[NGO Study] Reconstructing the Balkans: Stability Pact for South East Europe. Questions and Answers

The Stability Pact was signed in June 1999 as a response to the Kosovo crisis by countries from the Balkan region, major donor countries and international organizations such as the EU, World Bank, EBRD, EIB, OECD, etc. Recently, the Federal Republic of Yugoslavia has become a member of the Pact, which will speed up the financial flows needed in the region.

The main goal of the Pact is to "secure lasting peace, prosperity and stability for South Eastern Europe; foster effective regional cooperation; and give firm European anchorage to the region." [2]

All members of the Stability Pact have committed themselves to making an effort to achieve these goals of stability, economic development, and anti-corruption and human rights protection.

2. How is it going to be implemented?

The Pact seeks to encourage stability through support for regional projects, which are going to be implemented through a South Eastern European Regional Table consisting of three working tables:

Working Table on Democratisation and Human Rights (Table I) Working Table on Economic Reconstruction, Development and Cooperation (Table II) Working Table on Security (Table III)

Reconstruction activities are to be completed within the period of five years. Projects are divided into three packages; Quick-Start, Near-Term and Medium Term Package.

All projects under the Quick-Start Package should start by March 2001, while the Near-Term projects should begin to be implemented within the next two years.

Funds for the Quick-start projects, 1.8 billion in total, were pledged at the Regional Funding Conference held in March 2000 in Brussels. The Funding Conference has pledged additional 0.6 billions for the Near-Term Package.

However, the amount for the Quick-Start package has grown to 2,4 billions according to data from November 2000.

3. What is the problem?

Working Table II accounts for more than 80% of the planned investments. The importance of economic recovery in post-conflict countries is not questionable, but the way in which the reconstruction will be carried out is more controversial. So far, investments in damaged infrastructure, mainly roads, railways, waterways, electricity grid, and pipelines, were seen as the most important part of economic recovery.

Large loans planed for the infrastructure sector will worsen debt problem in the Balkans. If these projects do not bring expected economic benefits it is not likely that governments will be able to pay them back. This is especially true in a case of toll highways construction. Having in mind difficult economic situation after years of conflicts and instabilities in the region, building such an expensive mode of transport is not reasonable. Railways are more suitable, for both, passenger and freight transport. Rails are cheaper to built and they will bring benefits on a long run providing jobs for local population. On a contrary, highways built by international companies will not bring revenues to local governments.

Moreover, all these investments or "assistance" in the IFIs' words are loans, which means that countries will have to pay them back. If a certain investment does not bring a profit governments will be forced to take another loan, maybe under worse conditions. There is a danger for the Balkans to become highly dependent on international "assistance" which will not create self-sustainable economies as a major goal of the Stability Pact. On a contrary, Balkan countries may fall in the debt trap like these in developing world. Bosnian example has proven how millions of dollars can be wasted.

In addition, infrastructure projects planned for the Balkans were designed in a way to connect Greece with the other EU members. Little attention was given to the local populations' needs.

Extensive infrastructure projects such as highways or pipelines will have a tremendous impact on the environment. Therefore, it is of crucial importance to promote reconstruction, which will bring benefits to local societies with minimum impact on the environment.

4. Will the international assistance reduce poverty?

One of the main goals of the Pact is to reduce poverty in the region. To achieve this goal both governments and international organizations will have to deal with a high level of unemployment. For instance, unemployment in Bosnia and Herzegovina is 55%, in Serbia 40-50% and around 35% in Macedonia.

Poverty has grown throughout the region, and limited economic opportunities can only contribute to violence and social tensions. Privatisation will create a loss of jobs, unless the countries make rapid progress towards private sector development which is not likely to happen overnight. The experience of the Central European Countries has shown that transition to a market economy has brought new opportunities for some, but it has also eroded the accustomed social supports such as health care, housing and education. Majority of population throughout the CEE region have not felt the benefits from the market economy.

The World Bank and EBRD agree that private sector development will be the engine of economic growth and job creation.[3] However, while more than 1 billion has been pledged for the infrastructure projects, the private sector attracted only 365 million.

