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Balkans: Statement by the High Level Steering Group

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In line with our deliberations of September 28, 1999, we, the members of the High Level Steering Group for South East Europe (HLSG),1 together with our working level counterpart (WLSG), have been overseeing the preparation of a regional assistance strategy for South East Europe, including the development of a set of potential regional programmes and initiatives to be implemented in support of the Stability Pact. These regional initiatives, which build on comprehensive national programmes, would have a strong beneficial impact on the consolidation of peace, stability and prosperity in the region, provided that they are based on determined and sustained reforms by the countries concerned, and that they are implemented rapidly. Donors and international financial institutions (IFIs) are expected to consider concerted financial support for priority initiatives at the Regional Funding Conference which will be held on 29 and 30 March 2000, under the chairmanship of the European Commission and the World Bank and in close consultation with the Special Coordinator of the Stability Pact.
We note that, following our meeting on September 28, 1999, significant progress has continued to be made to address both the short-term and the long-term economic and social challenges that have emerged following the Kosovo crisis. In particular, the short-term external financing needs of the countries of South East Europe for 1999 were successfully met, and significant financing has been mobilized for the reconstruction and development of Kosovo. Despite this progress, the countries of the region continue to bear the social and economic consequences of regional instability, including those related to refugees and internally displaced persons, the disruption of trade and transport, and weak investors' confidence. Deeper and more consistent implementation of domestic reform programmes, stronger governance and institutions, better environmental management, a more developed infrastructure base and policies to foster social inclusion and cohesion are all essential to fundamentally improving the region's prospects. Policies to support regional integration will also be a critical ingredient of success. The international community has a clear stake in the success of these efforts in South East Europe since continued instabilities and stagnating economic growth adversely affect the welfare of the people of the region as well as other countries in the Stability Pact.

The regional programmes and initiatives developed for consideration by the Regional Funding Conference are directed mainly to Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia and Romania. Specific proposals have also been identified for Kosovo and Montenegro. The Federal Republic of Yugoslavia is an integral part of the region but its full inclusion in regional initiatives should only be considered once the necessary reforms have been implemented by democratically elected leaders who are willing to live in peace with their neighbours, and respect all the principles and objectives of the Stability Pact.

The development of a set of regional programmes and initiatives to foster peace, stability and prosperity in South East Europe has been led by the IFIs and the Stability Pact mechanisms in consultation with the countries of the region and numerous international partners. We have entrusted the World Bank to outline a strategic approach to regional development and integration in South East Europe. We concur with the World Bank that success in increasing prosperity and reducing poverty requires a joint commitment, on the part of the countries of the region, to stronger and longer-lasting reform efforts as well as effective intra-regional co-operation and, on the part of the international community, to the establishment of a credible and predictable path to integration with European and global structures, particularly the European Union.

At our request, the European Investment Bank (EIB) has developed a comprehensive assessment of infrastructure requirements with strong regional character, including the identification of a quick start package whose implementation can begin during the next twelve months provided that adequate financing is made available. The realization of an ambitious regional package of infrastructure investments would facilitate the reconnection of all countries to the European electricity grid, allow the rehabilitation of important sections of the international transport corridors as well as related national roads, ports and airports, and start the improvement of water management and provision in the region. It would also allow the completion of regional studies that are necessary to proceed to the next phase of infrastructure rehabilitation and development. We concur with the EIB that meeting the important infrastructure needs of the region will require not only adequate financing but also significant improvements in the institutional and policy framework, as well as the implementation capacity of the countries concerned.

The European Bank for Reconstruction and Development (EBRD) has also developed, at our request, a regional programme to encourage private investment in the region, including a quick start package focused on the promotion of cross-border trade and investment, and the support of small and medium enterprise development. We concur with the EBRD on the need to improve the overall policy framework and strengthen investor confidence to stimulate private sector development and complement its role - together with other international financial institutions - in attracting private financing to the region.

The identification by the EIB and the EBRD of priority projects and programmes that would deserve concerted financial support from IFIs, major donors and the private sector has greatly benefited from extensive consultations with the Stability Pact, the World Bank and other relevant IFIs, as well as with the European Commission. On this basis, we have reviewed the proposed initiatives (Annexes 1 and 2) and we recommend them for consideration by the Regional Funding Conference.

