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Wednesday, July 28, 1999 Published at 11:16 GMT 12:16 UK

Business: The Economy

The price of rebuilding the Balkans

War has caused destruction to homes - and the economy

News Online's Tim Weber looks at the price of peace as world leaders gather to consider how to rebuild the Balkans.

Kosovo is in ruins. Thousands of houses destroyed by Serb soldiers. Bridges and power stations bombed by Nato. Landmines and unexploded ammunition cluttering the landscape.

Rebuilding the Balkans
Now it is time to rebuild.

But nobody really knows the extent of the damage and estimates vary widely.

Some say it may cost $3bn over the next five years to put the country back together again. Others talk of $5bn or more.

The Balkans

Kosovo, of course, is not alone. The whole region has suffered.

Christiaan Poortman of the World Bank assesses Kosovo's prospects for attracting investment
Destroyed bridges over the Danube have hit trade and export industries in Hungary, Bulgaria and Romania.

In Croatia, tourism has collapsed, Macedonia's economic output is plummeting, Albania is poorer than ever before, and private enterprise in Bosnia continues to be in dire straits.

Serbia's economy, meanwhile, is comatose.


Rebuilding the Balkans can cost anything between $30bn and $50bn, and experts acknowledge that it is difficult to come up with a reliable figure.

World Bank President James Wolfensohn, for example, was stumped when he was asked recently how much it would cost to support the country's 1.6 million people just during the coming two months.

Speaking in Kosovo's capital Pristina, all he could do was guess: "Pulling a number out of the air, I'm talking about $50 million, but it could be $70 million or $40 million."

From aid to reconstruction

That amount would only pay the bill for humanitarian aid, feeding the people of Kosovo, helping families to make one room winter-proof and restoring minimal living standards.

[ image:  ]
But soon the effort must switch from aid to reconstruction, which will be the truly expensive part.

The problem is that nobody knows how much needs to be done.

While Nato aircraft were roaming Kosovo's skies in search for Serb tanks, the United Nations refugee agency UNHCR guessed that more than 50% of all civilian houses in the province had been destroyed by Serb forces.

When aid agencies returned to Kosovo, those estimates were revised down dramatically, to about 10%.

Now they are creeping up again, and the UNHCR's special envoy for the Balkans, Dennis McNamara, cautions against reports suggesting that little damage was done: "This has been a conflict against civilian populations, their families and their homes."

The newest estimate is that at least a quarter of Kosovo's buildings have been damaged.

Analysts pored for weeks over satellite pictures to see whether houses had lost their roofs, as a clear indication of damage - but then a lot of entirely gutted buildings have still got their roofs.

One of the worst examples is Srbica, northwest of Pristina. 70% of the town's buildings have been damaged or destroyed.

All agree on one thing, though. It will take a long time to repair the damage. The Secretary General of the United Nations, Kofi Annan, believes that the reconstruction of Kosovo "will take at least 10 years".

Reconstruction or modernisation?

Donor countries have begun to foot the bill. The European Union has set aside 150m euros ($150m) this year, and budgeted 500m euros annually for the next thee years.

The United States has pledged $500m.

The UNHCR has received separate pledges worth $265m, from the United States, Japan, the EU and others.

However, what should all that money be used for?

After all, the decline of Kosovo did not start this year.

For a decade the province was neglected by Serbia's central government. Whatever infrastructure survived the war is close to falling apart anyway.

Kosovo is Europe's poorest region. In 1995, three years before the war, economic output was less than $400 per head.

This compares with a gross domestic product per head (1997) in

  • Albania of $1,370
  • Hungary $7,400
  • Germany (West) $23,600 and the
  • United States $30,200.

    Stability at a price

    So should Western aid just restore Kosovo's measly pre-war status or take it and the whole Balkans into the 21st century?

    Poverty breeds conflict, say Western politicians. They hope that the prospect of economic wealth can persuade the people of the Balkans to live in peace with each other.

    Germany's Foreign Minister Joschka Fischer, for example, has long argued for a Marshall plan for the Balkans. This Stability Pact is designed to tie the region closer to the prosperity and political calm of the European Union.

    However, there is one big difficulty with that approach.

    The region's largest economy is Serbia, and before the war most of the other countries' economies were closely integrated with Serbia through trade links.

    But the West has refused to consider rebuilding the Serbian economy, which suffered the biggest war damage of all, while Slobodan Milosevic is still in power.

    It will cost even more to reorient the other economies of the Balkans away from Serbia, if indeed it can be done.

    Meanwhile, aid may replace trade, weakening civil society and boosting corruption.


    Bosnia-Hercegovina is a prime example of how that might happen.

    The economy of the war-torn country has seen huge annual growth rates of about 40%. But according to the International Crisis Group, nearly all of that growth is down to international aid, worth some $5.1bn.

    When this artificial demand is taken out of the calculation, the economy is actually shrinking.

    One reason for the country's poor performance is corruption. More important is the fact that private enterprise - and thus economic growth - is entangled in a thicket of red tape.

    Without a streamlined and accountable legal framework, Kosovo - and the Balkans - will have little success in rebuilding their economies.

    Lack of skills

    Kosovo will have to overcome another obstacle. Ten years ago, when President Milosevic took tight control of the province, the Serb government forced thousands of Kosovo-Albanians out of their jobs as engineers, civil servants, teachers and doctors.

    The result is a lack of expertise. Aid experts worry that there may not be enough well-trained local people at hand to administer the deluge of aid money that soon will pour into Kosovo.

    Even worse is the danger that the aid effort could get bogged down in bureaucracy and rivalvries in the West.

    Because of squabbling among EU member states, the European Agency for Reconstruction will now have two headquarters, an 'operational' one in Pristina and an 'administrative' one in Thessaloniki in Greece.

    Lots of money is at stake, and some governments seem to believe that if they cough up the money, their own industries should have some of the benefit.

    Germany, for example, is still seething that its construction companies got hardly any contracts in Bosnia, even though it funded more than a quarter of the aid effort.

    The British and Italian government have set up special task forces to make sure their country's companies get a slice of the cake.

    Repairing the war damage in Kosovo and the Balkans is feasible, if not cheap.

    Integrating the region into Western Europe will be more difficult, and take a long time.

    And even if all goes well and the Balkans prosper, all that money will not repair the human damage.

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