Only one Quick-Start infrastructure project, the development of Sofia airport, has larger funds than all the Stability Pact's spending on private sector development initiatives, economic reforms, business development, vocational training and education, environmental projects, and social development.[4]

It is worth mentioning that institutions such as the World Bank have lead the transition in Russia where there is a little evidence of successfully implemented changes. Majority of people remained poor while corruption is still high as it was in the early 90's and wealth flies out of the country.

The question is why do the IFIs approve the same modes of "assistance" when it is obvious that giving money to highly corrupted governments will not improve life of poor who need help the most? If the Balkan reconstruction is not about to face the same scenario, then local governments, people and NGOs from the region have to be included in the process. Otherwise, it is likely that millions of dollars will end up in private accounts of a new elite.

5. Why is micro financing better?

It takes several years before large projects start bringing the results to a national economy. Moreover, contracts for such projects are signed by the governments, which are often corrupt. On the other hand, micro financing has shown to be a very useful tool for empowering the widest possible segments of societies and ensuring that the basic needs of citizens are supported even under fragile economic conditions.

Bosnian experience has shown that recovery driven by physical reconstruction will not create a self-sustaining economy. Since the war, approximately USD five billion were invested in Bosnia and Herzegovina and unemployment remains as high as 55 percent, economic growth continues to be linked primarily to reconstruction, and refugees and the internally displaced have not yet returned in the numbers hoped.[5]

Micro financing, instead of large infrastructure projects, targets local business and communities and provides goods and services that are needed by the local populations. Even with a minimum amount of money such as 1 000 DM it was possible to influence people's ability to develop activities that helped them sustain their future.[6]

The World Bank supported the micro-financing in Bosnia, but these programs account only for less than one percent of all the Bank's lending.

Similar initiatives, supported by Oxfam, have already started in Serbia. This project enabled groups of woman refugees to establish a successful clothing production business. Assistance has been focused on training and management, and ensuring that high quality, hand made garments were carefully designed and marketed. One of the most important outcomes of these small-scale projects is that people realized their efforts had paid off.

The International Financial Institutions admit that these projects are difficult and labour intensive. However, without assistance that will affect the widest segment of the population, the majority of people will not benefit from investments in their countries.

6. The role of the environment in reconstruction activities

Ministers of the Environment from the Balkan countries gathered in Struga, Macedonia to express their concern about the environmental problems in the region. Ministers identified priority areas and called for the development of a detailed Regional Environmental Reconstruction Program (REReP) for South Eastern Europe (SEE) to be implemented under the Stability Pact. REReP was established under the Working Table II on the economic reconstruction and development, but it accounts only for one percent of the total activities planned under the Stability Pact. Moreover, the program has a separate Task Force and it is not likely that it will affect the rest of the reconstruction activities. A major concern is how to ensure environmental protection under 99% of the activities?

Although the environment has been the only arena where all the countries from the region have been acting together, there has not been a serious input from these countries in major investments planned for the region.

One of the core ideas of the REReP is that the environment can play a leading role in generating regional stability. In addition, environmental cooperation can contribute to the establishment of transboundary agreements and cooperative networks in the SEE region. [7] This is true, but regional stability will not be achieved if the same pattern of cooperation was not foreseen for the entire reconstruction.

Similarly to other activities under the Stability Pact, investments in environment should bring the SEE countries closer to the EU structures. Therefore, it is important to incorporate the EU environmental standards within the whole reconstruction framework. If this goal is to be accomplished then all the projects under the Stability Pact have to be implemented according to the highest environmental standards.

Following the Stability Pact time frame, the REReP should be implemented within the period of five years with a total budget of 70 million. The total budget for the Quick-Start projects is estimated at 30.2 million over two years.

