Economic recovery: money is not enough

From the very outset of its engagement in Kosovo, the EU’s primary focus (both within UNMIK and more widely) has been the support of economic recovery and the modernization of local economic structures. Progress in this field, however, has been largely disappointing. Following an early post-war boom in 1999—2001, economic activity since has slowed down and the local population’s economic hardship worsened considerably. In 2005, GDP per capita was €1,100 (the lowest in the Western Balkans) and 37 per cent of the population lived in poverty (European Commission 2006a: 38). Despite low inflation and monetary stability (due to the fact that Kosovo adopted the Euro as its official currency), unemployment has been endemic (estimated at around 40 per cent in 2008). What causes even more serious concerns at the moment is that youth unemployment is particularly high ‘with approximately 75% of young people out of work’ (European Commission 2009f: 9). This is so, despite the fact that the Provisional Institutions were grossly overstaffed, employing over 10 per cent of the local workforce (ESPIG 2004). Against the backdrop of a thriving ‘black economy’ and widespread illegality, Kosovo’s macroeconomic situation has been assessed as ‘bleak’ (European Commission 2006f: 8), undermined by the inability of the administration to collect taxes and its excessive reliance on customs revenues (administered by UNMIK). In fact, had it not been for foreign aid and receipts from the Kosovar Diaspora, Kosovo’s economy could have been described as all but ‘clinically dead’ (European Commission 2006f; confidential interviews with think tank experts and EU officials, March 2010, Pristina).

The failure to create a sustainable local economy developed into an issue of paramount importance in the light of decreasing levels of foreign assistance and the scheduled departure of large numbers of foreign administrators who have so far provided a lifeline for the economy around Pristina (and beyond). Many Kosovars attributed much of this economic depression to the way in which the EU Pillar (within UNMIK) handled the privatization process and Kosovo’s integration into the regional economic structures. Following years of legal uncertainty regarding ownership rights over Kosovo’s ‘socially owned enterprises’, the privatization process became embroiled in accusations of mismanagement and corruption on behalf of leading EU officials at the helm of the Kosovo Trust Agency (KTA, the body overseeing privatization) and the EU Pillar within UNMIK, feeding aggressive media reports on this issue (ECIKS 2004: 1). Local discontent has also been fuelled by the slow development of trade links between Kosovo and its neighbours. Despite the fact that the development of a regional free trade zone has been a central feature of the EU’s strategy in the Western Balkans, Kosovo’s ‘official’ trade links have, for many years, been confined only to Albania and Macedonia. Only in 2006 were free trade agreements signed with Bosnia and Croatia, but the Commission recently stated that Kosovo’s businesses still lacked export potential and the economy as a whole was an area of considerable concern (European Commission 2009f).

This is despite the fact that in July 2008, the European Commission organized a donors’ conference for Kosovo, which resulted in over €1.2 billion in pledges, including more than €500 million from the Community budget and almost €800 million by the EU member states. In 2008 the government established the Agency for Coordination of Development and European Integration as a step towards improving Kosovo’s donor coordination and its European approximation efforts. In June 2009, Kosovo became a member of the International Monetary Fund and the World Bank, while continuing to benefit from EC financial assistance. The latter has been going under the Instrument for Pre-accession Assistance, CARDS (Community Assistance for Reconstruction, Development and Stabilisation), and the Instrument for Stability, to mention but a few EU initiatives (European Commission 2009f). These instruments have been assisting the economic development of Kosovo and contribute towards fulfilling the EU standards in this area.

In its approximation process to the EU, Kosovo needs to improve its implementation potential, since the adoption of EU legislation has not yet been coupled with adequate enforcement measures. Despite the EU efforts in the area of economic development for the past ten years, the Kosovo economy still has a large informal sector, the respective governance and regulatory bodies are largely underdeveloped, a strategic approach to employment is missing and the public administration is extremely weak (European Commission 2009f). Thus, despite the provision of relevant instruments and programmes for economic development, the EU is still far from making a real difference in this area. Its ability to strengthen the administrative capacity of Kosovo’s institutions and boost the enforcement mechanisms in customs, policing and judicial matters is crucial to ensuring the money pledged through donors’ conferences and programmes is spent appropriately. Until then, the EU would hardly be able to claim that it adequately responded to the challenges of economic development in Kosovo.

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