Analysis: Kosovo's Iraqi lessons - I

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, April 10 (UPI) -- Should the United Nations administer Iraq? Is it -- as Kofi Annan, its secretary-general, insists -- the best qualified to build nations? Or will it act as a bureaucracy out to perpetuate itself by preventing true transformation and indigenous rule? Kosovo is a lucrative post for more than 10,000 exorbitantly overpaid international administrators and perked consultants as well as 40,000 itinerant peacekeepers.

The United Nations has been reasonably successful elsewhere both in peacekeeping and administration -- notably in East Timor, Afghanistan and Sierra Leone. It is widely thought to have dismally failed in Bosnia-Herzegovina. But the lessons of its involvement in Kosovo -- the second longest and least reserved of its missions of this type -- may be of particular relevance.


In the wake of NATO's Operation Allied Force in 1999, Kosovo was practically severed from Yugoslavia and rendered a U.N.-protectorate under Resolution 1244 of the Security Council. UNMIK, the U.N. Mission in Kosovo, was formed to serve as the province's interim administrator. It was charged with institution building and producing a transition to self-governance by the now overwhelmingly Albanian populace.


The United Nation's mission was divided to four "pillars:" police and justice; civil administration; democratization and institution building, overseen by the Organization for Security and Cooperation in Europe; and reconstruction and economic development, managed by the European Union. Four years later, Kosovo has its own government, installed last month -- and a viable police force.

UNMIK had to spent the first 18 months of its mandate re-establishing basic services in a land scorched by 78 days of massive bombardment. It also put in place the rudiments of a municipal administration. A parliament and presidency followed. Surprisingly resilient, they survived two -- bloodied -- elections. The United Nations is planning to transfer, over the next few months, many of its "competencies" to the three-party broad coalition in power. Last month, a transfer council was established to manage the transition.

But Kosovo is an unsettled place. Its status is unresolved. Is it to be independent, as its legislators demand -- or an inseparable part of Serbia, as the late assassinated Serbian prime minister, Zoran Djindjic claimed? UNMIK's travel documents and its license plates, for instance, are still not recognized by many countries.

Investors -- including wealthy diaspora Kosovars -- are deterred by this uncertainty and the social and civil unrest it fosters. Had it not been for KFOR, the 35,000-strong NATO-commanded military detachment, Kosovo might well have reverted to civil war, or crime-infested anarchy. That, astoundingly, Kosovo has no law to deal with foreign investment does not help.


Partly because of that, Kosovo's economy is still a shambles. The United Nations -- and the acronym soup of multilateral development banks, aid agencies and non-governmental organizations that descended on the region -- failed to come up with a coherent plan for endowing Kosovo with a sustainable economy.

Where UNMIK, with European Union assistance, did intervene -- in setting up institutions and abetting economic legislation -- it has done more harm than good. The establishment of workers' councils, for instance, inhibited the proper management of socially owned enterprises and rigidified the budding labor market with dire consequences.

One in two Kosovars is unemployed. Whatever activity there is, is confined to trading (read: smuggling), retail and petty services. The wild construction or reconstruction of 250,000 houses wrecked by the war is fizzling out and the absence of both mortgage financing and a sizable domestic industry of construction materials are detrimental to the sector's viability.

Tenders for complex infrastructure jobs are usually snatched by foreign competitors. Reputable Kosovar-owned construction multinationals hint at discrimination and worse. But the business segment of the economy is elusive and dilapidated. Of 861 socially owned firms identified by the International Crisis Group, only 330 are viable, according to UNMIK.


Kosovo has no private sector to speak of -- though it has registered 50,000 small and medium, mostly paper, typically ad-hoc, enterprises. Of 2,774 members of the Kosovo Chamber of Commerce, 1,667 are fly-by-night construction outfits.

The majority of economic assets are still in public or "social" hands. In an interview granted to the Far Eastern Review last year, Ali Jakupi, minister of trade and industry of Kosovo, diplomatically pointed the finger at UNMIK's glacial pace of reform.

Land ownership is a contentious issue. The privatization of utilities is a distant dream, despite the creation of the Kosovo Trust Agency, a convoluted attempt to dispense of certain assets while skirting the legal no man's land that is Kosovo.

Despite all efforts, commercial law is scant and poorly enforced. No one understands why the number of commercial bank licenses is limited, why, until recently, UNMIK worked only through one bank and why establishing an insurance company is such a harrowing -- and outlandishly expensive -- ordeal. Kosovo is the only place on earth where price cartels (for instance, in the assurance sector) are not only legal, but mandatory.

Kosovar banks still keep most of their assets abroad for lack of an indigenous legal framework of collateral and bankruptcy. Interest rates are prohibitively high and repayment terms onerous. The only ray of light in a decrepit financial system is the euro, Kosovo's official currency and a source of monetary stability and trust.


The new Ministry of Finance and Economy has introduced customs duties and a few taxes with modest success. But the government's revenue base is pitiful and a Byzantine, import-biased, tax law makes export-oriented manufacturing a losing proposition. Kosovo's trade deficit is almost equal to its gross domestic product. Had it not been for generous remittances from Kosovar expatriates and immigrants -- pegged at $1 billion to $1.5 billion a year -- the province's economy would have crumbled long ago.

Nor has Kosovo's infrastructure been rehabilitated despite the $5 billion poured into the province hitherto. Electricity, for instance, is intermittent and unpredictable. The roads are potholed and few, the railways derelict. Fixed line penetration is low, though mobile telephony is booming. This sorry state was avoidable.

Part 2 of this analysis is to run Friday. Send your comments to [email protected].

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