The costs for the individual program components are estimated as follows:

7. Need to mitigate environmental consequences of the conflicts

When the NATO air strikes started, alarming reports began to appear about the environmental damage caused by bombing. Although NATO argued that its use of sophisticated weapons against carefully selected targets would minimize environmental damage, fires in the oil refineries formed clouds of pollution over wide areas, while leakage of dangerous chemicals to air, land and water occurred constantly. [8]

The Balkans Task Force (BTF), established to assess the environmental consequences of the conflict, identified five areas of concern:

environmental consequences of air strikes on industrial sites such as Pancevo, Kragujevac, Novi Sad and Bor;
environmental consequences of the conflict on the River Danube; consequences of the conflict on biodiversity in protected areas;
consequences of the conflict for human settlements and the environment in Kosovo and possible use of depleted uranium weapons (at that time when the BTF assessed environmental consequences of the conflict NATO still did not confirmed the use of depleted uranium).

Probably the most affected sites were Pancevo, Kragujevac, Novi Sad and Bor; all large industrial cities. Strikes on the oil refinery in Pancevo caused the burning of approximately 80000 tones of oil, thus affecting a wide area. At the petrochemical plant, 2100 tones of ethylene dichloride (EDC), toxic to both terrestrial and aquatic ecosystems, leaked into the soil and wastewater canal from the petrochemical plant. [9]

Similar releases of hazardous chemicals have been reported in other industrial sites such as Novi Sad, Kragujevac and Bor. Direct attacks on the oil refinery in Novi Sad caused groundwater pollution while several tones of toxic chemicals leaked into the River Morava after the strikes on Kragujevac car factory. Additionally, attacks on a copper mine in Bor caused severe air pollution from sulphur dioxide emissions.

Although the BTF identified "hot spots" and problems that require urgent mitigation, it is crucial to include reports done by experts and NGOs from the region. A research, which was carried out by the University of Novi Sad, Holding Co. Occupational Safety and Environmental Protection, NIS-Jugopetrol Oil Industry and Vinca Institute of Nuclear Sciences showed different results of heavy metals content in soil. [10]

Values were higher, but that was not the most controversial finding. The UNEP's Task Force did not analyse all the samples taken. The content of some very toxic metals such as As and Hg in the soil was not analysed at all.

8. Public participation and NGO involvement

"The Stability Pact fully recognizes the important role that NGOs can play in the region and in the SP to reinforce the involvement of a civil society in the democratisation process"[11]

It was acknowledged that various NGOs should be a major vehicle of grass roots efforts and that their role needed to be further developed. This could be achieved through regular meetings of the NGOs and the Chairs of the three Working Tables, and by involving selected NGOs in the specific activities and initiatives undertaken within the Stability Pact framework.

However, NGOs have been included only within the REReP's activities and, to a limited extent within the Working Table I. The only document, which gives space for the NGO's input into the WT activities, is a Stability Pact Declaration on Non-Governmental Partnership in South Eastern Europe.

If the Stability Pact is to ensure lasting peace and democracy, the reconstruction cannot be done in a way to avoid democratic procedures and principles such as public participation and transparency. International Financial Institutions and donors should apply participatory and inclusive practices in their activities within the Stability Pact framework.

9. Who is developing a strategy for the reconstruction?

The World Bank and European Commission have been mandated to lead the coordination effort of all bilateral and multilateral assistance to the Balkans. They are jointly coordinating regional donors' conferences and identifying the priorities of the reconstruction.

The EIB got a mandate to identify a quick-start package for regional infrastructure projects, while the EBRD identified the need for private sector development and investment in the region.

The EU, as an initiator of the Stability Pact has a role to bring countries closer to European standards, practices, rules and values. The EU's Stabilization and Association process, of which the Stabilization and Association Agreements are the key part, constitutes the core element of the EU's policy towards the region.

The IMF staff provides technical assistance to the interim UN administration in Kosovo under the UN Security Council Resolution

So far, there has been a little public participation in the process. Moreover, countries from the region do not really influence strategies, developed for their countries. Previous experiences have shown that reconstruction efforts, which do not take into account local peoples' needs and views, cannot be successful. Therefore, it is important to ensure public participation now, when reconstruction has just started before huge amounts of money are not wasted like in Bosnia.

