Remarks on Economic Sustainability and Final Status for Kosova

Henry H. Perritt, Jr.

Prishtina, 11 July 2003

Thank you, Rector, Dean, and my good friends, Professors Rexhep Murati, Hajredin Kuqi, and Abdulla Aliu

Ladies and gentlemen, it’s a great pleasure to be here today.  Like Professor Benedek, time only permits a brief summary of the main points of a more formal and extensive paper that I have written for this conference which I made available to the Law Faculty. I have a few extra copies and would be happy to make available to any of you today. 

First of all I’d like to congratulate Professor Benedek for his very thoughtful presentation and I associate myself fully with his excellent ideas.  What I would like to do in the time available this morning is to make four points.

The first point is that there has been great progress in Kosova since 1999 but not enough progress in the economic sphere.

The second point is that there are many very important actions that should be taken, but have not yet been taken, to develop a self sustainable economy in Kosova.

The third point is that deferral of final status negotiation very much impedes action that needs to be taken on the economic front and that final status discussions should begin forthwith within an appropriate structure.

My fourth point however, is that there is much that can be done and should be done beginning now by UNMIK, the rest of the international community, and by all levels of Kosovar government to begin to build an effective sustainable private sector.

My first point: Kosova has come a long way since my first visit to this town in December of 1998.  I sat in this very room at a meeting presided over by UNHCR, which was struggling to figure out, with the help of my institution and of hundreds of NGOs, how to deal with an impending humanitarian catastrophe resulting from the forced expulsion of hundreds of thousands of people from their homes into the countryside of Kosova and into refugee camps in Albanian and Macedonia. 

We have come a long way since then.  Kosova has had three rounds of successful and free and peaceful elections.  Kosova has a functioning democratic government.  Kosova has a functioning legal system comprising a professional bar and many hardworking judges in courts from the Supreme Court right on down. I have seen those courts functioning myself in previous trips to this country. 

There has been physical reconstruction but there has been very little progress on the economic front.  One reason there has been so little progress on the economic front is that Security Council Resolution 1244 is ambiguous.  It could be read broadly to give coequal emphasis to the recognition of the historical sovereignty of Yugoslavia, the need for autonomy in self government in Kosova, and the need for economic development, but it has not received that interpretation. 

Too often, legal advisors in the United Nations -- and UNMIK more particularly -- have taken very extreme interpretations of Security Council Resolution 1244 that have blocked the necessary steps. for example, to begin the privatization process.  I know from my own involvement in providing technical support how hard people in DTI had to struggle to overcome absolutely impermissible interpretations by the legal advisors even to get the privatization structure on the table. 

It should have been obvious from the beginning that UNMIK was meant to be a political trustee.  Trustees in law—not only American law but also in West European law—trustees have very broad powers to do what’s necessary in the interest of the beneficiaries. The beneficiaries of this political trusteeship in Kosova have always been the people of Kosova.  It was not necessary to construe Security Council Resolution 1244 so narrowly delaying so long the important steps with respect to economic development but it was interpreted that way. 

Now it’s important that economic development rise in the list of priorities.  When you look at the most recent report of the Secretary General of the United Nations about Kosova, you know how many paragraphs you have to read before you get to the subject of economic development?  Forty seven.  It’s only in Paragraph 48 that the Secretary General begins to talk about the need for economic development.  That is too low a priority. 

Neither Kosova nor any other place can have human rights or the prospect of return or functioning liberal democracy without a sustainable economy. 

Building a sustainable economy in Kosova needs to move to the top of the list.  For one thing, the privatization process, so long delayed, must begin and be successful.  There is of course much controversy about KTA but in my opinion the basic legal structure for privatization is the right one and much thought went into it and much was learned about the mistakes that had been made with privatization programs in other countries.  It’s important, as that process proceeds, that the mechanism for judicial review in the Special Chamber of the Supreme Court be strengthened and made more credible. 

But it’s also important to understand that the paths of economic development in Kosova and building a sustainable economy will not be done through privatization alone.  The sad fact is that very few of the Socially Owned Enterprises are likely to succeed in a market economy subjected to international competition.  Much greater emphasis must be placed on building a truly private sector, in particular in creating the circumstances in which small and medium enterprises can be started anew and flourish. 

In that regard, Kosova needs to make sure that there are educational institutions that train young Kosovars so that they can perform the jobs that need to be done in a flourishing modern market economy.  I am very proud of the work that we have been able to do with the Law Faculty at the University of Prishtina to make sure that its efforts to educate a new generation of lawyers succeeds in educating a new generation of lawyers that understand how to function effectively in a real world, in a democratic world, and in a world with a market economy. 

It’s very important that more effort go into creating the kind of financial sector that can put together savings and foreign investors with the many entrepreneurs in Kosova who want to start their own businesses.  The middle, if you will, in the economic framework is very weak.  We must do much more to make it easy for would be small businessmen amd businesswomen to find out how to start a business, how to write a business plan, how to do the bookkeeping and accounting, how to find foreign investors, and how to market their products.  We must make it easier for these people to find the right kind of lawyer how understands not only the law of Yugoslavia in 1989, but also the law of UNMIK and who understands enough about business transactions and deal-making so that that man or woman can be a successful advisor in business transactions. 

We need to do more to promote Kosova and to promote individual businesses in Kosova to the outside world that can provide investment capital and buy the products and services.  We need to begin to think about structures like investment funds and stock markets which probably will have to be regional to channel investment into private enterprise. 

