economies ever since 1989. First, there is a large gap between promises to provide assistance and its actual disbursement – this causes delays and creates disillusion in the region. Secondly, there is poor coordination between the 29 countries and international organisations belonging to the Stability Pact – resources are widely dispersed and inadequately coordinated both between donors and with national programmes.”

36. “Thirdly, there is a confusion between conceptual frameworks and approaches. It is by no means obvious that the essential differences between the three sets of tasks – development, transition and post-war reconstruction – are fully recognised. Donors tend to promote separate projects without placing them within a broader programme of development. Sometimes projects reflect more the interest of their promoters than those of recipient countries.”

37. It is indeed imperative to improve co-operation among the various organisations and programmes involved. The decision-making process must be more streamlined. Responsibility for different tasks should be made clearer. The competition between organisations and programmes should be subordinated to the overall objective of getting the region back on its feet.

38. Lawmakers should boldly point out these various shortcomings and should pressure the institutions of the Stability Pact to remedy them. Parliaments must play a larger role in moving the Stability Pact forward.

39. The Stability Pact must very actively monitor and evaluate progress in priority areas and turn commitments into action. Countries in the region need to show continued progress in implementing Stability Pact commitments. Many major reforms are due to take place within the framework of the Stability Pact, in particular through the “Investment Compact” (where the OECD is very active), the “Anti-Corruption Initiative”, and the “Organised Crime Initiative”. Countries should produce specific ‘road maps’ in order to facilitate the monitoring of the implementation of the reforms.

40. It is the joint responsibility of Stability Pact partners to implement the Quick Start Package. Implementing agencies and countries should produce regular progress reports, with information on the implementation time schedule.

III.        A NEW BEGINNING FOR THE FEDERAL REPUBLIC OF

YUGOSLAVIA

a.       The Yugoslav presidential election of September 2000

41. The election in September 2000 of Mr Vojislav Kostunica - the leader of the united Yugoslav opposition to Mr Milosevic – as new President of the FRY removed a major obstacle to the objective of bringing stable democratic and economic development and security to South Eastern Europe. The European Union on 9 October welcomed Serbia back into the fold of European nations, with an immediate lifting of the EU's oil embargo and flight ban and the promise of political and economic co-operation.

42. The EU ministers also agreed that Yugoslavia should benefit from the EU's programme for Balkan reconstruction, development and stabilisation, as part of a "radical revision" of EU policy towards the rump federation of Yugoslavia, of which Serbia is the biggest part. They also promised to "contribute actively" to restoring navigation on the Danube and to study ways of assisting in the modernisation of Yugoslavia's infrastructure. EU finance ministers will also work with the World Bank and the International Monetary Fund to reintegrate Yugoslavia into the international financial community.

43. Even before the changes in Belgrade, the Stability Pact made a strong effort to find ways to assist the Republic of Montenegro in spite of its being a constituent republic of the FRY. It has been actively involved in overcoming barriers to financial support to Montenegro and has achieved some success. The ‘Quick Start Package’ includes projects for Montenegro to support infrastructure development, education and media.

b.        Europe’s new welcoming of Yugoslavia

44. Shortly thereafter Yugoslavia was welcomed into the Stability Pact for South-eastern Europe, including the Investment Compact aimed to encourage investment and its “Anti-Corruption Initiative”. It is also hoped that Yugoslavia will soon be able to join the programmes of the European Bank for Reconstruction and Development on behalf of small and medium-sized companies and the promotion of private investment.

45. In a heartening development, Yugoslavia is now opening up to Europe and the world, and the latter are reciprocating. In November 2000, Yugoslavia applied for Council of Europe membership during a visit paid by its newly-elected President Kostunica to the Council of Europe, on which occasion he also spoke before the Standing Committee of the Parliamentary Assembly.

46. The Council of Europe, for its part, offered to open an office in Belgrade to coordinate its action and to nominate a special envoy for Belgrade. The Committee of Ministers of the Council of Europe shortly thereafter agreed to send Yugoslavia’s application for membership to the Parliamentary Assembly asking for its opinion. They also said they would closely follow political developments in the FRY, especially in the run-up to the general election in Serbia on 23 December 2000.

47. The Ministers’ Deputies also gave a positive answer to the FRY’s request to accede to all the conventions signed and ratified by the former Socialist Federal Republic of Yugoslavia. The Yugoslav Parliament in November 2000 also applied for Special Guest status with the Council of Europe’s Parliamentary Assembly, a status once held for a short time in the early 1990s by the former Socialist Federal Republic of Yugoslavia. Indeed, the Assembly’s Committee on Economic Affairs and Development visited that country already in 1989, before things started going wrong.

