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Thursday, July 29, 1999 Published at 15:20 GMT 16:20 UK

Business: The Economy

Reconstruction: Myth and reality

Rebuilding the main post office in the Bosnian capital

By Dr Jonathan Eyal

With a series of highly-publicised diplomatic summits, the task of reconstructing the Balkans in the aftermath of the Kosovo war is about to be launched.

Rebuilding the Balkans
Ostensibly, the omens are good. Over $2bn has already been pledged for rebuilding the infrastructure of Kosovo.

An additional $300m has been earmarked by the European Union as aid to Yugoslavia's neighbours - countries whose economies were badly affected by Nato's campaign.

Nor are the pledges purely financial. Western governments are also promoting a new "stability pact" for the Balkans.

This series of binding treaties between the countries of the region is intended to ensure local co-operation and eventual integration into Europe's wider institutions.

Realities of payment

The good intentions of those promoting these schemes cannot be doubted.

[ image:  ]
For the first time since the World War Two, the Balkans are the focus of world-wide attention.

There is also widespread acknowledgement that preventing future crises in Europe's most incandescent hotspot requires genuine and long-term attention.

But when the heads of states and governments depart after their summits and the pledges need to be transformed into actual payments, the Balkans will be confronted with a more mundane reality.

The vast sums of money promised at the height of the Kosovo conflict are unlikely to materialise, and many of the treaties currently negotiated as part of the "stability pact" are basically irrelevant.

Stability promised

Throughout the Kosovo campaign, Nato promised a new Marshall Plan for the Balkans, reminiscent of the effort made at the end of World War II in reconstructing Europe.

Such talk produced good headlines in the media, but remains misconceived.

[ image: On sale: bricks collected from the ruins of Sarajevo's buildings]
On sale: bricks collected from the ruins of Sarajevo's buildings
The Marshall Plan came after the aims of World War II were accomplished.

Germany was not merely defeated, but was actually erased from the European map - to be reconstructed according to the vision of war's victors and on the basis of democracy.

Although Nato can claim an immediate victory in Kosovo, the source of trouble in the Balkans - rump Yugoslavia - is still there.

True, the Yugoslav leadership of President Milosevic is now increasingly challenged by opposition movements at home and may yet be toppled.

But no potential Yugoslav leader is prepared to accept responsibility for the crimes committed in Kosovo, or accept that the province should become independent.

Meanwhile, Bosnia, another former Yugoslav republic, remains as divided as ever along ethnic lines and Montenegro, still a component part of the Yugoslav federation, is toying with secession.

Double-edged sword

The original Marshall Plan came after frontiers in Europe were fixed and the immediate menace of Germany was removed.

[ image: Church ruins in Djakovica]
Church ruins in Djakovica
But current Western efforts in the Balkans are being implemented with none of these advantages.

Furthermore, the original Marshal Plan was intended to support vulnerable democracies, which had their own relatively efficient administrations.

But in the case of the former Yugoslav republics, offering cash is often part of the problem, rather than a solution.

Billions of dollars have been poured into Bosnia since 1995 to no great effect - even in countries ruled by well-meaning politicians there is a huge lack of expertise.

Assuming that one ignores the ridiculous sight of the European Commission proposing to train Balkan administrations in the elimination of waste and corruption, one conclusion is inescapable: the effort will take years and will have to be undertaken often against the wishes of the local leaders.

Strapped for cash

Finally, there is the question of the resources being made available.

[ image: Most industries in Kosovo are suffering from neglect]
Most industries in Kosovo are suffering from neglect
The European Union has accepted the need to shoulder most of the costs of reconstruction.

But the Union itself suffers from a $5bn deficit in this year's budget as a result of financial reforms which have nothing to do with the Balkans.

EU governments have decided that no further funding will be made available.

As a result, regional reconstruction efforts will be funded out of existing allocations, plus a diversion of funds from the EU's aid budget to Third World countries and any specific contributions made available by other donor states.

Impressive promises

To date, the UN High Commissioner for Refugees has received only $160m out of a total of $400m budgeted for the return of Kosovo's population.

If the contributions have not been forthcoming for what is the most urgent task, it is difficult to see how they will be made available for longer-term projects.

[ image: Donors stand accused of not sending money quickly enough to get Kosovo moving]
Donors stand accused of not sending money quickly enough to get Kosovo moving
The current tally of $2bn may sound impressive. But it is computed on the basis of some recycled pledges already made in the past, and it is tailored for the immediate reconstruction of Kosovo, rather than wider Balkan purposes.

Nor is this just the start of a cash avalanche: the US has served notice that its current contribution of $500m is the top ceiling of its largesse, rather than merely a foretaste of future donations.

Business interests

But behind the diplomatic smokescreen a huge battle is now developing between Western governments, all of whom are eager to secure lucrative contracts for their own companies.

Local Balkan economic interests are unlikely to have the necessary political clout in order to secure some of the lucrative contracts which are now in the offing.

And what about the political aspect of the reconstruction effort?

Both the EU and Nato are suggesting that, while assistance plans are put together for the area, the Balkan states should be encouraged to co-operate with each other.

Such co-operation is logical, and should not come at the expense of a wider European integration.

Correct, but only up to a point. A great deal is already being done, and many of these activities do not require government co-ordination.

Greek investors dominate markets in Serbia and Macedonia, and the remittances of Albanian workers in Greece are just about the only source of foreign revenue in Albania itself.

Turkish construction and transport firms, as well as Turkish bakeries, predominate in Romania.

More attuned to local markets and willing to take greater risks, such investors will clearly remain in a better position to exploit regional opportunities.

Limitations and obstacles

But there are also great limitations on how far the investment process can go.

All the region's states suffer from similar problems: relatively large agricultural sectors, redundant industrial capacity, a surplus of labour and a decaying infrastructure.

Not only do they have little to offer each other, but they actually compete with each other for the same Western capital resources.

Secondly, Greece will always be in a different position from the rest of the region: as a EU member, it is bound by certain tariff restrictions and trade practices which do not apply to others.

Furthermore, if the West as a whole proved unable to solve the Greek-Turkish dispute, the Balkan states cannot be expected to do better.

Very often, their solution is to carefully skirt around the dispute altogether, in the hope of avoiding any new tensions.

And ultimately, the obstacle to regional co-operation is psychological - although everyone assures the Balkan states that they have nothing to fear, the area's leaders instinctively regard regional co-operation as inferior to European integration.

They suspect that the more they succeed in co-operating regionally, the less they will be considered as serious candidates for membership in either the EU or Nato.

Methods in doubt

Encouraging the Balkans to sign treaties of mutual co-operation cannot provide a long-lasting solution.

Reassuring them that they will become members of the European Union and Nato is the biggest contribution the West could make, but it is not a promise anyone is currently willing to give.

The goodwill of the leaders gathering in the Balkans this week is not in doubt.

But their methods and long-term commitments are. Western democracies have always been better at rising to the immediate challenge of a war, rather than dealing with the often tedious and interminable details required in order to consolidate peace.

The author, Dr Jonathan Eyal, is the Director of Studies at the Royal United Services Institute in London

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