We note that the total cost of the quick start package of regional infrastructure projects amounts to EUR 1.1 billion, out of which some EUR 400 million remains to be funded. Similarly, the total cost associated with the quick start package for private sector development amounts to some EUR 290 million out of which EUR 104 million requires donor support in the form of co-financing and technical assistance. We support the speedy financing and implementation of these quick start packages in order to encourage a strong recovery of investment, as necessary to promote growth and integration in South East Europe. We underline that realizing these initiatives will require not only that adequate levels of complementary financing be mobilized at the Regional Funding Conference, but also that such financing be at appropriate terms and conditions.

We have received from the Special Coordinator of the Stability Pact a political assessment of activities undertaken to date within the framework of the Pact, as well as a comprehensive set of proposed initiatives aimed at improving investment policies, governance and anti-corruption; strengthening education, vocational training, and youth programmes; addressing human rights and national minorities' issues, including post-conflict and gender programmes; promoting democratization, in particular through media programmes and parliamentary exchanges; and strengthening security, both through defense initiatives and justice and home affairs programmes. The lists of these proposed initiatives - which have been prepared by the Stability Pact Working Tables on Democratization and Human Rights; Economic Reconstruction, Cooperation and Development; and Security Issues - are now being finalized and the Stability Pact will present them for consideration by the Regional Funding Conference. Addressing the issues highlighted in these Working Tables will be critical, both in ensuring that investments in infrastructure will have a sustainable impact and in promoting the longer-term objectives of the Stability Pact. We recommend the mobilization of adequate donor support for relevant initiatives in these areas with the conviction that consolidating peace, stability and prosperity for all requires also rebuilding the bonds of trust between individuals, social groups and countries in the region.

We expect the full reports of the World Bank, the EIB, the EBRD and the Stability Pact to be made available to the Regional Funding Conference.

We consider that the different regional initiatives and programmes presently envisaged in the context of an overall quick start package will have the intended beneficial impact on growth and stability in the region only if based on a strong and sustained effort by the countries concerned to reform their economies and strengthen their institutions. We believe that the success of these regional initiatives also requires that appropriate national investment priorities be identified and adequately funded. To ensure that comprehensive national programmes of reform and strong support from the international community complement these regional initiatives, as well as to ensure that external financing needs are adequately met, country specific funding conferences will continue to be organized by the World Bank and the European Commission.

Finally, we are convinced that achieving lasting peace, stability and prosperity for all in South East Europe requires a long-term commitment by all parties, as well as appropriate donor co-ordination. We consider the upcoming Regional Funding Conference an important initial step, and we recognize that, as longer-term development programmes are elaborated and as political conditions evolve in the region, follow-up initiatives will need to be taken to ensure that these objectives are achieved.

Annexes:

List of Regional Infrastructure Projects (prepared by the EIB)
List of Regional Infrastructure Projects by sectors (MS Excel file, 84 KB) (prepared by the EIB)
List of Regional Infrastructure Projects by countries (MS Excel file, 94 KB) (prepared by the EIB)
List of Private Sector Development Projects (prepared by the EBRD)

1 The HLSG is entrusted with the strategic direction of the donor co-ordination process for the economic reconstruction, stabilization reform and development of the South-East European Region. The Group is co-chaired by Messrs Pedro Solbes, European Commissioner for Economic and Monetary Affairs and James D. Wolfensohn, President of the World Bank. Its membership includes the Finance Ministers of Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, the United States and Portugal (representing the Presidency of the European Union), as well as the Managing Director of the International Monetary Fund (IMF), the President of the European Investment Bank (EIB) and the President of the European Bank for Reconstruction and Development (EBRD), the Special Co-ordinator of the Stability Pact of South-Eastern Europe, and the Deputy Secretary-General of the United Nations (UN). In addition, a number of Development Ministers, as well as the Finance Minister of the Netherlands and the representative of the UN Mission in Kosovo (UNMIK) are associated to the deliberations of the HLSG.

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