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Tuesday, May 4, 1999 Published at 09:44 GMT 10:44 UK

Business: The Economy

Kosovo's cost to neighbours

The economic effect of the refugee crisis is mounting

The World Bank and the International Monetary Fund have said the short-term cost to the region of the Kosovo conflict is likely to be more than $2bn (1.2bn).

And in the longer term, it is estimated that economic reconstruction in the Balkans will cost many times that.

Kosovo: Special Report
The short-term costs include paying for humanitarian aid to 600,000 refugees and boosting the economies of the countries most affected by the crisis - Albania, the Former Yugoslav Republic of Macedonia, Bosnia, Bulgaria, Croatia, and Romania.

Their economies have been disrupted by the conflict, and trade and economic growth has suffered.

The Balkans Committee - bringing together international finance ministers, the World Bank, the IMF, and other financial institutions - met for the first time in Washington at the end of April to consider a joint report estimating the economic consequences of the war in Kosovo.

World Bank President James Wolfensohn told the committee that they estimated the need for "emergency aid for all the neighboring countries to Kosovo at between $1.5bn and $2bn."

But the Balkans Committee said that even more would be needed:

"It believes that the financing needs for 1999 were likely to have been underestimated, and would need to be amended to include indirect impacts such as the effect of the crisis on domestic business activity, unemployment, social conditions and overall poverty levels," the Committee's statement said.

Debt relief

The IMF also welcomed moves to offer immediate debt relief to Albania and Macedonia, which is being coordinated through the Paris Club of official creditors. Payment on $900m of external debt owned by Albania and $1.2bn owed by Macedonia was suspended for a year.

Although no aid pledges were sought or received, it was made clear that the international financial institutions "should play an important role in the process".

The IMF said it would be 'highly regrettable' if the economic reform efforts of the Balkan countries "were set back because of the lack of external financing, on appropriate terms, to meet their increased needs."

It also said that all humanitarian relief should be financed by external help.

So far the World Bank has pledged $40m for Macedonia and $30m for Albania, while the EU has pledged $265m to the six crisis-hit Balkan countries.

The IMF/World Bank study said that the six countries' budget deficits will increase by $650m from lost customs revenue and other war-related costs.

Long-term costs higher

Meanwhile, the cost of economic reconstruction in the Balkans after the Kosovo war could reach $30bn according to preliminary European estimates.

The World Bank and the European Union will coordinate the medium and long-term response to the crisis, with another meeting to be held in May in Bonn.

Donor pledges will be sought in the meantime, but more political will was also needed.

"There was a widely-shared view that the international assistance effort would benefit from high-level political guidance," the Balkans Committee commented.

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