Annex 1

Investments by countries/organizations for the Working Table I

Country/Organization	Amount (in EUR )
Austria	3,438,098
Belgium	173,500
Bulgaria	31,666
Canada	60,000
Czech Republic	50,000
Denmark	130,000
Finland	692,700
France	2,060,000
Germany	10,232,800
Greece	1,050,000
Hungary	7,500
Ireland	335,300
Italy	1,551,000
Luxembourg	1,000,000
Macedonia	1,300
Netherlands	2,435,924
Norway	275,000
Romania	31,666
Slovenia	530,800
Sweden	31,000
Switzerland	1,630,000
UK	160,000
USA	6,800,000
CoE	376,500
CEB	43,100,000
EC	186,291,039
ELIAMEP	31,666
European Training Foundation	15,000
IID	222,932
INTEGRA	5,000
ODIHR	120,000
OSCE	50,000
OSI	1,882,324
OSI/HESP	100,000
Participating Parlia	215,792
Red Cross	21,801
Save the Children	25,000
Transeuropeennes	1,318,000
UNICEF	50,000
UNIFEM	17,212
TOTAL	266,550,520

Annex 2

Investments by countries/organizations for the Working Table II including types of assistance

Organization/Country	Loan	Grant	Credit	Government	TOTAL (in EUR million)
Albania				11,91	11,91
Bosnia and Herzegovina				4	4
Bulgaria				66,09	66,09
Croatia		0,64 (city of Rijeka)		86,11	86,75
Macedonia, former Yugoslav Republic of				43,38	43,38
Romania				112,2	112,2
Austria				0,7	0,7
Italy	15	4,8			19,8
Denmark		1,3			1,3
France		0,5			0,5
Germany		12,6			12,6
Greece		8,8			8,8
Japan		2,5			2,5
Kuwait				38	38
Netherlands		4,5			4,5
Norway		6,2			6,2
Portugal	12,6				12,6
Spain		15			15
Switzerland		21			21
UK		1			1
USA		32,06		2,6	34,66
CEI		1,7			1,7
EBRD	103,3				103,3
EC		272,8			272,8
EIB	518,1				518,1
IBRD	43,64				43,64
IDA		5	75,92		80,92
UNMIK				0,3	0,3
TOTAL	692,64	390,4	75,92	365,29	1524,25

Other Investments under the Working Table II

Trade � 723,745

Economic reforms � 557,600,000

Environment � 13,080,000

Social dimension � 31,200,000

Annex 3

Investments by countries/organizations for the Working Table III

Country/Organization

Amount (in �)

Austria	300,000
Bosnia and Herzegovina	1,500,000
Finland	300,000
France	1,990,428
Germany	3,957,691
Greece	894,000
Japan	20,000
Luxembourg	280,000
Norway	200,000
Slovenia	150,000
Sweden	444,007
Switzerland	200,000
Switzerland/Netherlands	1,068,451
USA	100,000
Dutch Trust Fund	1,000,000
EC	19,985,000
EU	2,000,000
OSCE	30,000
Various donors	7,744,830
World Bank	24,000,000
TOTAL	66,164,407

Annex 4

NGO Bankja Declaration

On Stability for People and Environment in South Eastern Europe

We, NGOs from the countries of South Eastern Europe (SEE) met in Bankja, Bulgaria to discuss the post-war reconstruction of our region. The basis for this declaration is the principle of the Stability Pact for South Eastern Europe, signed in Cologne, 10 June 1999: "The Stability Pact aims at strengthening countries in South Eastern Europe in their efforts to foster peace, democracy, respect for human rights and economic prosperity, in order to achieve stability in the whole region."In order to ensure the application of these principles during the reconstruction process in SEE, we are making this statement to give the voice of civil society to decision-makers.

We believe that ensuring democratic decision making in the use of reconstruction funds is vitally important, not only for the economic relationships among the Balkan countries, but also for the political and social stability in the region. It is critical that the affected communities, local authorities, NGOs, expert groups and trade unions are involved in the process and have a voice in deciding what needs to be done and how this will be accomplished. There is a need for dialogue among the countries to ensure that the international financial institutions work in a clear and transparent manner, adhering to their own policies to make informed decisions guided by the rights and opinions of civil society.