Now unfortunately, these steps that need urgently to be taken because they have been deferred too long, are made much more difficult by questions about final status and by the refusal of UNMIK to begin the final status negotiation process. 

Listen to what Kosova’s first bank has to say about the relationship between final status and economic development.  I am quoting from 2002 annual report of the Micro Enterprise Bank:

“The unresolved status of Kosova and the lack of a foreign trade regime prevent companies operating in Kosova from exporting goods to neighboring countries and in general prevent the region from developing export oriented economic activities.  At the same time foreign investors remain reluctant to place their funds in Kosova and to acquire stakes in local companies.” 

That was not the leader of a Kosova political party speaking; that was the Micro Enterprise Bank, which makes it its business to understand what the barriers are to economic development. 

Deferral of final status negotiations not only makes it more difficult to achieve the kind of ordinary economic activity that the Micro Enterprise Bank talked about it also skews domestic politics because it preoccupies the Kosovar political parties and their leaders.  They are so busy talking about the need to begin discussions of final status that they have little bandwidth left to do what needs to be done to build a sustainable economy. 

Uncertainty about final status blunts interest by foreign investors.  When you call up McDonald’s in Chicago, the headquarters, and say, “Why don’t you think about starting a McDonald’s franchise in Prishtina?  They say, “Uh, I can’t find Kosova on my list.  Is it a country?”  Then you explain the recent history of Kosova and McDonald’s says, “Oh, well you will have to go through the office in Belgrade.”  They can’t find Kosova on the map, and the task of navigating through a nontransparent UNMIK and local institutions nearly invisible to the outside world reinforces the claim that Kosova is a lawless place in which investment would not be safe.


Uncertainty about final status and the deferral of final status negotiations stunts participation by Kosovar institutions in developing international economic connections and indeed makes it impossible under the present legal framework of the European Stability Pact for Kosova to participate fully, even as the European Union places increased emphasis on the Western Balkans after the Thessalonica conference. How can Kosova develop sound regional links with the rest of the region, the rest of Europe, and the rest of the world—which everyone says it must—when it has no official outside contact. 

Worst of all, uncertainty with respect to status and deferral of processes to resolve status tempt the UN to “punish” Kosovar institutions by withholding access to the rest of the world.  It is completely irrational and counterproductive for UNMIK to cancel Kosovar participation in Stability Pact discussions to punish the Kosova Assembly for considering measures the SRSG does not welcome, but it happened.  It will happen again as long as UNMIK believes it can hold Kosovar political actors under its thumb for an indefinite period.

In moving forward on final status, however, five realities must be accepted:

·                    First, Kosovar Albanians will not accept being folded back into Serbia.  Talking about this option is a waste of time and everyone should say so.

·                    Second, Kosova cannot become a state without international recognition, and this is unlikely to occur without a U.N. Security Council resolution.  Russia, France, and China can veto such a resolution. 

·                    Third, Serbia must be a part of the negotiations and must acquiesce in the outcome, or Russia will not accept the outcome

·                    Fourth, Kosovars will not trust UNMIK as a convener or mediator, and may not trust the EU in either role

·                    Fifth, any final status will not be viable without a sustainable economy.

Support is growing for independence.  A negotiation process should be begun forthwith; there is no reason to wait before beginning discussions.

But much can be done—much must be done in the meantime.

First, all levels of government, from the SRSG to the smallest municipality, must have private sector economic development at the top of their priority list; not at the bottom.  Never again should it be necessary to read the report of the Secretary General on Kosova and come to the first mention of economic development only in Paragraph 48.  Any future matrix of preconditions to independence promulgated by the SRSG should have private sector economic development at the top; not at the bottom.

The privatization process must be accelerated and all levels of government must resist throwing further roadblocks in the way.

The legal and regulatory context for doing business should be completed, with greater attention enforcing security interests property when necessary, prompt enactment of a bankruptcy law and revision of the customs regime to permit Kosovar manufacturers a rebate of customs duties and VAT for raw materials and machinery.

Governmental transparency must be improved.  The new law on official access to documents is excellent.  It must be enforced vigorously, and UNMIK must embrace its principles.  It is disgraceful that UNMIK has stopped timely publication of its own regulations on its Web site.  Businessmen and women and would be businessmen and women must be able to find out what the law is without difficulty. Business advocacy institutions must develop in the political and civil society spheres.  When entrepreneurs face policy obstacles, they must have channels to speak out and to encourage policymakers to change the policy.

All three political parties should develop concrete economic programs and place them at the top of their priority list.  It is in the nature of a democracy that the programs will be different—perhaps sharply different.  But talking about economic development is not only necessary policy; it is good politics.  Recent opinion surveys show that ordinary Kosovars place jobs, unemployment, and economic development at the top of their list of priorities.  Kosovar’s political leaders must show that they understand and are going to do something about it. 

Even as support grows for independence, everyone in Kosova must demonstrate their understanding that:

Meaningful return cannot occur without economic hope. 

Human rights will not be enforced without economic prosperity. 

Independence will not be viable; independence will not be meaningful, without economic development.

Liberal democracy never exists when no one has a job and when politics gets in the way of starting a business. 

Kosova’s provisional institutions, Kosova’s political parties must give the people of Kosova what they want:

Not only independence, but also a way to earn a living, a way to take care of their families, the pathway to human dignity.

And if they do that, if Kosova has well functioning political institutions and a vibrant economy, no one will be able to say that Kosova cannot be independent.

Kosova will already be independent.

Thank you very much.