48. The Assembly has promised to examine this new request favourably, while recalling some of the essential conditions for membership of the Council of Europe. These include the holding of free and fair elections, the implementation of democratic reforms throughout the FRY, the functioning of a democratic political system, the respect of the rule of law and the protection of human rights, including those of national minorities.

49. The Assembly considered that these conditions had not yet been satisfied, but declared itself determined to work towards democratic change in the FRY. Furthermore, the Assembly insisted on the need to cooperate with the International Criminal Tribunal in The Hague. It called for continued dialogue with the authorities in Montenegro, with a view to clarifying the most effective framework for relations between Serbia and Montenegro. It also called on the FRY authorities to engage in constructive dialogue, in a spirit of reconciliation, with the elected Albanian leaders in Kosovo, and to free the Kosovo Albanian political prisoners still held in Serbia. It further urged the authorities of the FRY to recognise Bosnia and Herzegovina as an independent, sovereign state, and to fully comply with the Dayton Peace Agreement. Finally, the Assembly called on the member States of the Council of Europe to provide massive and immediate humanitarian assistance, and asked the Council of Europe Development Bank to give emergency aid. (For further details on the stance adopted by the Parliamentary Assembly in November 2000 at the initiative of its Political Affairs Committee, see Recommendation 1481 (2000) and Resolution 1230 (2000) on the situation in the Federal Republic of Yugoslavia.)

c.        Securing peace in Kosovo

50. On 10 June 1999, the United Nations Security Council adopted Resolution 1244, authorizing the United Nations Interim Administration Mission in Kosovo (UNMIK) to begin the long process of building peace, democracy, stability and self-government in the shattered province.

51. To achieve this goal, UNMIK acts as the transitional administration for the region. In trying (not always successfully) to working closely with Kosovo's leaders and citizens, the mission performs the whole spectrum of vital administrative functions and services, covering such areas as health and education, banking and finance, post and telecommunications, and law and order. To pave the way for self-government, municipal elections were held in October 2000. The Albanian Kosovar population participated massively in the election and voted heavily in favour of moderate political leaders. However, the elections were, unfortunately, largely boycotted by the Serbian minority. In addition, numerous attacks, sometimes murderous, continue to be directed not only against Serbs in the province but also against other minorities as well as moderate Kosovar Albanian leaders.

52. The international institutions running the province of Kosovo—the United Nations, NATO and the Organisation for Security and Co-operation in Europe—have been struggling against difficult odds to maintain a minimum of stability and open political debate. One difficulty is the near-absence of a legal framework. At the request of the Kosovar Albanian majority, UNMIK chose to revert to laws that had been in force prior to 1989, when the province lost its autonomy to Serbia. Moreover, in order for economic reconstruction to take place in a territory with more than 60 percent unemployment, such issues as unresolved property rights will have to be resolved. Indeed, most assets are presently lying idle as a result of the very complicated property rights issues inherited from the pre-1989 period. As a result of this ambiguous situation, there is virtually no foreign, and scarcely any local, investment in Kosovo.

53. One central objective of the Stability Pact as applied to Kosovo (FRY) is to support UNMIK. UNMIK participates in all meetings of the Stability Pact, including activities such as the Education Task Force. The improvement of the Blace border crossing to ease access into Kosovo is one of the Pact’s highest priority ‘quick-start’ projects.

54. More generally, some Kosovars fear that the post-Milosevic Serbia that we now have will compete with their province for a limited supply of international assistance. In a bid to allay these fears the EU assured the province, even prior to Milosevic’s fall in October 2000, that it would receive at least €360m in 2001, regardless of what might happen in Belgrade

IV.        CONCLUDING REMARKS

55. The overall picture emerging after the more than a year of the Stability Pact is one of concern and commitment: concern, because it is felt that the crisis of the region has not been lifted despite all the efforts made; commitment, because agreement has been reached on the need for renewed and sustained efforts to finally cut the Gordian knot preventing peace and stability in the region. No doubt the fall of the Milosevic regime in Yugoslavia will be of immense help in this regard.

56. Firstly, it is obvious that political instability, the unresolved question of sovereignty in Kosovo, the lack of state authority and the weakness of institutions in some countries stand in the way of an economic recovery. One of the main consequences of the violent dissolution of the former Yugoslavia has been a continuing uncertainty and ambiguity over certain borders and the formal status of several geographical entities in the region. This is a major source of insecurity. While it persists it diverts the attention and energy of governments away from economic matters and creates a propitious environment for illegal activities and organised crime.

57. Unless the international community decides to deal with those questions as a priority, the lingering danger of further conflict will continue to impede meaningful results in the area of economic reconstruction and growth. In this respect, the pressure is increasing for tangible results.