We are aware that the international financial institutions are preparing for significant investment in the region. Now we need to ensure that ideas of civil society and democracy building are integral parts of the envisioned economic development, along with the respect for human rights and environment.

Public participation and transparency

With this commitment, we call upon donors and investors to implement the principles of the UN ECE Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters (Aarhus Convention) for the projects that are funded by the international financial institutions. The principles of the Aarhus Convention should be mandatory for all investments in the framework of the Stability Pact.

Detailed information about the investments must be available to the public prior to project approval. During project preparation, environmental impact assessment process should be ensured, and the principles of the Espoo convention should be applied for projects with transboundary impacts. The international financial institutions should also promote the use of Strategic Environmental Assessment on their reconstruction plans and should be in compliance with all international conventions related to the environment. The public should have access to independent monitoring and evaluation during project implementation.

>Immediate needs arising from the conflict

We recognize the urgent need to react in order to mitigate the most severe impacts of the recent conflict. Besides the well-known problems linked to refugees and destroyed houses and other buildings, we identify a number of areas that need quick response. Clearing of the land mines and remains of cluster bombs is important for the sake of local populations to increase their safety and enable them to use their land for agricultural production. The international donor program should include an urgent cleanup and decontamination of highly affected industrial sites by the direct war destruction, as well as hazardous waste sites containing military materials, unused and expired medicines, and other substances. The areas of refugee campsites also need to be rehabilitated. Reconstruction of destroyed infrastructure (i.e. bridges on the Danube) is a high priority.

There is a need monitoring environmental impacts of the war. NATO should release to the public their maps about the use of weapons containing depleted uranium in the region and all possible measures should be made to assess and mitigate their impact. The basic energy needs of the people in the countries should be secured as part of the necessary humanitarian aid, regardless of the political systems in their countries.

Investment

The international financial institution and donors should focus on projects that benefit the widest possible segments of societies and ensure that the people's food and water supply, mobility, access to energy sources, social and health services and other basic needs are supported despite their fragile economic condition. Specifically, we recommend the following:

Economic tools. In order to stimulate the development of the local production, special emphasis should be on the micro credit lines for small-scale industry and services. The international financial institutions should not promote practices that discriminate against local industry, such as tax and legal exemptions for foreign investors. Structural adjustment lending operation should avoid negative impacts on the social, education and healthcare services.

Transport. There is an immediate need for road and bridge reconstruction for those settlements that are isolated from the existing transport networks. Project cost-benefit analysis should internalise social and environmental externalities usually omitted from such analyses. While the emphasis should be on the rehabilitation and modernization of existing rail lines, the construction of new lines is necessary in some of the countries of the region. They can provide the international linkages needed for the completion of Pan-European Transport Corridors. These rail linkages are enhanced if they are capable of providing combined transport possibilities for freight. The investment in these transport corridors with rail connections would serve the double function of promoting the Trans-European transport networks as well as providing a tool for stabilizing the region, considering the social and environmental benefits of railway over highway The existing primary and secondary road networks in the region need significant investment to maintain them and bring them up to an acceptable level of quality and safety. No highway construction can be justified as a priority for SEE countries unless the primary and secondary road networks are in good condition and the budgets of the respective countries can accommodate such investments without debt financing.

We support rebuilding the damaged airports in the SEE region as well as the improvements for flight safety. However, we do not regard the construction of new airports and the expansion of existing airports justified. There are many projects that would bring higher benefits to the people and greater social stability than airport expansion.

EnergyThere is a clear need to rehabilitate the existing energy production and transmission capacity. There also is an opportunity for creating a more decentralized energy production. For example, small-scale renewables can be introduced especially in areas not connected to the grid. The international financial institutions should increase their involvement in the district heating rehabilitation and the use of combined heat and power plants.

