Identifier
Created
Classification
Origin
06PRISTINA1055
2006-12-09 13:25:00
CONFIDENTIAL
Embassy Pristina
Cable title:  

KOSOVO: POST-STATUS ECONOMIC TRANSITION

Tags:  ECON PGOV YI 
pdf how-to read a cable
VZCZCXYZ0001
PP RUEHWEB

DE RUEHPS #1055/01 3431325
ZNY CCCCC ZZH
P 091325Z DEC 06
FM USOFFICE PRISTINA
TO RUEHC/SECSTATE WASHDC PRIORITY 6803
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEHNSC/NSC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
C O N F I D E N T I A L PRISTINA 001055 

SIPDIS

SIPDIS

DEPT FOR EUR/SCE, EB/IFD/OIA, EB/CBA, EUR/ACE
DEPT PLEASE PASS TO OPIC
AID FOR EE/ECA, EE/DGSR
NSC FOR BRAUN
USDOC FOR CEEBIC, 4232/ITA/MAC/EUR/OEERIS/CEED/SSAVICH
TREASURY FOR EUROPE AND EURASIA
FRANKFURT FOR TREASURY E. MEYER

E.O. 12958: DECL: 12/09/2016
TAGS: ECON PGOV YI
SUBJECT: KOSOVO: POST-STATUS ECONOMIC TRANSITION
CHALLENGES LOOM FOR KOSOVO

REF: PRISTINA 998

Classified By: COM TINA KAIDANOW FOR REASONS 1.4 (b) and (d).

C O N F I D E N T I A L PRISTINA 001055

SIPDIS

SIPDIS

DEPT FOR EUR/SCE, EB/IFD/OIA, EB/CBA, EUR/ACE
DEPT PLEASE PASS TO OPIC
AID FOR EE/ECA, EE/DGSR
NSC FOR BRAUN
USDOC FOR CEEBIC, 4232/ITA/MAC/EUR/OEERIS/CEED/SSAVICH
TREASURY FOR EUROPE AND EURASIA
FRANKFURT FOR TREASURY E. MEYER

E.O. 12958: DECL: 12/09/2016
TAGS: ECON PGOV YI
SUBJECT: KOSOVO: POST-STATUS ECONOMIC TRANSITION
CHALLENGES LOOM FOR KOSOVO

REF: PRISTINA 998

Classified By: COM TINA KAIDANOW FOR REASONS 1.4 (b) and (d).


1. (C) Summary. The Provisional Institutions of
Self-Government and the international community have yet to
develop serious contingency plans for the economic challenges
confronting Kosovo immediately after the resolution of final
status. The PISG has allocated only 6.5 million euros for
post-status contingency costs, while the USAID-funded
macroeconomic team in Kosovo's Ministry of Finance estimates
that the budgetary impact could be 50-75 million euros for
the first year after status, which does not include Kosovo,s
debt servicing obligations. In addition, there have been no
serious discussions between the PISG and the international
community about developing Kosovo,s monetary policy, a
full-fledged central bank, or whether the euro will remain
the national currency. A team of experts from the U.S.
Department of Treasury will visit Kosovo in December to
assess these issues in cooperation with USAID, but the
international community, including the IMF, will likely have
to take a more active role to prepare Kosovo for the period
following the resolution of final status. End Summary.

KOSOVO LACKS POST STATUS BUDGETARY CONTINGENCY PLANNING...


2. (SBU) The Provisional Institutions of Self-Government
(PISG) have yet to develop serious contingency plans for the
budgetary challenges confronting Kosovo immediately after
resolution of final status. The recently approved 2007
Kosovo Consolidated Budget (KCB) has allocated only 6.5
million euros for post-status contingency costs, and does not
include future debt service obligations. The USAID-funded
macroeconomic team in Kosovo's Ministry of Finance has
developed a model that analyzes Kosovo,s immediate
post-status transition costs over a three-year time period.
Using relatively modest assumptions, it estimates that the
budgetary impact could be approximately 50-75 million euros

for the first year after status. Kosovo,s debt service
obligations, if the full 800 million euro amount is assumed
from Serbia, could total 60 million euros beginning in 2008,
although international donors are likely to repay part of the
debt on Kosovo's behalf. (Note: Most of Kosovo's debt is to
the World Bank; such debt cannot be forgiven but could
conceiveably be rescheduled to lower the payments over time.)


3. (C) According to USAID,s budgetary model, Kosovo,s 50-75
million euro increased budgetary expenditures for the first
year after resolution of final status would be the result of
creating new ministries (foreign affairs, European
integration) and support for a domestic security force,
taking over the remaining administrative and executive
competencies from UNMIK, implementing decentralization, and
providing for essential public services, such as passport
issuance and a civil registry. The model does not estimate
donor support, debt rescheduling or debt relief. It projects
that Kosovo could need over 250 million euros over a three
year period after the resolution of final status for the new
government expenditures, debt service and a budget deficit
due to shrinking cash reserves (and the economic impact of
UNMIK's departure) that the KCB alone would be unable to
cover.

...AND ALSO PLANS FOR KOSOVO,S MONETARY POLICY



4. (C) In addition, there have been no serious discussions
among the PISG, International Monetary Fund (IMF),and the
European Union (EU) about developing Kosovo,s monetary
policy, a full-fledged central bank, or whether the euro will
remain the national currency after the resolution of final
status. It was anticipated that prior to the resolution of
final status, the IMF and EU would help the PISG analyze and
plan for the development of Kosovo,s monetary policy and
financial infrastructure, or at least lead donor coordination
efforts to discuss the establishment of a full-fledged
central bank, securities market, and the instruments to help
assess risk and borrow money from banks and international
financial institutions. One issue of particular concern is
that the EU has not fully engaged the PISG on whether Kosovo
would retain use of the euro after the resolution of finalE

status.

USG TO ASSESS KOSOVO,S POST STATUS TRANSITION NEEDS


5. (SBU) In response to USOP,s concerns regarding the lack
of post-status economic contingency planning, the U.S.
Treasury Department will conduct an assessment in Kosovo
December 4-15, in cooperation with USAID, to see where USG
assistance might be provided in the following areas: budget
policy, tax administration, central bank policy (including
monetary policy),debt policy, and financial enforcement.
Post believes that coordinated assistance from U.S. Treasury
and USAID in these areas can help the PISG prepare the
contingency plans and policies it will need once final status
is determined. USG assistance can also help Kosovo assume
responsibilities in these areas where the PISG currently
lacks the capacity and experience.

COMMENT


6. (SBU) Kosovo will need significant support from the
international community to get through a difficult economic
transition period with the loss of UNMIK,s economic and
administrative contributions (reftel). Treasury's assessment
and possible technical assistance, in coordination with
USAID,s macroeconomic policy programs, will help the PISG
understand and prepare for the economic transition challenges
that lie ahead after the resolution of final status.
However, the international community here should also do more
now to prepare and assist Kosovo; Department may wish to
weigh in with IMF to underscore the importance of transition
planning in this critical period, as well as tolerance and
understanding of Kosovo's budgetary needs in assuming new
competencies from UNMIK and implementing the provisions of
the Ahtisaari settlement. End Comment.


7. (U) USOP does not/not clear this message for release to
UN Special Envoy for Kosovo Martti Ahtisaari.

KAIDANOW