58. Secondly, some of the countries in the region are still preoccupied with basic constitutional issues, the creation of viable political systems and the rebuilding of the state. Perhaps nowhere is this more important than in Albania, Bosnia and Herzegovina and, most recently, in post-Milosevic Serbia. In addition, a predictable framework of laws and regulations are required to protect property rights and give incentives to entrepreneurs. Without significant progress in all these areas, it will be extremely difficult to attract foreign investment to a collection of small, low income and fragmented markets, or to focus the energies of governments on economic development.

59. Improving the climate for trade and private sector development will magnify and accelerate the impact of more determined implementation of domestic reform programmes. Moreover, given existing ethnic tensions in the region, special efforts are required to include more fully and effectively all population groups in economic development, especially minority groups.

60. Persistent or increasing poverty among some groups of the population would exacerbate tensions and could lead to further fragmentation. Similarly, regional cooperation is essential to deal with organised crime and other activities, which have undermined markets and democratic institutions. Technical assistance, if not properly applied, can leave recipient countries worse off than before. Moreover, there is a risk that recipients become ‘aid addicted’, that is, unable to make do or develop independently without it.

61. Faced with the double challenge of reconstruction and transition to a market economy, many governments in the region are strained to the limit. The result is often the criminalisation of society, ‘crony capitalism’ and widespread corruption. Hence, it would be essential to proceed to a speedy ratification of the Council of Europe’s Criminal Law Convention on Corruption as well the Civil Law Convention on Corruption. Accession to the latter implies acceptance of the Council’s anti-corruption ‘GRECO’ Monitoring System.

62. Some of the countries in the region seem to be moving towards ethnically cleansed entities, based on clans and family units. This is the very opposite of an open and modern society, and so the challenge has to be tackled. The Stability Pact needs to address the root causes of instability. It must aim for poverty reduction and growth that is equitably shared by the different strata in society. It must have anti-corruption measures at its core. Its success will hinge not least on its "human dimension", that is, the building of the rule of law, the establishment of ‘civil society’, the respect for minority rights, free media, tolerance and pluralism.

63. Moreover, regional cooperation has to precede a more ambitious integration into Western European structures. It needs to address security concerns, liberalisation of trade and policy coordination. Now that centrally located Yugoslavia is showing every sign of wishing to return to the democratic fold and to Europe, the prospects of meaningful and coherent cooperation in the region has brightened considerably. One immediate priority must be to restore navigation on the Danube and rebuild the bridges destroyed during the Kosovo conflict.

64. Reducing the catastrophically high unemployment in the region - which is the direct result of a decade-long de facto ‘de-industrialisation’, must be a top priority. Entrepreneurship needs to be promoted, especially as regards small and medium-sized enterprises. Reaching sustainable economic growth in the region is vital for the solution of the many other problems mentioned and should be central when assessing the usefulness and adequacy of assistance programmes. They must be made to contribute directly to the growth of economies, and thus to the improvement in the living conditions of the people. Europe cannot be considered entire until its south-eastern part is fully integrated into it.

Reporting committee: Committee on Economic Affairs and Development.

Reference to committee: Doc. 8406 and Reference No. 2389, Doc. 8414 and Reference No. 2396 of 26 May 1999.

Draft recommendation unanimously adopted by the committee on 22 November 2000.

Members of the committee: Valleix (Acting Chairperson), Elo, Brunhart (Vice-Chairmen), Akgönenç, Aliko, Arnau, Attard Montalto, Behrendt, Billing, Blaauw, Blattmann, Bojars, Bonet Casas, Braun, Budisa (Alternate: Bulic), Calner, Clinton-Davis (Alternate: Judd), Cunliffe (Alternate: Ponsonby), Cusimano (Alternate: Turini), Eyskens, Frey, Freyberg, Gryzlov, Gül, Guma, Gusenbauer, Haupert, Hoffmann, Jung, Kacin, Kestelijn-Sierens, Kirilov, Kittis, Lazarenko, Leers, Liapis, Lopes Cardona, Lotz, Makhachev, Mateju, Mitterrand, Moynihan-Cronin, Niculescu, Nikologorsky, Patarkalishvili, Pereira Coelho (Alternate: Cesário), Popescu, Popovski, Prokes, Puche, Ragnarsdottir, Riccardi, Rigo, Schmitz, Squarcialupi, Stepova, Stoyanova, Tallo, Townend, Tsekouras, Vasile, Westenthaler, Wielowieyski, Zapfl-Helbling, N… (Lithuania/Alternate: Burbiené).

N.B. The names of those members present at the meeting are printed in italics.

Secretaries of the committee: MM. Torbiörn and Ms Ramanauskaite.