As the energy intensity in the region is several times higher than in the OECD countries, the highest priority must be given to energy efficiency and energy savings measures. Energy efficiency improvement in the industry can by stimulated by the development of the Energy Service Companies. We also recommend setting up special funds for extensive programs on public building and house insulation and other energy efficiency improvements.

The EU and other donors should establish a decommissioning fund to enhance closure of nuclear power plants in the region. This fund is especially needed to ensure the early closure of Kozloduy units 1-4. The international financial institutions and the donor governments should not support construction of any new nuclear facilities or life extension of existing plants.

We are concerned about the environmental impacts of the newly proposed oil pipelines in the region. We believe that international financial institutions should not finance construction of new oil pipelines or oil terminals but rather rehabilitate and maintain existing facilities.

Natural water resources.It is important toprovide financial support to protect water resources and restore the wetland areas. The first phase of reconstruction needs to address projects to eliminate existing pollution sources that are posing hazards for freshwater reserves. Improved water services and establishment of proper water-consumption measurements are necessary for efficiency of water-works. The investment should also include wastewater treatment plants.

Waste.Establishment of an efficient regulatory framework for hazardous waste management is necessary. The donor community should fund efforts to identify and ensure proper storage of hazardous waste that is posing a hazard for people and their environment. Waste reduction, reuse, and recycling plans for municipal waste should be initiated to minimize the waste problem.

Agriculture.>Reduction of unemployment should be promoted by providing support to small private farms. It is necessary to open new credit lines with small interest on a long-term basis, along with micro-credit plans for small farms and small-scale food processing enterprises. Legal and economic measures should be established to ensure their competitiveness and enhance their opportunities for success.

Nature Protection.In order to prevent land sliding and soil erosion in countries of the region, it is necessary to commit resources to reforestation and forest protection. Prohibiting timber traffic by monitoring and instituting efficient law enforcement should be supported in structural reforms. Development of partnership and co-operation among neighbouring countries should be promoted by establishing bilateral and multilateral natural parks. Donors should provide grant support for biodiversity preservation.

Support of civic society building

In order to further enhance the democracy building, we call on the donor community to set up grant programs for NGOs to conduct public awareness programs, especially on human rights monitoring, public involvement in preparation of legislation, environmental monitoring, and training programs on environmental management. We also recommend promoting traditional culture, multi-cultural understanding and tolerance, and co-operation among NGOs in the region, through summer schools and established curricula. There is also a need to support school programs, especially on the environment, human rights and application of legislation. Educating children about the rights, privileges, and responsibilities of participation in a free and open society is one of the best possible investments.

In conclusion, we are grateful for the concern and assistance of citizens throughout the world during the bitter conflict in our region. As we continue the rebuilding, we urge the financial institutions and donors to listen to our concerns, consider our experience, and capitalise on our knowledge of the area. It is our privilege - and our right- to have a voice in the decisions that affect our families and our countries.

1. This paper was prepared by Ivona Malbasic, CEE Bankwatch Network

2. Stability Pact for South Eastern Europe. Cologne, June 10 1999.

3. The road to stability and prosperity in South Eastern Europe: a regional strategy paper. Washington DC: World Bank. 2000.

4. A new era in South Eastern Europe- Grasping the opportunity to promote economic growth with equity. Oxford: Oxfam briefing. 2000.

5. Lessons from rebuilding South Eastern Europe, the Bosnia and Herzegovina experience. Washington DC: World Bank. 1999.

6. Microfinacing as a tool for stability: Issue paper on Post-Conflict Rehabilitation. CEE Bankwatch Network. Praha: OSCE Forum, 2000.

7. Regional Environmental Reconstruction Program for South Eastern Europe. Szentendre: Regional Environmental Center for Central and Eastern Europe REC). 2000.

8. The Kosovo conflict: consequences for the environment human settlements. Switzerland: UNEP/UNCHS, 1999.

9. Institutional sites mission report. BTF, 1999.

10. Skrbic, B. et al.Environmental Pollution of the soil in industrial sites. Regional Conference on Environment and Health. Szeged: May 2000.

11. The Stability Pact Watch