SERBIA: THE COST OF KOSOVO

UNCLAS SECTION 01 OF 02 BELGRADE 001473 SIPDIS SIPDIS DOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH E.O. 12958: N/A TAGS: EFIN ECON EINV SR SUBJECT: SERBIA: THE COST OF KOSOVO Summary -------------- ¶1. Serbian government spending in Kosovo in support of Kosovo-Serbs is substantial, but not unsustainable. There are several avenues through which money is flowing from Serbia to Kosovo. Serbia services foreign debt attributable to Kosovo, NIP expenditures, and direct and indirect budget expenditures regarding Kosovo. Added together, Serbia's annual spending on Kosovo for 2007 will reach nearly $400 million or 3.5% of Serbia's $11 billion budget expenditures. Regardless of the status of Kosovo, the Serbian government's spending on Kosovo is likely to continue at similar levels. End Summary. Kosovo Related Debt Approximately $36 Million Annually -------------- -------------- ¶2. According to the National Bank of Serbia, the total foreign debt related to Kosovo on August 31, 2007 was $1.2 billion. The cost of servicing this debt is $36 million annually. The bulk of this debt - 85% - is owed to the World Bank and to Paris Club creditors, originating from loans for infrastructure projects in the 1970's and 1980's. Kosovo-related debt decreased from $1.7 billion in 2001 with Paris Club and London Club write-offs and regular servicing by Serbia. Deputy Prime Minister Djelic asked the World Bank during the October 20-21 Bank meetings in Washington to credit Serbia for the debt service it had paid on Kosovo related loans, but Minister for Kosovo Samardzic said later that any Kosovo debt issues would have to be resolved as part of an overall Kosovo status agreement. Direct Budget Expenditures for Kosovo $113.2 Million -------------- -------------- ¶3. Kosovo expenditures in the 2007 Serbian budget include: -- Ministry for Kosovo expenditures of $65 million - including wages, social allowances, transportation costs, subsidies to NGOs, transfers to municipalities, maintenance, etc. -- Fund for Kosovo expenditures of $3.8 million. -- Direct transfers to five districts in Kosovo with a total value of $20.4 million. -- Coordination Center for Kosovo expenditures valued at $24 million. Added together, the direct budget cost of Kosovo in 2007 is $113.2 million. 2007 NIP Kosovo Expenditures $11.7 Million -------------- ¶4. The Serbian Government also allocated an additional $11.7 million from the National Investment Plan (NIP) for infrastructure investments in Kosovo, such as construction of small medical centers, apartment buildings, reconstruction of schools, improvement of roads, etc. Indirect Budget Expenditures over $225 Million -------------- - ¶5. Indirect budget expenditures linked to Kosovo are hidden in the budget of various ministries - e.g. the Education Ministry wage bill includes salaries of teachers in Kosovo, the Health Ministry wage bill includes salaries of health workers in Kosovo. Dusan Prorokovic, State Secretary in the Ministry for Kosovo told UNMIK's head of office in Belgrade that an estimated 45,000 people from Kosovo received salaries from Serbia's budget. He also used this figure in public comments made to Radio Free Europe on October 24. According to Prorokovic, this number includes two categories of citizens: those employed in companies and institutions funded by Belgrade in Kosovo, and unemployed persons in Kosovo receiving social allowances or IDPs outside Kosovo who do not have additional income. Approximately 10,000 people live and work in Kosovo in Belgrade-funded companies and institutions. These workers receive double the average Serbian public sector wage, thus earning on average $1,100 monthly. According to refugee affairs office sources, there are 12,000 persons in Kosovo receiving monthly social allowances of $150 and an additional 12,000 persons living outside Kosovo receiving monthly allowances of $85. According to various sources, including Nenad Popovic from the Coordination Center, there are also 10,000 persons who used to work in large public companies in Kosovo who continue to receive full salaries (on average $550) through their companies. Added together, the total wage bill for Kosovo-Serbs is approximately $228 million annually. ¶6. Although wages are by far the largest expenditure, there are also other expenses paid from the Serbian budget such as: tuition BELGRADE 00001473 002 OF 002 fees, room and board for university students, medicines, hospital supplies, scientific research projects, transportation costs, office supplies for state administration, etc. In addition, there are almost 30,000 Kosovo-Serb pensioners with an annual pension cost of approximately $72 million. It is impossible to determine an exact figure since data are not publicly available and cannot be confirmed, according to Dusan Janjic Coordinator of the Forum for Ethnic Relations. Comment -------------- ¶7. Kosovo's total annual cost to Serbia's budget of nearly $400 million, or more than one million dollars per day, is a substantial sum. A Kosovo status settlement, even one where Belgrade and Pristina reach an agreement, is unlikely to alter Belgrade's spending significantly. An agreement which distributes Kosovo-related debt service to Pristina, or which targets international assistance to cover this debt, would reduce Serbian government Kosovo costs by just 10%. Spending on salaries for Kosovo-Serbs and direct support to Kosovo-Serb municipalities for operation and infrastructure is likely to continue, whether inside the framework of a status agreement or, as today, outside of a formal structure. The salaries, pensions, and social payments are likely to continue, but would decrease over time, as the number of pensioners decreases. Lack of political will may also prevent this cost to decrease significantly, since few politicians would advocate reducing payments to Kosovo-Serbs. Such a move would be politically unpopular since it would also undercut Serbia's arguments that Kosovo is an "integral part" of Serbia, as outlined in the 2006 Constitution. While $400 million is a significant cost to Serbia's budget, it is not so large that it is likely to become a political or economic issue in the near future. Given the above, the argument that Serbia would be "better off economically" without Kosovo, is unconvincing here. End Comment. BRUSH